Although it may sound boring, Value Improvement (VI) is a quite powerful business tool that should not be overlooked. Generally known as cost reduction, VI is a more appropriate label once the overall objective is understood. Several tools can be used to achieve the objectives of Value Improvement and will be discussed later on. Essentially, the aim is to increase value of the product / service to the customer by:
A) Increasing quality and/or features while maintaining cost (or decreasing cost, even better!)
B) Maintaining quality and features while reducing cost
There are of course, other valid combinations; Value = Benefit / Cost. Increase Value or keep it constant – that’s about it. The objective of value improvement can be achieved via many different disciplines including manufacturing, engineering, supply management, shipping, software, etc.
The power of value improvement
One of the greatest things about VI is that there is a definite pay back with relatively low risk. Really? Yes! Think about how many “normally unknowns” are known while approaching a VI project when compared to creating a new product or service for the marketplace. Data already exists for important factors such as annual sales quantities, production costs, customer feedback, warranty claims, etc.
Any one of these dimensions can be analyzed for VI opportunities. The Return on Investment (ROI) is therefore easy and straightforward to calculate. Businesses will typically choose to invest in a Value Improvement project with a pay back period of 2 years or less. However, it is quite common to find many valid projects with much shorter pay back periods. Therefore, a VI project is often the best investment a company can make!
Additional benefits should become apparent with a higher value product to offer the marketplace – it should be easier to sell to the customer and more profitable to the company.