Understanding total cost ownership issues from a value analysis perspective

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Commodity industrial products are no longer self-selling ticket items for manufacturers. Such manufacturers need to assess their value chain from a total cost ownership perspective for both their outsourced and in-house parts needed to assemble the commodity product in order to better compete in the market place. The key question becomes what procedures should manufacturers follow to understand cost and mark-up behavior patterns and their documentation procedures for such parts? In order to identify and eliminate waste at the inter-firm and intra-firm levels a case study using value analysis was conducted for a commodity product manufacturer that outsourced its component parts to independent suppliers. Activity Based Management approach was used to identify the key value added activities and the unnecessary resources used for these activities. Using simple value analysis and affinity diagram approaches a list of questions and methodology were prepared for the analysis. Three models of the manufacturer's product that required similar components but slightly different designs were selected for comparison purposes, and their key cost drives were determined. Problems in the manufacturer's cost differentiating strategies were identified and practical solutions offered. [PUBLICATION ABSTRACT]

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