Study on Selection and Optimization of Life Cycle Warranty Cost Driver Based on Value Engineering

YANG Hong-xiong1.2 1.School of Management, Tianjin University Tianjin 300072, China E-mail: yhx1971@gmail.com LIU Yi-liu1 1.School of Management, Tianjin University Tianjin 300072, China Leoyiliu@yahoo.com.cn SUN Chun-ling2 2.School of ManagementTianjin University of Technology Tianjin 300384, China E-mail: hyscl@263.net

AbstractBasing on research background and status quo of cost drivers selection and optimization theorythe model of warranty cost driver selection which include design phase warranty cost driver production phase warranty cost driverafter-sale service stage warranty cost driver is building in the paper with Value Engineering theory. The paper also expatiates on judgmental methods aiming at computing results and optimization methods of warranty cost drivers in different stages. The model releases from selecting pattern of warranty cost drivers rely on complex calculations and simple empirical judgment. The scientific practical warranty cost drivers management means are introduced, and they are more suitable to enterprises actual operation. Keywords Value Engineering; life cycle; warranty cost driver; selectionoptimization INTRODUCTION Its early for foreign experts to have a research on cost drivers selection and optimization theory. In 1997, Schniederjans & Garvin[1] researched into cost drivers selection by using Multiobjective Programming; in 2001, Pro. Carseten Homburg years later, OuYang
[2]

analysis, and to reduce the number of cost drivers to simplify the activity cost system and improve the models practical operability by combining the cost driver. In addition, Wu Haowen, Wang Yiping[5], Du Xiaoxu[6] had a qualitative discussion on selecting cost drive, Cen Bin[7], Liang Cangyong, Chen Jianbin[8], Deng Houping>@ selected cost driver by using Multi-objective 0-1 programming, 0-1 Fuzzy Objective Programming, Analytic Hierarchy Process (AHP) and other methods; Babad & Balachandran[10],Wang Buxi
[13,14]

Xinping,etc[11]

Xu

Ling[12],

Li

, Yu Zhe

[15]

took methods of Linear Regression

Analysis and Partial Correlation Analysis into cost driver selection model, they improved the judgment accuracy; Fang Jun, Chang Hua, Huang Kan[16] had a research on selecting and combining the cost driver. All processes of these methods for selecting and combining cost driver is complicated, so its hard for mostly managers to grasp. SELECTION MODEL OF PRODUCT WARRANTY COST DRIVER BASE ON VALUE ENGINEERING The meris of selection and optimization of warranty cost driver bases on value engineering are showed following: calculating substance cost is non-sense when the products structure changed, the original parts could be canceled or transformed thoroughly; but no matter how alterative the product structure is, product warranty of customers needs is always there, so it can take a comparison of warranty cost driver between new and old products or improved and non-improved products. A. The Definition of Every Phase Warranty Cost Driver Function in Life Cycle The definition of design phase warranty cost driver function: elements of impacting product warranty function

created a model for allocating Liyun and Zhao Jianmei

[3]

eliminated cost driver by using cost driver combination. 5 supplemented some work in the previous model of Pro. Carseten Homburg by using statistics, which made correlation analysis and hypothesis test in cost driver. At the same year, according to compare and analyze the combined substitution model which is constructed by Carseten Humburg for selecting numbers of cost drivers, Zhao Huifang, Xu Jun and Zhang Xuan
[4]

proposed to decide

weight assignment of the model by using regression

Sponsored by the National Nature Fund 70671071

978-1-4244- 7618-3 /10/$26.00 2010 IEEE

in design phase, such as product function, customers need in price, enterprise ability in resource. The definition of production phase warranty cost driver function: in order to avoid disorder in function, some product warranty inputs of time, resource, and energy are prepared in process of production. The definition of after-sale service phase warranty cost driver function: products in guarantee period, in order to

ensure normal use of customers, artificial maintenance cost (service time, service number), materials cost should be input, and cost of building, using and maintaining warranty service facilities, logistic supply, personnel training and other management payments. B. The Arrangement of Warranty Cost Driver According to those definitions mentioned above, the function system drawing is arranged as figure1:
design cost driver function of product function warranty f11 design cost driver function of customers need in price f12 design cost driver function of enterprise ability in resource f13 warranty cost driver function consumption of time f21

design phase warranty cost driver function f1

production warranty cost driver function function f2

phase

warranty cost driver

warranty cost driver function consumption of resource f22 warranty cost driver function consumption of energy f23 maintenance cost driver function of numbers f311

maintenance cost driver function f31

maintenance cost driver function of resource f312 maintenance cost driver function of time f313 payment driver function of building warranty service

after-sale service phase warranty cost driver function f3 managementc ost driver function f32

