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EPISODE #9 | February 25, 2022

Value Engineering Can Save You Millions and Volker Will Tell You How

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SiliconExpert Podcast Episode 9 with Volker Ebert Honeywell - Transcription

[00:00:00] Volker: There was one incident, where we raised, a concern about a part going obsolete. And what you do is to make a last time buy and before we made the Center of Excellence to deal with that obsolescence ICs and cost optimizations in one department. What happened is people were happy about the last time buy. We purchased it for another year and after 11 and a half months they said, hey, we didn't take action and we didn't redesign it. Can you do another last time buy? And my answer was simple. Hey, which part of the word last did you not understand last time.

[00:00:39] Eric: Welcome to the Intelligent Engine. A podcast that lives in the heart of the electronics industry brought to you by SiliconExpert.

[00:00:46] SiliconExpert is all about data driven decisions. With a human driven experience. We mitigate risk and manage compliance from design through sustainment. The knowledge, experience and thought leadership of the team, partners and those we interact with every day expose unique aspects of the electronics industry and the product life cycles that live within it.

[00:01:06] These are the stories that fuel the Intelligent Engine.

[00:01:14] Today's spotlight is on VECE consulting. Joining us today is Volker Ebert. His first job after graduating as a professional engineer in telecom was to build a tiny bit of the infrastructure of the internet in the early nineties. He then moved on to become an electronic design engineer at Honeywell, became a PMP certified project manager, sold the product he designed after working in marketing for awhile.

[00:01:40] And since 2003, he's been optimizing products for cost, a process called component and value engineering using his skills as a six Sigma black belt. He's leading the data mining team for component and value engineering for the last seven years, collecting all the component and finished goods data to explore for cost optimization.

[00:02:00] Volker thanks so much for joining us.

[00:02:02] Volker: Hey, thank you so much for the opportunity. I'm really excited about it.

[00:02:07] Eric: Likewise, we're glad you're here. So the first question I want to ask you is about what your typical day looks like. What are you doing in this field all day long?

[00:02:17] Volker: I'm in engineering. I belong still to Honeywell R&D.

[00:02:21] But I don't deal with NPI that much and new product introduction. I'm looking into the big mass of existing purchased components and a big, big number of finished goods that are being assembled in dozens of our factories worldwide. So our goal is to optimize all of them for cost, both the components we purchased, as well as the finished goods we produce.

[00:02:45] That's what we call component engineering and value engineering. Many of you might have heard about component and value engineering, and many of you might have a different understanding of these terms. So let me give you a brief introduction or definition about it. So component engineering, optimizes cost for a given company part number by approving additional and of course, cheaper manufacturing part numbers for the same company part numbers.

[00:03:12] So in a nutshell, it's to qualify cheaper second sources. Coming from the other end value engineering targets finished goods. It is about to do a redesign of a finished good keeping the same function. And in best case, being invisible for the customers, the equal or the better quality it goes without saying.

[00:03:33] Eric: So the old adage of if it's lower cost, it must be lower quality. That can't be true in your line of work?

[00:03:39] Volker: No, no, absolutely not. In many cases, we even make it better. We solve quality issues that nobody's solved before. So quality is equal in many cases, better. The company I'm still with it's Honeywell. You might've heard it.

[00:03:51] If you're in America, it's pretty familiar.

[00:03:54] Eric: Yeah. I'm sitting in a recording room right now and directly across from me is one of those iconic round Honeywell thermostats. ,

[00:04:03] Volker: oh, you still have it. Yeah. In America, it's quite, it's quite famous. Everybody has it. For the Germans. For the Europeans. We only see them in the movies.

[00:04:11] And usually if Arnold Schwartzenegger twists one of them, a house explodes, which is, by the way, not our fault.

[00:04:19] Eric: But that was not the result of a, of somebody finding a cheaper part. Volker, I'd love to hear more about how you got into the industry, what you studied, what your first real job was, and then how you wound up ultimately at Honeywell,

[00:04:35] Volker: you know, I graduated from university at the year, 1988, computers PC were up, but the networks were not yet up and running. So I joined a company called Hillsman and Hillsman made the first fiber optical network. And in these days it was a rough a newspaper announcement that we established a 10 megabit link between Stuttgart and the university of Calsroy, 15 miles away.

