Original Date: 07/08/2002
Revision Date: 01/18/2007
Information : Value Engineering Program
Prior to the implementation of the Directorate for Missiles and Surface Launchers’ Value Engineering Program, the price of missiles was steadily increasing and budgets were decreasing. In order to continue to purchase missiles in sufficient quantities to meet Fleet requirements, the price of the missile had to be reduced. The Directorate leveraged both government and contractor resources to attack high cost areas of the missile with its Value Engineering Program.
The Directorate for Missiles and Surface Launchers’ (PEO TSC-M/L’s) Value Engineering Program is a cooperative effort initiated by PEO TSC-M/L, to jointly fund cost savings initiative investigations and share resultant savings with the contractor. Prior to the implementation of the Value Engineering Program, the price of missiles was steadily increasing and budgets were decreasing. In order to continue to purchase missiles in sufficient quantities to meet Fleet requirements, the price of the missile had to be reduced. PEO TSC-M/L leveraged both government and contractor resources to attack high cost areas of the missile with its Value Engineering Program.
PEO TSC-M/L and the contractors share up-front costs and subsequent savings among the initiatives. Good working relationships and government initiation of this program were essential to build trust and get the program started. Value Engineering Proposals are executed at the contractor facility, through a normal Engineering Change Proposal (ECP), but are called Value Engineering Change Proposals (VECPs). VECPs receive streamlined decision making by the Program Executive Office and contracts teams, and must include clearly detailed cost and technical benefits; well-defined, non-recurring engineering effort estimates with enough lead time to meet the proposed start date; evenly shared proposals if other programs are involved; and realistic production cut-in dates to avoid surprises in budgeting and contracting processes. Figure 2-7 details affordability and inventory considerations within the PEO TSC-M/L. By varying inventory ratios and implementing the VECPs, PEO TSC-M/L is able to keep the annual costs down with less sensitivity to the quantity purchased (i.e., to change the slope of the curves).
VECPs typically focus in development and production areas, and are designed for continuing manufacturing sources, backfit and forward fit, commonality among products, competitive vendor selection and post-service life, more efficiency in meeting operator’s needs, and replacing obsolete parts. While cost savings are the primary goal, increased performance and availability of parts are almost always seen as well. The PEO TSC-M/L and contractors have been widely recognized for their VECP successes and saved $85 Million to date across STANDARD Missile (SM) programs, which is substantial for one office when compared to other federal value engineering efforts. The return on investment to date has been about 10 to15, compared to an average 25 percent reduction in government VE programs (SAVE 1997 International Conference Proceedings, Volume XXXI, www.value- engineering.com/federalresults.htm).
Figure 2-7. Affordability/Inventory Considerations
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