facilities f321 payment driver function of using and maintaining warranty service facilities f322 payment driver function of logistic supply f323 payment driver function of personnel training f324 payment driver function of other management payments f325

economic cost driver function f33 FIGURE1 THE FUNCTION SYSTEM DRAWING OF WARRANTY COST DRIVER C. Assessment of Warranty Cost Driver Function At first, confirming standards of warranty cost driver function, obtaining function important factor. Collecting and arranging facilities design drawing, records and summary, according to system structure, performance data and operating requirement in some certain product functions, confirming functional standards of warranty cost driver system and its subsystem; building state feature space for describing system cost driver; comprehensive analyzing function weight of every cost driver, both big and small plans for maintaining facilities, and facilities and parts for Synchronous maintaining in system, depending on every technical states and failure diagnosis to confirm function important factor corresponding to product warranty cost driver. The process is as follow: The first step, putting every score in table together, so

to show corresponding functions result.

f1 f11 f 21 f31 f311 f321 f323 f325 f1 , f2 f1  f 2  f3 f11 , f12 f11  f12  f13 f 21 , f 22 f 21  f 22  f 23 f31 , f32 f31  f32  f33 f2 , f3 f1  f 2  f3 f3 f1  f 2  f3 f13 f11  f12  f13 f 23 f 21  f 22  f 23 f33 f31  f32  f33 f313 f311  f312  f313
325

driver, confirming to consider optimal cost driver firstly, and making a support to improve the next cycle production. In the formal, Vi the value coefficient of cost driver for the number of I;Fithe function important factor of cost driver for the number of I;Cithe cost coefficient of cost driver for the number of i Vi<1, it means that the driver cost is a little high at present, and the function support is not high, or that the state or way of achieving that function is not good, and so causing the cost of achieving that function is higher than the need. Such of these drivers should be put into the scope of priority optimizing warranty cost driver, and to consider how to reduce the driver cost. Vi>1, there maybe three reasons:1, the cost is a little low at present, so that the function which it should have is not achieved, so it should be put into the scope of optimizing cost driver, and to consider how to strengthen cost driver;2, the function supported by cost driver at present exceeds the function level which it should have, it exists excess functions, it also should be put into the scope of optimizing cost driver, and to consider how to remove excess functions;3, there are some particularities in technology and economy for evaluation objects, in the premise of achieving the function, the cost is a little low, so it should not be put into the scope of optimizing cost driver. Vi=it means that the actual cost of warranty cost driver matches its function, in this state the cost driver is considered to be ideal. Basing on the logic causality, the mapping and the specificity between product function warranty system and warranty cost driver, and the predictability for warranty cost, then according to some methods, the lowest cost corresponding to every cost driver function can be solved, the deviation from cost C0; or making the function score be comparative accurate, the deviation from score fi0, base point is not needed. OPTIMIZATION OF LIFE CYCLE WARRANTY COST DRIVER BASED ON VALUE ENGINEERING Optimization of design phase warranty cost driver: basing on the score of Vi to select the object in this phase, according to using failure mode and effects analysis , that is the ratio of (FMEA), to confirm the parts name, the failure mode and the failure reason of causing the function failure, then to improve the design, avoid the failure and alleviate the consequence or to help to find the way of detecting failures. Optimization of production phase warranty cost driver:

f12 , f13 f11  f12  f13 f 22 , f 23 f 21  f 22  f 23 f32 , f33 f31  f32  f33

f311 , f312 f311  f312  f313

f312 , f313 f311  f312  f313 , f322

325

f321 f321  f322  f323  f324  f f323 f321  f322  f323  f324  f f325 f321  f322  f323  f324  f

f322 f321  f322  f323  f324  f f324 f321  f322  f323  f324  f

, f324
325

325

325

calculating corresponding functions final score. The formula is as follow:

c f11 c f21 c f31 c f311 c f313 c f321 f3c23 c f325

c f1 u f11 , f12 c f2 u f21 , f 22 c f3 u f31 , f32 c u f313 f3 u f31

f1 u f12 , f13c c f2 u f22 , f23 c f3 u f32 , f33

f1 u f13 f2 u f23 f3 u f33

c u f311 , f312 c f3 u f31 c u f321 , f322 c f3 u f32 c u f323 , f324 c f3 u f32 c u f325 f3 u f32

c u f312 f3 u f31 c u f322 f3 u f32 c u f324 f3 u f32

The benefit of this way of assigning score and calculating is to equal every function final score to its function important factor (the weight of score), no need calculating any more. Secondly, confirming constraint states according to states of design, production, major or minor repairs, solving every drivers value of actual cost corresponding to product warranty function. The product function warranty of every phase needs a certain support of cost, that is some inputs of manpower and material resources in certain techniques, its equal to every drivers value of actual cost, its easy to get by measuring in one enterprise. Finally, using Vi