[00:05:04] So that was astonishing stuff. Today you've got your telecom internet connection with a hundred megabit. Every person on earth can have it, but these times 10 megabit was a gas. And we did build the connections. We did build a tiny piece of that internet fiber optic transceivers, stuff like that. I studied in the university of Isling at close to Stuttgart and a university of applied science.

[00:05:30] And people might think that's outdated, but you learn a lot of basics and basics remain the same. The physics don't change that often. I never regretted one single day to have it done. Uh, so say low volumes, high quality, high cost, such a little internet switch that you're having on your table. Maybe with seven parts worth $50 or less in Amazon that was produced these days and invented and designed by me for $5,000,

[00:05:59] Eric: And no one knew what to do with it.

[00:06:01] Volker: Right? So then I tried Honeywell and I did vice versa, big volumes, low costs. So we made electrical, thermostats. We connected thermostats. We have time blocks so that you can have it warm in day and you'll save energy at night.

[00:06:16] And we sold a hundred thousands of those.

[00:06:18] Eric: Yeah, of course. I mean that, and you can see that today at the technology, obviously our capabilities are better, but the basic principles there really were the foundation for all the climate control technology we have today. When you went to Honeywell were you actually designing products?

[00:06:35] Volker: Yes, I was a product designer, hardware design engineer later on a project manager. So yeah, I can remember in the mid of nineties, we made these little thermostats electrical time schedule thermostats. And once I finished, after a year, my marketing manager came back to me and said, Hey, well done, can you do it again for half price?

[00:06:57] And that was my job for the second year.

[00:07:00] Eric: I love it. The classic ask that we've all grown, used to hearing in the last decade or so. Great. It's perfect. Now do it for less.

[00:07:11] Volker: We managed it. Or maybe that was the first time I came into contact with cost optimization. I was designing a lot of wall modules and stuff you have in your office?

[00:07:21] And for a little while I then went to marketing and sold the staff I have designed.

[00:07:27] Eric: And did you enjoy being in marketing or did you prefer being on the design side?

[00:07:32] Volker: Oh, so the company pays you a lot of money to go to places where you usually paying a lot of money as a private person. So I've seen many countries and cities.

[00:07:41] So yeah, I was enjoying it, you meet a lot of people then we invented the company's part of component and value engineering together with that, we brought six Sigma to each and every employee. So we said each employee has to be a six Sigma green belt. And one out of 100 engineers has to be a six Sigma black belt.

[00:08:02] That was a longer training, four weeks in a row. So I went back to school and I went to be a six Sigma black belt. And these skills very useful to be successful for component value engineering later on.

[00:08:15] Eric: That seems like a very forward-thinking move for Honeywell to have. Everyone get at least the green belt training with six Sigma that's that's powerful.

[00:08:24] Volker: Absolutely.

[00:08:26] You're doing a little project that optimizes for cost improve something. So everybody then made an improvement project who was, who was awarded being a six Sigma green belt. And as a black belt, you're doing an equally bigger project.

[00:08:39] So I'd like to talk a little bit more about how much impact component and value engineering can bring to the enterprise. On a fundamental level, is it worth it to, to expend the amount of resources required to do this?

[00:08:56] Absolutely, it's a hidden gem. Some companies doing it by purpose, some doing it randomly, but we made it in a heart. The amount of additional profit we make is a bit confidential. So let me ask you in two different ways. First of all, my claim is that the incremental profit and component engineering is on a similar level than the additional profit you're bringing if you're doing an NPI, if you're comparing apples to apples. So it's likewise on a playing in the same league.

[00:09:25] Eric: That's, that's hugely significantly.

[00:09:29] Volker: The other feedback I want to give you is I'm seriously planning to write a little book on component and value engineering, and the title will be what is component value engineering and why is it more profitable than dealing with drugs?

[00:09:47] Eric: I like it. That is a title that will sell

[00:09:50] Volker: that's the intent. Yeah. That might give you an impression. Yes. It's worth doing it.

