CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF 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.