Most PLM efforts are essentially value engineering initiatives. Simply put, value engineering seeks to enhance value for the customer through better features, reduced costs, or both. Most organizations view PLM as disjointed, parallel processes of product redesign (for better features and specifications) and sourcing (for reduced costs) instead of an integrated program that synergizes engineering and sourcing initiatives.
“Value redesign” programs that integrate design upgrades, development, testing and sourcing can turbo-charge value engineering, and with it, an organization’s competitiveness. Such projects have generated up to 25-percent cost optimization benefits in the medium to long term within the power generation and aerospace industries.
‘Traditional’ Value Engineering Delivers Limited Gains
Product sustenance is often viewed as a program with highly collaborative processes of engineering design and sourcing. This is far from the truth. Most value engineering programs are well-intentioned but suffer from limited collaboration, unsuitable technology interventions, multiple decision centers, undefined processes, and inherent industry challenges.
For example, the Oil and Gas (O&G) industry uses large numbers of parts manufactured in small quantities and customized for specific projects. O&G equipment also requires constant upgrades to meet environmental regulations, exploit new finds, and enhance uptime. The aerospace industry faces its own set of challenges in numerous new product introductions, ever-increasing demands for safety and reliability, and the need to simplify supply chains for parts fulfillment.
Interestingly, in spite of these varied challenges, value engineering programs deliver 12-percent to 15-percent cost savings, sustainable or otherwise. However, a value redesign excellence framework can deliver up to 25-percent cost savings. For a $1bn product program with 30-percent direct costs, this amounts to as much as $30m in bottom-line impact, or 3-percent additional profitability.
Value Redesign—An Integrated Approach
Value redesign frameworks are often specialized outsourcing initiatives that synergize engineering design, development and sourcing efforts. The goal is to reduce time to market, enhance features, and optimize cost, and comprises four key aspects:
• Product (re)design: In addition to the traditional approach to upgrading designs based on changing customer preferences, competing product features, and product reliability performance data, value redesign evaluates design upgrades from the perspective of existing supplier capabilities, cost-effective manufacturing, product testing procedures, and ease of providing after-market services. These additional filters help reduce the time-to-market cycle time and associated total cost of ownership (TCO).
For example, a global energy equipment manufacturer reduced time to market by 26 weeks and material costs by 45 percent through collaborative design and development for mechanical and electrical assemblies.
• Parts development: As the redesigned product passes to the development team, value redesign optimizes time-consuming, expensive testing cycles without compromising compliance requirements, analyzes performance based on historical simulations, and evaluates boundary conditions for performance.
Using highly capable technology tools and deep involvement by key suppliers expedites development. A global medical device manufacturer developed product regulatory documentation in conjunction with design upgrades, reducing time to market by 20 weeks and saving the company over $1m.
• Parts sourcing: Value redesign requires simultaneous development of a detailed supplier strategy as products are being redesigned. Using analytics for supplier segmentation gives companies a detailed view of key supplier relationships.
Supply chain risk assessment provides a view into Tier 2 and Tier 3 supplier risks, mitigating actions, and resultant strategies for building supplier capability. “Should cost” analysis is used to estimate cost contributions from factors such as labor, materials or commodities, geographic locations, and suppliers’ skill sets.
Value redesign also implements key performance measures, standard operating procedures, and a detailed governance model. A key-supplier collaboration framework is needed to provide inputs from suppliers to the design and development teams with regard to manufacturability. A transportation equipment manufacturer achieved 3-percent to 5-percent bottom-line savings through should-cost analysis, parts redesign and sourcing tactics.
• Continuous process improvement: Value redesign involves continuously improving design, development and sourcing processes and their supporting organizational and technology infrastructure. Key drivers include applying Lean Six Sigma tools, testing the effectiveness of collaboration efforts, periodically evaluating roles and responsibilities, and rewriting procedures for development and sourcing. A leading O&G company integrated its ERP and PLM systems and customized its computer-aided design (CAD) systems to gain four times more process and design efficiency.
The Future of Value Engineering Rests on Advanced, Specialized Processes and Operations
A successful value redesign program integrates many elements not previously considered part of value engineering. Such programs leverage the benefits of value chain collaboration, organizational redesign and alignment, third-party and supplier networks, and operational excellence frameworks for design, development and sourcing.
Two critical levers for deploying successful value redesign initiatives are:
1: Design for manufacturability studies that assess the ease of parts manufacturing and help to reduce the development cycle time. If the sourcing function contributes through the supplier capability matrix for existing suppliers or a new supply base, the cost and cycle time for commercializing the redesigned product can be reduced even further.
2: Material specification changes can significantly reduce the cost of parts. If these efforts are combined with development and testing cycle optimization and materials price intelligence, the cost of redesigning products can be significantly reduced.
As part of their PLM efforts, businesses aspire to continuously reduce costs and time to market. Expanded supply chains across the globe and proliferating customized products have added to the complexity of profitable PLM. Value redesign frameworks provide critical levers for addressing these challenges by eliminating organizational silos and significantly improving the results from value engineering and cost optimization efforts. The time has arrived to take a new look at the value engineering paradigm through the prism of value redesign.
Keywords: product lifecycle management, PLM, supply chain management, logistics & supply chain, continuous improvement, supplier base