The Importance of Value Engineering and Obsolescence Management

Published Date

April 5, 2023

Read

5 minutes

Written By

ACL Digital

Value Engineering (VE) was first developed during World War II at General Electric and has since become widely used in various industries to optimize initial and long-term investments. The principles are applied to new product development across multiple domains and in the commercial engineering of large IT and digital transformation programs. The fundamental premise of VE in engineering is to prioritize the primary functions of a product or service over its auxiliary tasks.

Manufacturing companies must embrace continuous innovation in the rapidly shrinking product lifecycles and the need for cost-effectiveness. It involves dealing with rising costs and thus requires adopting a methodology that optimizes R&D spending. In addition, delivering localized products is a necessity when targeting emerging markets.

What is Value Engineering?

Value Engineering (VE) is a systematic strategy focused on achieving the essential functions of a product, process, or system at the lowest possible cost while still upholding its quality, reliability, performance, and safety. This methodology requires replacing methods and materials with less expensive substitutes without compromising functionality. The focus is on the functions performed by various components and materials, rather than their physical properties. Value Engineering sometimes is also referred to as Value Analysis.
Value engineering encompasses two essential components:

Function: The performance abilities of a product
Cost: The funds needed to achieve the function

A product’s function is the specific task it was created to perform, while its cost refers to the expenses incurred during its entire life cycle. The function-to-cost ratio determines a product's value, which can be enhanced by improving its function or reducing its cost. Within the context of value engineering, cost analysis covers expenses related to production, design, maintenance, and replacement.

Three Stages of Value Engineering

Value engineering can be divided into three primary stages:

Planning

Gathering product information, comprehending its primary objectives, and identifying its functionality.

Design

Creating alternative methods to incorporate into the product that enhances its value without compromising its function and quality.

Methodology

Streamlining the action list to a minimum, developing feasible alternative plans, and allocating costs accordingly.

Benefits of Value Engineering

Value engineering provides several benefits to an organization, such as:

Reducing O&M (Operation and Maintenance) costs
Improving quality management
Enhancing resource efficiency
Streamlining procedures
Minimizing paperwork
Cutting down staff costs
Boosting procedural efficiency
Optimizing construction expenditures
Developing value attitudes in the staff
Gaining a competitive edge in the marketplace

What is Obsolescence Management?

Obsolescence occurs when a manufacturer no longer produces or supports a component or technology. It can result in significant delays in production, increased costs, and quality issues. Obsolescence has several reasons, including technological advances, market demand shifts, and the availability of newer and more efficient alternatives.

End-of-Life (EOL) and Product Change Notifications (PCNs) notifications are critical phrases related to semiconductor obsolescence. PCNs are notifications manufacturers issue to notify customers about modifications to a semiconductor product’s design, production, or specifications.

Obsolescence management involves a range of actions that can help mitigate risks associated with the unavailability of a component or product. It is a critical strategy for large businesses, allowing manufacturers to identify life cycle risks and their impacts before they become costly. It enables companies to maintain business continuity throughout the product life cycle.

Why Obsolescence Management?

By implementing a robust Obsolescence Management plan, businesses can prevent costly interruptions to their product launches, eliminate the need for redesigning, and effectively manage the product lifecycle. It can result in significant cost savings running into millions of dollars.

Various factors can cause component obsolescence, including technological advancements, government regulation changes, and suppliers' mergers and acquisitions.

Obsolescence Management: Minimizing Risks and Optimizing Profitability

Manufacturers must keep up with the rapid changes in product design that aim to enhance performance, speed, and functionality. This rush to adopt the latest innovations presents a significant challenge. Furthermore, even products with expected long-life cycles can lead to profit loss due to unexpected obsolescence.

The end of a product's life occurs when it is no longer necessary. Manufacturers phase out their older portfolios as new models enter the market. Electronic component obsolescence affects various industries, including aerospace and defense, automobile manufacturing, assembly lines, and medical devices.

Comprehending Obsolescence and End of Life - Distinction between Need and Use

When a product or its components are no longer necessary, they become obsolete. Older components are often replaced with more efficient and cost-effective alternatives as technology advances. It is usually driven by supply and demand, and products can quickly become obsolete when demand decreases. The electronics industry is particularly affected by rapid obsolescence due to the constant evolution of technology. Even when used as part of more complex products such as navigation systems, radars, and cars, electronic components have a shorter lifespan than the products they enhance due to the fast pace of technological advancements.

ACL Digital offers a service called Value Engineering that can assist in identifying areas of high costs and eliminating them. The VE framework, which forms the core of the service, utilizes creative problem-solving to promote the development of cost-effective, value-added solutions by interdisciplinary teams. This approach fosters comparable functionality at a lower cost, improving product profitability and increasing margins. Besides providing cost savings, the consulting platform for value engineering can accelerate technology adoption, offering time-to-market benefits. Overall, value engineering’s differentiators can help manufacturing companies stay competitive in the current market.