The 5 pillars of modern VA/VE
April 13, 2023
Can your VA/VE program keep up with today’s demands?
The harsh truth is that many engineering teams can’t honestly answer “yes” to that question. Yet most leaders do recognize the growing need to make significant improvements to engineering-led cost reduction programs.
According to their Q4 2022 shareholder letter, Tesla is “accelerating [their] cost reduction roadmap” in the near term. While Tesla’s average selling prices were cut in half between 2017 and 2022, operating margins improved from negative 14% to positive 17% over the same period. Vehicle cost reduction has played a huge part in making that possible.
But the problem isn’t that companies don’t understand the need for better cost reduction programs.
The real problem is that it’s not always clear where to get started, or what “good” even looks like.
So, based on conversations with 100s of engineering leaders, we’ve come up with 5 fundamental pillars that make up a modern VA/VE program. You can use the five pillars as a framework for thinking about your engineering organization’s current approach to cost reduction —and where you have the biggest opportunities to make strategic improvements. (Which could result in multimillion-dollar savings over the next 12-24 months.)
In order, the five pillars of modern VA/VE are:
- Program structure and incentives
- Idea generation
- Idea execution
- Data-driven optimization
Keep reading for a breakdown on the five pillars, along with practical tips you can use to continuously strengthen your approach to cost reduction.
Pillar #1: People
In the past, it’s been common for companies to rely heavily on procurement and supply chain teams to drive cost reduction efforts.
But the shift is on. Traditional tactics, such as building a cost reduction expectation into contracts with suppliers, aren’t being thrown out the window; however, they’ve become table stakes. While most procurement teams have historically achieved 3-5% margin improvements annually through supplier negotiations, inflation and supply chain disruptions are making those gains harder to get.
What many teams don't realize is that designing out the same 3-5 margin points (or even more) can be a lot easier. That's why large global organizations are pivoting to engineering-led cost reduction, and modernizing their VA/VE programs. Focusing more on design-driven cost savings allows teams to be less reliant on finance-led tactics to hit their targets — and thus more resilient in the face of external pressures like inflation and supply shortages.
Sounds great, right? But to shift to a more engineering-led cost reduction strategy, your high-level organizational structure and priorities need to support it.
Developing complex products is a team sport. That’s why any strategic initiatives or program improvements should start with a people-first mentality. If you don’t have the right people involved, at the right times and in the right ways, the rest of your plan is doomed to fall on its face.
Tip: Dedicate VA/VE champions and SME teams, then drive the efforts from engineering.
There’s no one-size-fits-all answer to find the right organizational structure for your VA/VE goals. However, we’ve identified some common themes among high-performing VA/VE teams that consistently hit 8- and 9-figure cost savings targets.
Four key roles that every VA/VE program should have:
Executive Sponsor (Leadership)
- Accountable for overall program target; communicates group targets to group managers
- Establishes top-down importance and sets the culture for VA/VE
VA/VE Champions (Chief Engineers or Engineering Group Managers)
- Accountable for a % of the overall VA/VE program target, delivered by their group
- Organizes events; invites suppliers and customers where applicable
Engineers and Designers
- Primarily responsible for generating and implementing ideas
- Cross-functional, cross-team group of cost-down experts that share learnings and best practices across the org
Pillar #2: Program structure and incentives
Once you’re confident you have the right resources and top-level targets, then you’re ready to look at the specifics of your VA/VE program itself. That means reviewing the structure, goals, and incentives within your VA/VE program to make sure they truly align with your organizational goals.
Tip: Get incentives, targets, and program structure right to motivate the team.
Let’s break things down into three buckets: VA, VE, and implementation. For some teams, these three areas may almost completely overlap. That’s okay. The point here is to consider the interplay between the three. Ask yourself:
- Are there clear expectations for each of these program components?
- Are the KPIs for each of these program components aligned, or are they at odds with each other?
- Does the program structure support a continuous flow of information and collaboration between all the program components?
Misaligned incentives can easily drive the wrong behaviours. For example: if a cost-down idea is measured based on $ of savings in the first 12 months, but a major program is set to ramp up in Y2 — the team is actually incentivized to hold off on implementation until Y2.
But by addressing or avoiding these types of misalignment, you can maximize your team’s results even without adding any extra resources.
Pillar #3: Idea generation
Okay, you’ve got the people in place, including buy-in from the top. You’ve got tightly-aligned KPIs so everyone is rowing in the same direction. What’s next?
At the heart of every successful VA/VE program is a mix of events, processes, and daily routines that consistently produce quality ideas. For companies that do this well, strong processes solidify into a strong culture of VA/VE — which means the benefits continue to compound and grow over time.
Tip: Focus your efforts on high-volume programs, early in the process, with strong VE.
Of course, there are many ways to generate cost-saving ideas. Although this article focuses on VA idea generation, there are plenty of other effective strategies for idea generation (such as manufacturing and supply chain optimizations or BOM cost downs).
