Activity 2 Target Costing and Value Engineering Identify 2 existing products in the market in which you think the price should be adjusted to be more competitive. The adjustment is to be made by reducing the cost and at the same time enhancing the quality and adding value to the products. Present first the existing product including its packaging and reasons why it is to be adjusted. Below is a sample procedures on how you will conduct your analysis. Kitchenbelp, Inc. among other products, Kitchenhelp, manufactures coffeemakers. Market research has identified eight features of a coffeemaker that are important to customers. The required features are: 1. Coffee tastes and smells like espresso. 2. The coffeemaker is easy to take apart and clean. 3. Capacity is at least six cups. 4. The coffeemaker has an attractive design. 5. The coffeemaker has a clock timer to start automatically at a designated time. 6. The grinder performs well with different kinds of coffee beans. 7. The coffeemaker keeps the coffee warm after making it. 8. The coffeemaker automatically shuts off after a designated time period. These customer requirements become the basis for the engineering design of the coffeemaker. Engineers must ensure that the product encompasses all of the features that are important to customers. Kitchenbelp's current coffeemaker unit costs $50 to manufacture. Management has decided that the cost of the new unit has to be reduced to broaden its appeal to a much larger customer audience. Product engineers perform cost analysis and value engineering to reduce the cost of each of the coffeemaker's components. Cost Analysis Cost analysis involves determining what components of the coffeemaker (heating element, control panel, or grinder) to target for cost reduction and then assigning a cost target to each of these components. Cost analysis requires five subactivities: 1. Develop a list of product components. Cost reduction efforts start by listing the various product components. Exhibit 1 shows various components of the proposed coffeemaker. Exhibit 1- Major Components of Kitcheobelp's Proposed Coffeemaker 2. Perform a functional cost breakdown. Each of the various parts and components of the coffeemaker performs a specific function. The next step is to identify that function and to estimate the cost. The functional cost breakdown is shown in Exhibit 2. For example, the function of the brew basket is to grind and filter coffee. The current estimated cost is $9 for the basket, which represents 18% of the total manufacturing cost for this product. The total cost for all components is $50. Exhibit 2- Funetional Cost Breakdown for Kichephelp's. Coftemaker 3. Determine the relative importance of customers' requirements. Engineers conduct a formal survey of prospective customers asking them to rank the relative importance of the product's eight features. The results from this survey are shown in Exhibit 3. The importance ranking is based on a scale from 1 to 5 , where a 5 means that the feature is very important and a score of 1 indicates that it is unimportant. From this exhibit, we learn that the taste and smell of coffee is the most important feature, and multiple grinder settings is the least important. The last column of Exhibit 3 converts the raw scores for the importance of features into a relative ranking of features. The total feature score is 25 (calculated as 5+4+2+3+4+1+3+3=25 ) and each feature's score gets expressed as a percentage of this total score of 25 . For example, coffee taste has a ranking of 20% (a score of 5 out of 25 ) indicating that 20% of the total value a customer derives from this coffeemaker comes from the taste of the coffee. Exhibit 3 - Customer Feature Ranking for Bitcheobela's, Coffeemaker 4. Relating features to functions. The QFD matrix (see Exhibit 4) highlights the correlation between a component and customer requirements that have been collected during market research. The matrix shows that the requirement that the coffee taste like espresso has a high correlation with the design of the brew basket and the heating element. Similarly, how many cups the coffeemaker can hold is correlated to the water well and carafe size. Exhibit 4- Quality Function Deployment (Correlation) Matrix 5. Develop relative functional rankings. Exhibit 5 shows the percentage that each component contributes to a customer feature, as shown in. The last row of Exhibit 5 shows each component's approximate value to a customer byadding up all the value contributions from a component to all customer-desired features. The brew basket component has an overall value of 15% to a customer, and that the carafe has a value of 10%. The last column represents the value of each feature, and the last row represents the value of each component that delivers the desired features. Fxhihit 5-Percentage Contribution of Fach Comnonent to Customer Reauirements Conduct Value Engineering Once the five-step cost analysis has been completed, engineers start the value engineering (VE) activity. Value engineering consists of the following two subactivitics: ify components for cost reduction. To identify components for cost reduction requires computing a value index. This is the ratio of the value (degree of importance) to the customer and the percentage of total cost devoted to each component. Exhibit 6 shows the value index calculation and its implications for cost reduction. Components with a value index of less than 1 are candidates for value engineering. Components with a high value index are candidates for enhancement since we are spending too little for a feature that is important to the customer. Exhibit 6- Value Index for Kitcheabslpis Coffeemaker rate cost reduction and function enhancement ideas. Exhibit 7 lists several of the cost reduction ideas proposed by the engineers to reduce the cost of the electronic display panel, the prime target for cost reduction identified by the value index. Perhaps reducing the number of parts, simplifying the assembly, and not oxerengineering the product beyond what a customer needs will lower cost. Finally, testing and implementing ideas is the last subactisity within value engineering. Exhibit 7. Kichephela Coffeemaker: Electrical Display Panel Value Enginecring Ideas to Reduce Cost