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NEED FOR THE APPLICATION OF VALUE ANALYSIS AND VALUE ENGINEERING IN COST REDUCTION

ABSTRACT

This project work was chosen in order to determine the need for the application of value analysis and value Engineering in cost reduction. It will x-ray the gains, benefits and contributions of value analysis and value Engineering in Bottling industries with special reference to Nigerian Bottling Company Owerri. The topic in question will reveal the methods by which value analysis and value engineering techniques can be applied as well as the contribution of other functional departments in the application of value analysis and value engineering. It will also identify the factors that are responsible for unnecessary cost of products and the reasons why value analysis programme fail some times. 

CHAPTER ONE

INTRODUCTION 

1.1 BACKGROUND TO THE STUDY

Value analysis as an organized study of the function of materials, parts and components involves the critical examination of goods or products, which is aimed at improving its efficiency in use by changes in design, production technique, packaging and other related process whereas value engineering represents the application of value analysis at the preproduction stage. It is purely concerned more of cost-avoidance while value analysis is concerned more of cost-correction. 

Value analysis is an organized procedure for the efficient identification of unnecessary cost by analysis of the function i.e. (the property of the product which makes it work or sell). The essence of value analysis, therefore, is first to identify the function of the product and then to examine alternative ways in which this function can be achieved, choosing that which involves the least cost. Value analysis is probably the greatest cost-saving technique used in industries today. It represents a powerful set of tools which can be used by management in controlling material costs. The fundamental objective of value analysis activities is the procurement of materials representing the “Best Buy” in terms of function to be performed.  The general idea behind this is the issue of quality and cost. The main objective of every organization is to make profit, just as a product is purchased to satisfy a particular purpose. For this reasons, it becomes important to correct or even avoid those unnecessary cost elements in a production design. This in essence stimulated the researchers interest most to carryout this research.

1.2 STATEMENT OF PROBLEM 

Nigeria as a nation is blessed with so many industries whose services the nation cannot do without. These industries are charged with the responsibilities of providing goods and services of high quality standard at a reduced and affordable price for the citizens. Materials in this respect become so vital that no results could be achieved without good procurement procedure. This is essentially as a result of the fact that purchased materials contribute very tremendously to companies profit and profitability. Apparently this stems very sufficiently as a result of lack of recognition being accorded purchasing function by most of these companies. 

It is a material fact that a company that buy wisely and economical profits well and therefore less vulnerable to economical doom. Succinctly put by O.K. Oyeoku that “when people put break on improvements in purchasing, they put limit to profitability. The researcher associates part of the problems with: 1. The organization does not have enough time to examine critically all the possible alternative materials and processes.  2. The organization’s inability to apply a formalized approach to the identification and elimination of unnecessary cost.  3. The materials procured by the organization are very expensive.  4. The purchasing function is not accorded its due recognition.  5. The organization does not have the skills to consider the technical and commercial aspect of conducting a value analysis programme.

1.3 OBJECTIVE OF THE STUDY

This study is undertaken in order to explore the academic relationship between classroom theory and what is practically obtainable in bottling industry having carefully chosen the project topic.  “The need for the application of value analysis and value engineering in cost reduction” (A case study of Nigerian Bottling Company, Owerri).

1. To investigate those factors that are responsible for unnecessary cost of an item in a bottling company.

2. To identify the gains that can be derived from the implementation of effective value analysis programme in a bottling industry. 

3. To investigate what should be the role of purchasing in value analysis in a bottling company. 

4. To identify those areas in which value analysis is applicable that will result into cost reduction to the overall goal of the industry. 

5. To cause top-management to realize that value analysis should really be everybody’s business. In one sense, maximum potential can be realized from a value analysis programme only if management properly taps these potential resources.

1.4 SIGNIFICANCE OF THE STUDY

In view of the huge expenditure on purchase of materials used in industries, it becomes imperative for the implementation of value analysis techniques to reduce cost of production in industries. It is the significance of this study to make a viable and significant rectifications so as to determine alternative ways of obtaining same quality material or item but at a reduced cost. It is also the significant of this study to arcuse consciousness to the benefits of effective value analysis program in bottling industries. 

This project will also show how purchasing as a member of value analysis team involve in value analysis programme. This project is also aimed to review the way cost is being reduced by the use of value analysis technique in Nigerian Bottling Company, Owerri. The study is also undertaken in partial fulfillment of the National Board for Technical Education and the Federal Polytechnic Nekede, for the award of HND in Purchasing and Supply. Finally, it will remain as a data bank for future researchers.

