Naveen Ralhan explains how he uses the theory of value engineering to achieve a significant increase in value and profitability for the owner of a well-known premium snack brand..
Question
The crisps were presented in 150g bags, 320mm high, made from 5 ply laminate material. There is a lot of air in the bag, no other snack food producer used bags that thick – so why use that size and specification bag?
Answers
The initial responses were that:
- The bag specification has high barrier properties, which is required to maintain the shelf life of the product
- A thick bag gives the impression of a premium product
- The bag height is needed to protect the crisps from breaking
- If we now start using a smaller bag, consumers may think we’ve reduced the volume
- It will look smaller than our competitors.
We then ran a series of trials to test out these assumptions.
Shelf life
We tested the current 5 ply material against a more standard 2 ply bag. Whilst the barrier property of the 5 ply was much better, this was effectively lost in the sealing of the bags, where we discovered micro pores in the sealing area. Conclusion: there was no effective difference between the 5 and 2 ply bags with regard to shelf life properties.
Bag Height
We trialled a 300mm bag, giving a 6.25% reduction in materials, and costs. It proved to be eminently possible to fill a 300mm bag with 150g of crisps, with no resulting damage to the product.
Pilot
A new crinkle cut range was being planned for launch, and it was decided to use a reduced size and specification bag to test public reaction – which was found to be positive. Consequently, it was decided to shift production of all crisps to the new bag.
Outcomes
In addition to the significant 6.25% saving on bag materials and costs, further positive outcomes were achieved:
- Case height: reducing the height of the bag meant we could reduce the size of the boxes, which enabled us to put an extra layer of boxes on each pallet. This delivered a 14% improvement, with reduction in storage and logistics requirements.
- Environmental: reductions in packaging and improved efficiency in delivery helped enhance the company’s green credentials
- Cultural: perhaps most significantly, a shift in culture was achieved where it became acceptable to challenge the status quo, and to question widely held assumptions.
Value Engineering
Value engineering focuses not just on reducing the cost of manufacture, but also on meeting, and exceeding, customers’ expectations of the product in terms of use (the practical functionality of the product – do you like the crisps?) and value ( or esteem, how highly the product is regarded by consumers – the feel of a premium brand).
Here, then, the use and esteem were maintained whilst costs were reduced, thereby increasing the value to the producer by increased profitability.
“My key motivator is to engineer value for my clients and I’m always excited by the clients’ challenges and in the opportunity to prove my own value”, says Naveen. Contact him here for a confidential discussion on how to improve your profitability.