Value Engineering Holistic Costing Approach
Value Engineering Project
This is an example of what can go wrong "IF" the TOTAL Supply Chain is not analysed :
Steel Side Panels Gauge Reduction Project
Side Panel Gauge Cost Per Ton Yield
Current 0.65mm £230 700
New 0.60mm £230 756
On usage of 1,600,000 panels original purchase cost = £526,000
The increased yield of 8% on sides per ton equated to a saving of £42,000?
However, a full Supply Chain Analysis identified Distribution and Service Call Rate Issues :
The Hidden Costs are revealed :
- Stacking Damage : Products were stacked three high , now only two high : 2%
- Lost Warehouse and Vehicle Utilisation : 3%
- Re-training of Fork-Lift Truck drivers : 0.5%
- Increased Customer dissatisfaction : Dented Products : ?
- Increased Service Call Rates and on-site Engineer visits : 12%
- Increase rework and returns : 9%
Cost Analysis :- 26.5% increase in post manufacture costs
Overall Total Cost :- 26.5% - 8% = 16.5% of £526,000 , or £86,790 loss
All through lack of total Supply Chain Analysis