Incorporating virtual VA
Many teams have historically relied heavily on in-person VA events. That means idea generation has typically been constrained by factors like travel costs and logistics. In other words: the volume and quality of ideas was limited by the marginal cost and effort of including more people in the process.
But during the early stages of the Covid-19 pandemic, global travel restrictions forced engineering companies to find new ways to approach VA idea generation.
For example, Johnson Controls places a high priority on cost savings through VA/VE. When the pandemic first hit, they quickly pivoted from in-person VA workshops to continuous, virtual VA events in CoLab. Although the goal was simply to replace in-person events, JCI now generates 2x more ideas since switching to virtual VA.
Tip: Augment in-person events with continuous virtual idea generation. Make it competitive!
Effective VA programs tend to take a hybrid approach that makes the most of both in-person and virtual methods. At CoLab, we recommend including three main types of events in your planning:
- Live kickoff event (annual): All hands with engineering leadership and VA/VE champions to outline that year’s plan, along with how people, process, and technology fit into it.
- Live VA workshops (quarterly): Events focused on major initiatives. Make it competitive and exciting. Make it fun — crown a champion!
- Async VA reviews (monthly): VA/VE champions drive smaller events with their teams. Collaboration is virtual and asynchronous, similar to normal design review.
Pillar #4: Idea execution
As we all know, generating ideas is only half the battle. The real kicker is getting ideas successfully implemented, at speed and at scale. So while the foundational work from pillars 1, 2, and 3 is essential and unskippable, pillar 4 is where the rubber can really hit the road.
Idea execution is where many VA/VE programs need the most work. It’s also what makes the difference between a program that can be scaled, and one that can’t. Fortunately, it’s also where strategically adopting software can make the biggest impact.
With the right technology and workflows, it becomes much easier to drive fast, thorough implementation. But no matter what tools your team is using, improving your idea execution requires being able to standardize the processes involved. Then you have a repeatable way to consistently deliver results — one you can continually optimize and improve upon.
Tip: Automate tracking and admin work.
Standardized processes also make it possible to leverage the power of automation. Most VA/VE programs get slowed down by all the manual work involved. When ideas are tracked manually with sticky notes (or even in spreadsheets), it’s easy for things to get buried, forgotten, or take weeks to translate into tasks.
But when ideas are captured into a system as they’re generated, it becomes much easier to prioritize the most impactful ideas and track them through to completion. Automatic tracking bakes in accountability for implementation without creating more admin work.
Here are 4 tips to improve your VA/VE follow-up and implementation:
- Designate a tool (like CoLab) as a homebase for ideas; have someone own the tool
- Automate logging and aggregation to eliminate manual effort
- Prioritize and track ideas as part of your weekly cadence
- Identify how long it takes to implement ideas, on average, and front-load events accordingly
Pillar #5: Data-driven optimization
Let’s say your core VA/VE program is running pretty smoothly. You’re reliably generating a pipeline of quality ideas, which get executed quickly and consistently. And you’re finally in a position to focus on continuous improvement.
Then the question becomes: how can we use lessons learned, data, and new technology to drive new value?
But before you can make any program improvements based on your data, you need to understand what data is (or could be) available to you. How are you tracking and collecting program data? What data are you missing? When you’re considering your VA/VE program overall, the data you collect — and how you collect it — should be part of your upfront planning.
Depending on the maturity of your VA/VE program, you may have historical data available. If not, and you’re essentially starting from scratch, start recording some sort of data ASAP so that you have a baseline. A good place to start is by choosing three datapoints you can reasonably measure and track, to tell you:
- How many ideas you’re generating
- The average time it takes to implement an idea
- Total savings realized ($) by each team in your business
There are many ways to be data-driven when optimizing your VA/VE program. There are also many new technologies that can enhance cost optimization, such as tools designed for:
- Competitive benchmarking
- Cost-optimized generative design
- BOM and product cost analysis
- Collaborative ideation and brainstorming
Ultimately though, data-driven optimization is not about buying any particular software or technology (though investing wisely in these areas can certainly pay off). It’s about being thoughtful in your approach, making it easy to collect the right data, and then using that data to continuously drive better decisions.
To recap, here are the five pillars of modern VA/VE:
- People — Proper org structure and prioritization for effective VA/VE, led by engineering
- Program structure and incentives — Clear, well-aligned expectations for VA, VE, and implementation
- Idea generation — Events, processes, and daily routines that consistently produce quality ideas
- Idea execution — Technology and workflows to drive fast, thorough implementation
- Data-driven optimization — Using lessons learned, data, and new technology to drive new value
Tips for large engineering companies to run an effective VA/VE program:
- Dedicate VA/VE champions and SME teams, then drive the efforts from engineering.
- Get incentives, targets, and program structure right to motivate the team.
- Focus your efforts on high-volume programs, early in the process, with strong VE.
- Augment in-person events with continuous virtual idea generation. Make it competitive!
- Automate tracking and admin work.