chapter 6

Setting and Solving

Management-decision-d ype Problems

Successful management must make decisions as good as or a little better

than their competition in a wide variety of matters, some of great and
some of moderate importance. Some of the representative types of prob-
lems that management must solve are listed here.

6-1 Some Types of

Management Problems
Shall we use the present equipment or get a new machine?
Shall we make this product in one line or two?
Shall we operate as one division or two?
Shall we own some of our delivery equipment?
Shall we expand our employee training program?
Shall we install and use some automatic communication facilities?
Shall we combine our purchasing work?
Shall we change our sales representation?
Shall we build a completely new plant?
Shall we provide a warehouse in the Chicago area?
 Setting and Solving Management-decision-type Problems 71

Shall we discontinue, as obsolete, our records filing area?

Shall we increase the competence and effectiveness in our New York
sales area work?
Shall we buy some knowledge we need from consultants?
Shall we repair the warehouse building or build a new one?
How can we reduce maintenance cost of the filter system?
How can we double the capacity of our compressed-air system?
How can we get the most of what we need for our medical payments?

6-2 Setting the Precise Problem

T o Be Solved
Usually between two and five persons are involved in the first stages of
problem setting.

First

Precisely what are we (the five of us here now) trying to do? Encourage
many short statements. One person should write them all down. The ob-
jective will clarify and become one precise clear objective. Usually in 15
to 30 minutes results will be achieved.

Second

Exactly what are we trying to achieve by the expenditure of money that

we will pay for this service? Again, record every statement. Do not judge
the statements at this time. Encourage short concise statements. The time
required will depend upon the problem; however, in 30 minutes the
principal desired specific acts will often stand out rather clearly. Mean-
while all of the minds in the group have again become "tuned into one
direction of thought.

Third

Now the group should agree upon a precise, simple statement of what it
is desired to achieve. Often one precise simple statement will not suffice.
Then the group should agree upon two or more such statements, which
constitute precisely the important results desired. In those cases it will be
observed that there is not one problem but two or more, and that each
will have somewhat different parameters and controllers. It will also be
observed that each separate problem now has become considerably "more
solvable."
Decide which problem should be well started first, then second, then
72 Techniques of Value Analysis and Engineering

third. Reexamine problem No. 1. Modify the wording, if possible, so that

it points attention as directly as possible into t h e area that must produce
the solution. Now the problem has been "set" and is ready for the think-
ing of the "problem-solving system."

Case Study (with Detailed Information Concerning the Problem

Setting )
PROBLEM: NOW THAT A PRODUCT WAS PROVED
AND THE MARKET WAS ESTABLISHED AND
GROWING, SHOULD A COMPANY BUlLD
MAUFACTURlNG FACILITIES FOR A N IMPORTANT
PURCHASED ASSEMBLY?

In developing a new product, a control regulator was needed. It consisted

of about 1 cubic foot of electrical and mechanical equipment. Its function
was to control speed, load, fuel, etc., in response to inputs from an opera-
tor and a machine. A responsible vendor quoted a price of approximately
$5,000 each on the basis of supplying the few hundred needed regulators.
Included in his services would be adjusting some of the final details of the
design, finishing a few minor tests, making sure that design details were
such that assembly would be facilitated, etc.; thus the vendor did make
small important adjustments on the drawings.
During the initial three years that the product was earning its place in a
very competitive market, the cost of the assembly had been reduced by
experience and important modifications to $3,000. The vendor said that he
had gone through all parts of his operation and had taken out all costs he
could without lowering quality. His quotation for the future, even an-
ticipating increased volume, stood at $2,500.
FIRST (MIND SETTING): "Precisely what are we (the four of us here
now) trying to do?"
Reduce costs
Assure future business
Be sure of quality
Assure a profit
Assure a reliable source of the essential assembly
Increase sales
Control the unexpected
Build up our factory
Obtain more control over design
Obtain more control over manufacturing
Facilitate future reductions in costs
Facilitate making changes
Minimize possibility of shipment delays
Maximize earnings
Provide a cost advantage over competition
Provide flexibility
 Setting and Solving Management-decision-type Problems 73

Become self-contained
Make an integrated product more practical
Save money
Make competitive selling price profitable
SECOND: "Exactly what are we trying to achieve by the expenditure of
money for this assembly?"
Control fuel
Control speed
Provide proper amount of fuel for any load
Prevent overspeed
Prevent underspeed
Prevent overload
Protect from overtemperature
Shut down in case of malfunction
Accept operator's call for more speed or less speed
Occupy minimum space
Fail safe
Function independently of ambient temperature

