Introduction

○ Lawrence D. Miles developed Value Analysis (VA) at General Electric in 1947

○ He conceived Value Analysis (VA) based on the application of function analysis to the component
parts of a product.
○ Component cost reduction was an effective and popular way to improve "value" when direct labor
and material cost determined the success of a product.
○ The value analysis technique supported cost reduction activities by relating the cost of components
to their function contributions.
Definition
○ Value analysis defines a "basic function" as anything that makes the product work or sell.
○ A function that is defined as "basic" cannot change.
○ Secondary functions, also called "supporting functions", described the manner in which the basic
function(s) were implemented.
○ Secondary functions could be modified or eliminated to reduce product cost.
Objective
○ The technique simultaneously pursues two complimentary objectives:
○ Maximizing the utility provided by the product or service and,
○ Minimizing or eliminating waste.

What is Value chain

○ Value chain is the set of linked value – creating activities the company performs to design produce,
market deliver, and support a product.
○ Value change analysis helps the manager understand the behavior of costs and the existing and
potential sources of differentiation
○ Creating value is a powerful idea in the business world. Managers often use the value chain to focus
on activities that the must be performed to convert their plans into actions.

Primary activities: - Primary activities are that create and deliver the product
1. Inbound Logistics:
The receiving and warehousing of raw materials and their distribution to manufacturing as they are
required.
○ Transportation
○ Material handling
○ Material storage
○ Communications
○ Testing
○ Information systems

2. Operations:
The processes of transforming inputs into finished products and services.
○ Process
○ Materials
○ Machine tools
○ Material handling
○ Packaging
○ Maintenance
○ Testing
○ Building design & operation
○ Information systems
3. Outbound Logistics:
The warehousing and distribution of finished goods.
○ Technologies
○ Transportation
○ Material handling
○ Packaging
○ Communications
○ Information systems

4. Marketing & Sales:

The identification of customer needs and the generation of sales.
○ Media Audio/video
○ Communications
○ Information systems

5. Service: -The support of customers after the products and services are sold to them.
○ Testing
○ Communications
○ Information systems

Support activities: -
Support activities are that which aids the individuals and groups engaged in primary activities.
1. Procurement :- Purchasing the raw materials, components, and other inputs used throughout the value
chain
2. Technology and systems development: -Research and development, process automation, telecom and
wireless systems, and other technology used to support values activities
3. Human resources management:- Recruiting developing, compensating and retaining employees as
well as labor relations activities
4. Firm infrastructure: - Activities related to general management, accounting and finance, legal and
regulatory affairs, safety and security, management information systems and other overhead functions

Linkages Between Value Chain Activities

○ Value chain activities are not isolated from one another.
○ Rather, one value chain activity often affects the cost or performance of other ones.
○ Linkages may exist between primary activities as well as between primary and support activities.

Analyzing Business Unit Interrelationships

○ Interrelationships among business units form the basis for a horizontal strategy. Such business unit
interrelationships can be identified by a value chain analysis.
○ Tangible interrelationships offer direct opportunities to create a synergy among business units. For
example, if multiple business units require a particular raw material, the procurement of that material
can be shared among the business units. This sharing of the procurement activity can result in cost
reduction. Such interrelationships may exist simultaneously in multiple value chain activities.