1.5 RESEARCH QUESTIONS 

To achieve the objective of the study, the following research questions are necessary notable among them are:

1. Is value analysis an effective technique in respect to cost reduction programme.

2. Does value analysis lead to a drastic cost reduction in products and services in industries. 

3. Does purchasing play a major role in value analysis programme. 

4. Are those involved in product design, have enough time to critically examine possible alternatives materials and processes.

1.6 HYPOTHESIS 

Based on the research questions above, the following hypothesis are formulated to be tested.

1. H0: Value analysis is not an effective technique in respect to cost reduction programme. 

HI: Value analysis has been known as an effective technique in respect to cost reduction programme. 

2. H0: Not every firm requires the application of value analysis. 
HI: Every firm requires the application of value analysis.

1.7 SCOPE OF THE STUDY

This study is supposed to cover notable bottling industries, but as a result of the researcher being a student and due to time constraint this research work will be focusing on the very departments in “Nigerian Bottling Company Owerri” that will make impact on the subject matter and these department are as follows: Purchasing, production, Quality and Control, Accounting, Design and Engineering Departments.

1.8 LIMITATION OF THE STUDY

The research is handicapped by a number of factors notable among them are:

a. Time factor 

b. Finance 

c. Insufficient literature materials 

d. Poor response 

a. Time: Time factor was one of the limiting factors that affected this project work, that is to say, the time within which to complete this work is relatively short and does not allow for a detailed investigation of the facts needed by the researcher.

b. Finance: In a project like this, there are bound to be some hindrances and obstacles posing a threat to the progress of the project. As we all know, money is not easy to come by as the researcher has to limit herself to the available financial resources and has to structurally adjust the project. 

c. Insufficient Literature Materials: The greatest hindrance of this project work is the invariability of insufficient literature material for this work to be effectively carried out by the researcher. 

d. Poor Response: The response of people during interview was very poor and there were some questions asked and their response could be that they were incompetent to speak on such issues or they would tell you that it is confidential as a result of this information was not let out easily. 

There was also the risk of running up and down to collect the necessary data for the project, as they could not be collected once. Also the condition under which we are subjected to study is very poor and the researcher had to attend her lectures, do her assignment together with carrying out this project work. This did not affect the design of the project itself, rather, some of the figures and facts inside are accurate account based on the best of my knowledge.

1.9 OPERATIONAL DEFINITION OF TERMS 

FUNCTIONAL VALUE: Functional value as used is simply that which enables an item or product to fulfill its stated function. It can also be called used value. 

ESTHETIC VALUE: This is simply the measure of value of beauty attached to an item that increases its desirability. 

ANALYSIS: This is the detailed study or examination of something in other to understand more about it or what it consists. 

PURCHASING: As used here is an important part of material management, standing mainly for obtaining the right quality materials from the right source, in the right quantity, at the right time. 

ALTERNATIVE: This is something you can choose or have out of two or more possibilities to achieve the same objective. 

EXCHANGE VALUE: This is the cash worth of something in its present form. It is the price, a purchaser offers for an item. 

VALUE ANALYSIS: This is the systematic study of a product or material with a view to reduce their cost by redesigning or eliminate design features which add to cost but do not contribute to value. 

VALUE ENGINEERING: Value engineering is the application of value analysis techniques in the pre-production or product development stage. 

RE-DESIGN: This is the process of designing a product or material again in a different way. It is an adjustment on a product design by eliminating certain features of the product. 

COST: This is the price paid or required for acquiring, producing or maintaining something measured in money. 

PRODUCTION: Production can be defined as the creation or manufacture of goods and services with exchange value. 

VALUE: Value is simply the desirability of a thing. 

ORGANIZATION: This is the formal meeting of people who come together to achieve a particular goal. 

QUALITY: This is the totality of features and characteristics of a product or a service that bears on the ability to satisfy a stated need. 

PROCURE: It simply means to obtain or acquire. 

SPECIFICATION: This is the description of any object, materials or process in sufficient detail to enable its manufacture and further identical reproduction. 

ELIMINATE: It simply means to remove or take out. 

RAW MATERIALS: This is the material on which further manufacturing process is carried out. 

PROFIT: This is the excess of revenue over outlay and expenses in a business enterprise. 

DEPARTMENT: This is a specialized division of a large concern, such as a business. 

TECHNIQUE: This is a practical method or art applied to a particular skill. 

INDUSTRY: Is simply a branch of commercial enterprise concerned with output of a specified product. 

COMPONENT: Is a constituent part or aspect of something more complex. 

RELIABLE: It simply means able to be trusted, dependable. 

FEATURE: This means a prominent or distinctive part.

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