THIRD: The problem "set" for first action before others would be con-
sidered was: "Determine the efectiveness potential of the present sup-
plier." A reexamination of this problem statement, pointing it toward the
solutions needed, resulted in this problem: "Determine (1) the eficiency
of the supplier's manufacturing operations (his effectiveness in lowering
his own costs) and ( 2 ) his attitude toward progressively lowering his
quoted prices."
The initial "problem setting" was completed, and the "problem-solving
system" was then used with the following results. The supplier was ap-
prized of the entire situation and asked to what extent he felt it was in his
own best interests to provide manufacturing information. He was offered
the help of value analysis trained personnel but advised that, to be effec-
tive for him, they must know and work with his costs. He advised that he
felt his best interests would be served not by providing cost information
but rather by showing the material, machines, and methods used to
fabricate and assemble the parts. He then would hopefully receive specific
suggestions pertaining to specific parts and subassemblies, which, at his
election, he might use to reduce certain costs.
The value engineer spent a few days studying the manufacture of the
parts, the assembly, and the subassemblies as well as the various operations
in the supplier's plant. On returning to his desk with a full understanding
of the way costs are built up in the use of various processes, he made up a
sheet for each of the parts and each of the important subassemblies, with
estimates of the costs based on the processes he had seen being used. This
gave him the information he needed to identify and evaluate the various
functions and use the creative problem-solving methods of the value
analysis job plan quite effectively. The value engineer was then able to
74 Techniques of Value Analysis and Engineering

provide positive suggestions to the supplier on further steps that might be

taken to lower costs. Further he was now in a position to advise the vendor
on approximately what costs he felt appropriate for many of the individual
parts and individual subassemblies, and these costs the vendor could then
use for comparison with his own costs. The tabulation below includes two
items: first, the cost that the value engineer estimated after reviewing the
supplier's manufacturing processes; second, the cost that he considered
appropriate and that was the basis of positive suggestions made to the
vendor. The latter cost is designated "value."

Item Estimated present cost Value

Spurgear . . . . . . . . . . . . . . . . . . . . . . . . .
Gear. . . . . . . . . . . . . . . . . . . . . . . ... ..
Sleeve. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Side plate. . . . . . . . . . . . . . . . . . . . . . . . .
Block . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shield. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gasket. . . . . . . . . . . . . . . . . . . . . . . . . . .
Gasket. . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusting sleeve. . . . . . . . . . . . . . . . . . .
Spring. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pin
Special screw. . . . . . . . . . . . . . . . . . . . . .
Shoulder bolt. . . . . . . . . . . . . . . . . . . . . .
Spring retainer. . . . . . . . . . . . . . . . . . . .
Cartridge pump. . . . . . . . . . . . . . . . . . . .

It should be noted that, in making these suggestions, the value con-

sultant brought into play the various value analysis techniques such as
utilizing vendors' functional products, buying standard products and
modifying them slightly, using specialized vendors, and reevaluating toler-
ances which make no contribution to performance.
After study and implementation of the alternatives, the vendor was able
to make a new quotation of $1,800, and the redesigned equipment re-
tained its capability to accomplish the total function with reliability. His
costs had been decreased sufficiently so that his company was still pro-
vided with its proper earnings. The attitude of competitive cooperativeness
found in the supplier was s d c i e n t to justify ending consideration of the
establishment of an in-plant facility.

6-3 Some Management Problems for

Deepening Familiarity with Techniques
It has been found to b e very useful for management people to objec-
tively "set" a few of their own types of problems in "solvable" form. The
following are suggested.
 Setting and Solving Management-decision-type Problems 75

1. You have consistently sold 30 per cent of the 10- to 100-horsepower

motors that are sold in California. You have just learned that last month a
competitor increased his sales enough to reduce you to 20 per cent. Set
the problem.
2. You are operating the public health service in a city of 200,000
persons. You have four professional nurses and two medical doctors. The
work is not getting done. There are long delays, filled waiting rooms,
and frayed nerves. Set the problem.
3. You have a warehouse in a tricity area. You have a sales office in
each city, which receives the orders; some of the orders are c.o.d., and
some are paid for in cash. Orders are relayed to the warehouse and
serviced from there. The paper work is killing you. Set the problem.
4. You operate a cement plant. Dust-control authorities request you
to install a dust collector on one group of six silos in which you accumu-
late cement for production and from which you later ship. Set the
problem.
5. You are responsible for police protection of the citizens of a small
city. You have twenty policemen. You find that the frequence and severity
of nighttime robberies is increasing. Set the problem.
NOTE: Problems must be skillfully and creatively set, recognizing
their severity and limitations and the directions from which in reality
solutions will come. When necessary in order to have each problem in
solvable form of similar parameters, set it in the form of a few separate
unrelated or only partially related problems.

SUMMARY
Experience has taught that a higher magnitude of results is achieved
sooner when dealing with management problems if the first step, the
"mind-tuning" step ("Exactly what are we trying to do?"), is taken in
two steps:
1. Precisely what are we (each person in the group personally) trying
to do?
2. Exactly what are we trying to achieve by the expenditure of money
we are studying?
The greatest of attention must be given in problem setting to clarity of
thinking in order to set the problem in action-directing words. For
example, the initial problem
Shall we or shall we not build a manufacturing facility?
was changed to:
76 Techniques of Value Analysis and Engineering

Determine the effectiveness potential of the supplier

as a first essential step and then was "set" in action words:
Determine ( 1)the efficiency of the supplier's manufacturing operations
(his effectiveness in lowering his own costs) and ( 2 ) his attitude toward
progressively lowering his quoted prices.
Each of the two subproblems could be solved, using good problem-
solving techniques. The course of action most beneficial to the business
then became very clear.
Finally, because of the extreme importance of setting management-
type problems optimally, some situations are included to provide the
reader experience in management problem setting.