1. 1 Chapter 12 Purchasing Tools and Techniques IDIS 424 Spring 2004

2. Standard ANSI Process Flow Chart Symbols Operation Transport Storage Decision Inspection/ Approval Delay

3. ANSI Process Flow Chart: Stores Requisition Process User Completes Requisition Wait in Internal Mail Deliver to Stores Wait in Stores In-Box Clerk Enters Order In Stock? Notify User N Y Pick Order File Requisition Check Order Deliver to User

4. Process Flow Charting - Considerations Document the process as it IS, not as it’s supposed to be Scope - how much of the process do you want to look at? Detail - how finely do you want to break down the process?

5. Process Flow Charting - Considerations Additional dimensions may be included in a flow chart: Information flows Time element Operations, inspections, delays, transports Average and range (or maximum) Distance moved Resources required Capacity

6. Process Flow Chart: Stores Requisition User Completes Requisition Wait in Internal Mail ave: 2 hrs (0-4 hrs) Deliver to Stores ave: 1 hr (0.5-1.5 hrs) Wait in Stores In-Box ave: 1 hr (0-2 hrs) Clerk Enters Order In Stock? Notify User N Y Pick Order File Requisition (0.1 hrs) Check Order (0.1 hrs) Deliver to User ave: 2 hrs (1-3 hrs) (0.1 hrs) ave: 0.4 hrs (0.2 - 1.5 hrs)

7. Process Flow Charting - Benefits Gain a clear understanding of how the process actually works Capacities Cycle times Highlight potential improvement opportunities Unnecessary steps Redundant steps Inefficient sequencing of steps Identification of bottlenecks

8. Value Analysis What is value analysis? The organized and systematic study of every element of cost in a part, material, process, or service to make certain it fulfills its function for the customer at the lowest total cost. It employs techniques which identify the functionality the user wants from the part, material, process or service Value = Function/Cost Function is what a part, material, process, or service does (noun and a verb)

9. Value Analysis What is value analysis? VA is a continuous improvement technique--it is not product or service cheapening!! VA workshops and the VA process are a combination of group problem solving, project management, process redesign, and continuous improvement efforts Applies to manufacturing and non manufacturing organizations Value analysis requires inter and intra organizational integration!!

10. Value Analysis Value Analysis Workshop Steps Information Phase Information Phase Speculative Phase Speculative Phase Analytical Phase Analytical Phase Execution Phase Execution Phase Conclusion Phase Conclusion Phase

11. Value Analysis Information Phase Primary focus: Identify existing parts, materials, processes, or services to study Large total dollars/high unit cost (20/80 rule) Known problems Complex in design or scope

12. Value Analysis Information Phase (continued) Primary focus: Identify existing parts, materials, processes, or services to study Outdated design No longer competitive/does not satisfy customer needs Overly customized Involves many operations Excessive movement or handling Long lead times

13. Value Analysis Information Phase (continued) Put together the right VA group Gather data Establish preliminary improvement targets Identify the function of the part, material, process, or service under study Primary function Any secondary functions

14. Value Analysis Speculative Phase “What if” thinking in a search for what will meet our requirements Brainstorming / wide open thinking are critical Ask the right questions for determining value in a product or service--- Eureka!!

15. Value Analysis Speculative Phase (continued) Questions for determining value in a part, material, process, or service-- Does its use contribute value to our customers (internal or external)? Is its cost proportionate to its usefulness? Does it need all its features, parts, packaging, or steps? Is there anything better available for the intended use?

16. Value Analysis Speculative Phase (continued) Questions for determining value in a part, material, process, or service-- Can it be produced by a lower total cost method? Can a standard application be found that accomplishes the function at a lower total cost? Do material, labor, overhead, and reasonable profit equal its cost?

17. Speculative Phase (continued) Questions for determining value in a part, material, process, or service-- Can another dependable supplier provide it for less? Is anyone buying it for less? What affect will any changes have on our customers? Does it have other functionality to the customer? Value Analysis

18. Analytic Phase Perform cost/benefit analysis on each idea Assess affect on internal and external customers Assess the reality of any changes Review improvement targets

19. Value Analysis Execution Phase VA group/team approach should foster buy- in Develop implementation plan Break down changes across functional areas Execute changes Note time of changes to assess effect

20. Value Analysis Conclusion Phase Verify the success of changes Document and report savings!!! Put all files back in order Disband or assume a new VA challenge Standing VA workshops versus ad hoc efforts Transfer learning throughout the organization

21. Value Analysis Who is responsible for what? Management Defines value analysis goals Ensures business-wide cooperation Establishes priorities Develops ROI targets Coordinates with other programs Provides resource support

22. Value Analysis Who is responsible for what? Purchasing Searches for new materials, technologies, and suppliers Projects market trends Provides cost data and comparisons Outlines company VA goals to suppliers Secures supplier involvement Trains suppliers in VA techniques Coordinates the process

23. Value Analysis Who is responsible for what? Suppliers Reviews customer specifications, including cost, quality, and lead-time requirements Submits ideas on materials, components, and processes Provides information on changing technical developments Works with buyer to identify cost drivers Perform VA

24. Value Analysis Who is responsible for what? Marketing Studies the effects of changes on customers and sales Secures customer involvement Identifies customer requirements Contributes competitive market data Defines optimum price range

25. Value Analysis Who is responsible for what? Design Engineering Defines function Sets quality and engineering standards Reviews alternate specifications, material,and processes Checks the effect of changes on other parts, systems, or processes

26. Value Analysis Who is responsible for what? Operations Provides data on cost and productivity Defines equipment needs Analyzes proposed changes from an operations standpoint Industrial Engineering Performs studies Evaluates material handling and flow, layout, and processes

27. Value Analysis Who is responsible for what? Other Quality control Maintenance Traffic/transportation Cost accounting External customers

28. Value Analysis Motivating suppliers to participate Propose to share cost savings Invite suppliers to VA meetings Include VA sheets with requests for proposals or quotes Conduct supplier VA sessions How else can we motivate suppliers to participate?

29. Value Analysis Keeping VA alive-- Track hard results Recognize and reward VA efforts across the organization Lobby displays Publicity and reports Offer VA training to suppliers

30. Value Analysis Group discussion: What are some specific value analysis opportunities that companies might pursue?

31. Summary Value analysis is a powerful approach for improving parts, materials, processes, or services The VA process requires involvement of internal and external participants VA is a systematic process Track and report benefits and gains closely