Cost Reduction & Value Analysis Strategies Flashcards

In value engineering (VE), which activity is performed FIRST in the job plan sequence?

Answer: Information phase

The information phase is the first step, where data about the item's cost, function, and requirements is gathered.

A purchasing professional uses 'should-cost' modeling primarily to:

Answer: Establish a defensible price target before negotiations

Should-cost models estimate what a product or service ought to cost based on materials, labor, overhead, and profit, creating a negotiating baseline.

Which cost reduction technique involves redesigning a product so that fewer components are needed to achieve the same function?

Answer: Parts consolidation

Parts consolidation reduces the total number of components, lowering assembly time, inventory, and procurement costs while maintaining function.

Target costing is BEST described as:

Answer: Subtracting desired profit from market price to determine allowable cost

Target costing works backward from a competitive market price minus a required profit margin to establish the maximum allowable product cost.

Early supplier involvement (ESI) in product development primarily contributes to cost reduction by:

Answer: Allowing suppliers to influence design for lower-cost manufacturability

ESI lets suppliers contribute manufacturing knowledge during design, preventing costly re-engineering and selecting cost-effective materials upfront.

When analyzing a supplier's cost breakdown, the term 'conversion cost' refers to:

Answer: Labor and overhead costs required to transform materials into finished goods

Conversion costs encompass direct labor and manufacturing overhead incurred to convert raw materials into finished products.

A company negotiates a multi-year blanket purchase order with a single supplier to achieve lower unit prices. This is an example of:

Answer: Volume leveraging

Volume leveraging uses committed purchase volumes as a bargaining tool to obtain price reductions from suppliers.