[00:09:56] Eric: So without giving too much of your magic formula away, what is the secret to success in component and value engineering.

[00:10:04] Volker: The first thing we did when we started in 2015, doing that as a center of excellence or real business group, doing that is to bring all the relevant information we need to have in order to be successful into one single place.

[00:10:18] So yes, we established a giant SQL database. And once we have it, it's relatively easy to squeeze out useful information. So pieces of that information are what are we purchasing, which are the parts, which are the high volume parts. For which costs are we purchasing. What are the manufacturing part numbers being approved and at least one of these Honeywell part numbers.

[00:10:43] The other important thing is will these components become obsolete soon? So are we on a last time buy, so do we have to take action anyhow? And by the way, a lot of these things we are obtaining from SiliconExpert online. So talking about the component shortages that you might or might not have experienced in your company.

[00:11:06] Eric: Everyone has, right?

[00:11:07] Volker: Oh yes. Quite a bit. In 2021 and two, we will continue in 2022. Once you have all this information I talked about together, it's possible to mitigate the situation for your company. So it's not only helpful to save money it's as well helpful from mitigating these shortages.

[00:11:27] Eric: It seems to me that the critical piece of this though, is getting that information all together into a SQL database.

[00:11:35] I imagine that information must be stored in all kinds of disparate sources. You've got local databases, online stuff. You've got things residing in one department, but not another. How do you get all of that information from all these different sources into a SQL database. To me, that seems like the heaviest lift of this process.

[00:11:57] Volker: Yeah. It's two things in one part of the data you've got internally and it's, you always say eat elephant piece by piece unless you're vegetarian. So do it. We did it since seven years and we added piece by piece and the other big portion, the other big deal was to get information from SiliconExpert, which really added a lot of properties to each part we purchased. It wasn't easy. It took a while, but it's worth it.

[00:12:28] Eric: I want to pick up on what you just mentioned about the integration with SiliconExpert. Can you talk in a few more details about how SiliconExpert is helpful with that part of the process?

[00:12:41] Volker: We use SiliconExpert to find stock by searching all the brokers in all the distributor's world.

[00:12:47] So it's not only about the manufacturing part numbers that we officially approved. It's also by alternatives that SiliconExpert proposed us being compatible, in form, fit, and function. So we automated all that search. So what had been done manually by human beings in days is now being done with a press of a button and a coffee break.

[00:13:09] Eric: Nice.

[00:13:10] Volker: The second topic about SiliconExpert data interface is to have a kind of a warning system that'd be put in place to know about the components going obsolete. So wouldn't we talk about last time buy so whatever parts we have written correctly, and we did query SiliconExpert for we getting a lifetime is to end-of-life and we can predict if that part will last longer.

[00:13:37] Or if that part will go obsolete pretty soon Honeywell part number or any of your company part number's going obsolete. Somebody said it's like an asteroid that is about to hit mother earth it's happening seldom. But if it happens, it will be a catastrophe. It's better to have all asteroids on the radar.

[00:14:00] Yeah. Yeah. So there are tools out there like AMSYS, which offer great solutions to manage these obsolescences. And I remember that there was a earlier podcast about AMSYS and SiliconExpert with the CEO of AMSYS, Bjoern Bartels. Yeah, I can recommend it.

[00:14:18] Yeah, it's great. He certainly, he knows a thing or two about obsolescence.

[00:14:22] Eric: It strikes me as you talk about both of those things, the searching for alternative parts, as well as having a warning system that, that really what those things have in common is shifting your approach from a reactive state of mind to a proactive state of mind. So we're looking ahead, we're looking for the asteroids out there so we know about them long before they hit. And we're also proactively searching for alternatives and perhaps improved components.

[00:14:52] Volker: Here we go. Yep. Yep. I couldn't have said it better. The third thing I like to mention is the data quality that is fundamental to all we do in component engineering, the data quality, the correct spelling of the manufacturer name and the manufacturing part naming.

[00:15:08] Eric: It's such a simple thing, but it's such a huge deal.

