The Smithsonian Air and Space Museum in Washington DC is embarking on a seven year, $900 million renovation that will see large sections of the museum closed for months at a time while wall panels and other major structures are rebuilt or replaced. In their announcement, the Smithsonian at least partially blamed the need for such extensive rebuilding on “value engineering”, claiming that the original wall panels, for example, were purposely made thinner than they should have been in order to cut costs. This statement has some basis in truth, but it unfairly mischaracterizes value engineering as simple cost cutting.
Value engineering is an engineering and design philosophy that emphasizes the value of components, materials, products, processes and design elements in the context of the purpose of the product or service. It is not specifically focused on cost reduction except in the elimination of unnecessary or unjustifiable cost that does not contribute sufficiently to the value – function, utility, durability, appearance, or whatever the customer considers to be of value.
Value engineering got its start during World War II, when certain materials were scarce. In searching for suitable substitutes, engineers found that some were actually less costly and others performed better than the original. This “value analysis” eventually became value engineering.
Engineers are always focused on finding the “best” design, materials, parts, processes, and functionality possible, within the framework of market demand and cost requirements. Often the most functional, most beautiful, or most advanced will not end up being the product that gets to the market because it is uneconomical, meaning that customers are unwilling to pay enough to make the product economically viable for the producer. Then the compromises begin. Features can be removed. Changes in materials or design could lower costs. Overall quality might be lowered – fit and finish, durability, convenience features removed, etc.
Value engineering steers these cost reduction efforts in order to preserve the important product characteristics. Think in terms of relative cost and value. If a different material is found that is ten percent cheaper but serves the same purpose, that’s a good substitution. If the cheaper material detracts from the value of the product by greater than its cost savings, it’s a bad choice. This is especially notable for any change that affects “quality”, an attribute that can have many shades of meaning.
The difficult part of this analysis, of course, is quantifying the value side of the equation. Let’s assume that a product has an expected service life of 5 years. When the customer buys this product, they expect 5 years of service and if it fails at 5 years or so, they will not be unhappy with the purchase. Now let’s look at a product being developed for this market that is built to last for 10 years through a better design or better materials. But the product costs 3 times as much to make. Will the customer be willing to pay 3 times as much for a product that lasts only twice as long? Perhaps, if marketing can convince the prospective buyer that the product is at least 3 times as “good” and therefore worth the additional cost. Otherwise, the product must be value engineered to lower the cost enough to justify whatever price they want to charge. What if they can deliver twice the product life for 50% higher cost? Or reduce the quality of materials and components to the point where the cost is the same as existing competitors but other product characteristics add value that will win over sales.
The Smithsonian’s wall panels along with mechanical, electrical, plumbing, and fire safety systems were designed (value engineered) to a life span and “The systems have exceeded their expected usefulness of 25-30 years and need to be replaced”, according to the press release. The museum opened in 1976.
Value engineering is not just cost cutting. It is focused on the value that is attributable to the cost. Value engineering should be assumed to be a part of every product design; it keeps the focus on the value that the customer is willing to pay for.
Editor’s Note:
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Dave is an independent consultant, educator and freelance writer serving both the developers and users of software and systems for manufacturers. He has performed analysis, written hundreds of articles, blogs, white papers and case studies and advised software developers on direction and focus. He is an APICS Chapter President as well as a recurring presenter and instructor and is a certified trainer in The Fresh Connection supply chain simulation. Dave can be seen in print and on-line publications and his website is www.daveturbide.com