Value builds Customer Loyalty
and Profits.

Value is at the center of economic activity. Everyone -- business or consumer -- wants to get the greatest value they can for their hard earned money. Value is not always tangible, like a reliable schedule, a flashy car or a good meal. In some circumstances, it might include a "square deal" or "quick and easy."

Value is defined as
the lowest cost
of reliably providing
the required functions
at the desired time and place.

Value Analysis provides a structured methodology to identify elements of value. It is also quantifies the cost of providing that value. Originally, the focus of VA was cost reduction -- reducing the cost of providing a given set of product functions. Today, the same methodology is used to meet target costs for products and services -- costs that are developed from the prices customers are willing to pay in the marketplace and the profit expectations of owners and Wall Street.

Customer Value

Products and services must satisfy a customer need in order to succeed. Many excellent product / service designs have languished in the marketplace or failed because the designers and marketers either did not adequately define the elements of customer value or did not market the specific elements of value of their product / service.

Information of customer values and preferences can be obtained from a variety of sources

• Customer surveys
• Focus groups
• Service / complaint data
• Warranty data
• Market research

Data from all sources needs to be developed into a concise set of customer requirements for the subject product or service. Since there are various customers -- the user, the purchaser, the distributor, and in B2B, the designer, a multi-functional team including marketing, design, customer contact, and service personnel (perhaps also customers) is frequently used to develop a consensus set of requirements.

VA - Function

Value Analysis (VA) provides a framework for evaluating the values customers place on products and services.

• Use value -- functions and services provided
• Esteem value -- desirability of ownership

Quality Function Deployment (QFD)

Quality Function Deployment (QFD) provides a structured approach to determine the product and service specifications needed to satisfy key customer requirements. The customer requirements and their relative importance are listed along the left hand side of the QFD matrix (figure at right). Key product or service characteristics are listed along the top of the matrix. A multi-functional team evaluates the effect of each product / service function on satisfying each of the customer requirements. The relative importance of each requirements is used to calculate a weighted impact. The totals of each row assesses how well the customer requirements are being met. The highest column totals determine the most important product or service performance requirements including Critical to Quality specifications (CTQs).

Competition

Improving market share requires assessment of competitive or substitute products and services. Data on specific competitive products / services can be gathered from many sources including

• Purchase and evaluation of specific products / services
• Market research
• Market surveys
• Trade literature / trade shows
• Web searches

The QFD matrix can be used to compare these competitive products and services. The performance of competitors against the customer requirements (preferable assessed by customers) can be shown in graphical or tabular form to the right of the matrix. The requirements where there is a Value Gap to the competition can be targeted for improvement. The performance of competitive products / services in the Critical-To-Quality characteristics can be shown in a graphical or tabular form below the matrix. Target improvement values for each of the CTQs are determined so that overall performance of the new product / service will exceed that of the competition.

Business Value

Depending on the general business strategy

• Low cost,
• Differentiation, or
• Focus (segmentation),

Improvements in CTQ performance need to be tackled at their source in the "Value Chain." Out-sourcing leads to dependence on suppliers meeting the performance required of their products and services. Six Sigma performance from suppliers and partners -- no rework -- reduces costs and increases customer satisfaction.

Improvement efforts have more impact when focused on the cost drivers for the business or the industry. Activity-Based Costing can help surface cost drivers at the product and process level.

Activity-Based Costing (ABC)

Cost accounting systems usually collect direct materials and labor costs for goods and services. Indirect and overhead costs are usually allocated. The accuracy of data collection and allocation is frequently questioned. Activity-Based Costing can be used to assign costs to the business cost drivers, specific products and services, and customers. This permits easier identification of cost reduction opportunities.

Many businesses have not used Activity-Based Costing due to the very high cost of making changes to their financial systems. Undertaking this daunting task is not necessary . Instead, a one-time workplace survey can assign costs to cost drivers, processes, products, and customers with a minimum of effort and cost. The statistical survey identifies low value-added activities, high rework areas, and other improvement opportunities. Workshops develop action plans to improve quality and productivity and reduce costs.