[00:15:12] Volker: Absolutely. We are dealing here with 50,000 different manufacturing part numbers. Sometimes people have written stuff in brackets behind, so that's LMF3117 bracket open, do not use bracket close.

[00:15:23] The human beings know exactly. That's not part of the manufacturing part number, but machines couldn't know. Right. And that was a big deal to fix them all. And at the end of the day, we said, Hey, where is our dictionary to see what's right and wrong. And we said, SiliconExpert will act and is acting as our dictionary today.

[00:15:44] Eric: Yeah. That's a big time saver. We see examples all the time where something as simple as a name of a Chinese manufacturer that has been translated or transcribed from Mandarin into the Latin alphabet in a different way. And we miss things that.

[00:15:59] Volker: So we are proud to say that in the meanwhile we will coming to a hit rate of 86% where SiliconExperts said, yep, that's the exact right spelling.

[00:16:08] But of course it took us a while to come to that point.

[00:16:10] Eric: Yeah, of course. What else, what other kinds of information are you pulling from SiliconExpert?

[00:16:16] Volker: Once we did have the machine to machine interface, we are pulling in addition to Rohs information the REACH information pricing country of origin, alternatives, years to end of life, you name it.

[00:16:28] The list is longer. We started to optimize parts,, but after a while, other departments in the company say, Hey, wait a minute, you have a connection to a database called SiliconExpert. Can you not get us the Rohs information in the European union? It was a law. It was by law that you had to be Rohs free compliant for each of the 10 thousands of finished goods you made, made out of hundred thousands of raw material.

[00:16:57] And it would be a wild goose chase to do them all manually.

[00:17:02] Eric: I cannot imagine how you could possibly do that much research for that many parts in a manual way. It's just mindblowing.

[00:17:12] Volker: Yeah. And then that was the Rohs and the compliance group. So the, the buyers came, they're happy with our budgetary prices and the alternatives, and then came the NPI designers and the NPI buyers saying, Hey, it's good to know that saw I catch some of the guys putting not recommended for new design components into a fresh NPI bill of materials. So they're using our data as well.

[00:17:40] Eric: Are there other ways that you're using SiliconExpert that are perhaps different than what we would expect. Are you doing any customization with it or any APIs?

[00:17:51] Volker: Absolutley. If you're coming into contact with SiliconExpert, the first time you get this great front end for human beings. So you start typing in a manufacturer part number and boom, you get dozens and dozens of properties for that part as we discussed.

[00:18:06] Eric: Yeah, it's perfect. So easy. If you're looking for one thing, type it in and boom, there you go. There, there are your answers for that one. I think about scaling that.

[00:18:14] Volker: Here we go. So say you can do that easily. One part, maybe 10 parts, but you don't want to do it with 50,000 parts. So unless you have enough people to do it for you. So we started to take your API in advance program as interface. So we now querie our 50,000 manufacturer part numbers machine by machine and that was a game changer.

[00:18:38] Eric: So your you're actually connecting to your component engineering database.

[00:18:43] Volker: Yep, absolutely. So say we do have a list of our 50, 80,000 Honeywell part numbers. We pulled the APL approved manufacturer part list there. We know all the parts that we are allowed to purchase. We translate them with the right spelling.

[00:19:02] And then we let the machine work to get us per each single manufacturing part number, maybe 50 different properties.

[00:19:09] Eric: Wow. That's powerful stuff.

[00:19:12] Volker: And so we queried again, maybe once a week. So we have our radar to spot every asteroid hitting planet earth.

[00:19:21] Eric: Yes. And I love that's a sustainable, um, system that, that you can just, you get it up and running.

[00:19:27] And then you're keeping current all the time and the machines are doing the work.

[00:19:34] Volker: Yep. I'm a lazy guy. I like having machines work for me.

[00:19:36] Eric: Nobody likes to do data entry as a human being.