Fi Ci

fic ci

the function important factor of product warranty cost driver and the cost coefficient, solving the cost coefficient of cost

basing on the score of Vi to select the object in this phase, according to analyzing the impact of every units cost driver in product function of production phase, to propose some State property function state Cost state driver better state Function well Facility and function cost are good state Function drop

advisable preventive and improvement measures in different states, so improving the facilitys reliability. State function analysis are showed in table1. general state function drop much Function and cost are matching general cost drivers enter supervising
Edition,2006,5(1),46-49 [4] Zhao Huifang, Xu Jun, Zhang XuanThe Positive and Comparative Research On Cost Driver Selection [J],East China Economic Management 2006,20(1),93-96 [5] Wu Haowen, Wang YipingThe Selection of Activity Cost Driver[J] Liaoning Economy,2005(3),80-81 [6] Du XiaoxuThe Applicability of Activity-Based Costing in Service Business and The Selection of The Driver [J] Business Economy 2007(1),29-31 [7] Cen BinResearch on the Theory and Application of Cost Driver [D] TianjinHeBei University of Technology,2004,33-45 [8] Liang Cangyong, Chen JianbinResearch on Selection Model of Cost Driver Based on AHP and 0-1 Programming [J],China Management Informationization,2008,11(1),92-94 [9] Deng Houping Research on the Control Mode of Strategic Cost Drivers [D]WuHanWuhan University of Technology2009137-147 [10] Babad Yair M.,Balachandran Bala V,Cost Driver Optimization in Activity-Based Costing[J].The Accounting Review,1993,68(3):563-575 [11] Wang Xinping, etc, Study on The Homogeneity of Cost Driver Quantity [J]. The Journal of Quantitative & Technical

TABLE 1 STATE FUNCTIONANALYSIS OF PRODUCT AND CORRESPONDING COST DRIVER failure state all function lose function and cost are matching badlycost driver enter optimizing and control

Facility function and cost are matching well

matching better Optimization of after-sale maintenance phase warranty cost driver: basing on the score of Vi to select the object in this phase, according to using FMEA to structure all failure modes of after-sale maintenance phase cost driver, to confirm their higher influences on product function, this is a strengthening comprehensive analysis in analyzing warranty cost driver. What to illustrate is that its not the same with the consequence of FMEA in design phase, the consequence of FMEA in after-sale maintenance phase should take cost driver analysis on the major failure according to actual after-sale maintenance, and to make the optimization of cost driver well targeted. In this phase, the first thing should be considered are what kinds of cost driver corresponding to failure modes are more emerging in actual condition. The failure mode driver which has a higher emergence and obvious influence should be put into the preferred position of analysis; the failure mode driver which has a lower emergence should be put after the failure mode driver which has a higher emergence (exception of failure mode driver which has more serious consequence). CONCLUSIONS The selection and optimization model of cost driver based on value engineering takes a break in selecting cost driver that relies on complex calculate or simple experience judgment, it draws warranty cost driver management which is scientific, practical and more actual for operating into the model, and makes improvements of convenience and efficacy for decision. REFERENCES
[1] Schniederjans J.,Garvin T.Using The Analytic Hierarchy Process and Multi-Objective Programming for The Selection of Cost Drivers in Activity-Based Costing[J].European Journal of Operational

Based on ABC [J]Journal of Beijing Jiaotong University Social Sciences

Economics,1999(5):44-46 [12] Xu Ling Study on the Cost Driver Based on ABC [D] Tianjin Tianjin university,2004,23-35 [13] Li Buxi, Wang Xinping, Chen Lin. Research on Multi-Cost Driver Combinations in Activity-Based Costing [J].System Engineering-Theory & Practice, 2005,25(8):55-61 [14] Li Buxi, Wang Xinping, Chen Lin. Research on Multi-Cost Driver Combinations in Activity-Based Costing [J]. System Engineering-Theory & Practice, 2007,27(4):47-53 [15] Yu Zhe.Research on Industrial Security Theory [D],BeijingBeijing Jiaotong University 2008,21-30 [16] Fang Jun, Chang Hua, Huang Kan.Using Clustering Analysis for the Selection and Combination of Cost Drivers in Activity-Based Costing [J] Management Review,2009,21(9),94-99

Research,1997,10(1):72-80 [2] Carseten Humburg. A Note on Optimal Cost Driver Selection in ABC [J]. Management Accounting Research, 2001,(12).197-205 [3] OuYang Liyun, Zhao Jianmei,Research on The Cost Driver Selection