[00:19:39] Volker: Yes. Yes. And coming back to the topic in the year 2015, we made this cost optimization called component value engineering an art. So we formed a center of excellence for the thing. And my former Boss said, Hey, now that we have to save so much money, we need to have data on the table. And that's why he made me the data miner. So we had me as a data miner doing the architecture, and I hired two people being the SQL specialists. And that was a success story. One guy who knows about the business and one guy who knows about the programming,

[00:20:18] Eric: That's the winning formula.

[00:20:20] Volker: Uh, long ago, somebody said, Hey, what is information? And I love to ask that question to audience saying, Hey, if you had to write a Wikipedia article on information, what would you write into it? And my personal definition is information is something that causes you to take action.

[00:20:37] Eric: Ah, that's a really interesting definition.

[00:20:40] Volker: Yeah. You spark a lot of discussions. If you tell that your friends, and if you're asking your friends, some might agree, some might disagree, but at least it will run into an interesting discussion.

[00:20:51] Eric: Yeah. And in this context of what we're talking about here optimization that's what matters are you able to take action?

[00:20:59] Are you able to do something with that information?

[00:21:03] Volker: We are looking for high runner parts that had been never optimized. We're looking into a single source parts into 30 year old science, all of that good things. And that's what I call information. Hey, point me to the place where we can save money.

[00:21:17] Eric: What's going to be your next move from here.

[00:21:20] Volker: I will leave Honeywell in two months from now, the simple background is that the site where I'm, where I'm at is being closed. So I took a nice package and too old to start somewhere else, but I'm too young to lean out of the window, staring at people. So I decided to get a consultant. So whoever wants to hear about my experience or wants to share my experience, feel free to contact me.

[00:21:46] There is a webpage where you can see my contact details. It's VECE value engineering components, renewing minus consulting.com. So I'm happy to hear about your questions and inquiries.

[00:22:00] Yeah. Tell me about what kinds of things you are going to be focusing on as a consultant.

[00:22:06] So in a nutshell, everything we talked about the last half hour, it is, it could be that you say I'm really desperate to find a second source. Maybe I can help you. Or you say, Hey, let's see what focus that is true.

[00:22:19] That you can really make a lot of additional money with component and value engineering. So I can tell you what works well. I can tell you what did not work. So why should you run into the same problems in the same crap society? I can tell you what, what might work for you, what you should definitely do and what you should avoid.

[00:22:38] Eric: Yeah. You find a lot of lessons the hard way. I'm sure

[00:22:41] I can come see your factory. See your company. Look at products on the 27 years to get an eye for. Hey, is that lean or is it fat and where is the fat to be taken off?

[00:22:52] Yeah. And that's. A valuable perspective that I think it is nearly impossible for someone inside the organization to have you, you have to come in with fresh eyes and enough background to be useful, naive enough, to be open, to, to interesting, more innovative ideas that somebody within the organization wouldn't have.

[00:23:13] I think that's so much of the value of a good consultant. Just as that fresh perspective,

[00:23:19] Volker: a hundred percent, sometimes you need a fresh set of eyes to look newly into it. Of course, I don't want to be smarter. I can't be smarter than people who've seen their products for many years, but they went to be company blind after years.

[00:23:32] Yeah.

[00:23:33] Eric: It's inevitable.

[00:23:36] Volker: There was one incident. Where we raised a concern about a part going obsolete. And what you do is to make a last time buy and before we made the center of excellence to deal with that obsolescence, ICs and cost optimizations in one department. What happened is people were happy about the last time buy.

[00:23:58] We purchase it for another year and after 11 and a half months, they said, hey, we didn't take action. We didn't redesign it. Can you do another last time buy? And my answer was simple. Hey, which part of the word last did you not understand last time. It's not the fun stuff that a new engineer from university might want to pick, but it's important.

[00:24:19] And it requires a lot of experience to do it. And if you're longer with the business like me, you understand it's as valuable as NPI. So I can only encourage other engineers to not only think about NPI design, but also about sustaining, keep product alive. And I've seen so many cases where people did so many efforts and attempts to get rid of the problem as soon as possible, but for a fortune.

[00:24:49] So I saw where we replaced the $1 simple chip for a $10 chip where we could have made a redesign easily for it.

[00:24:57] Eric: Again, that big picture perspective is so important. If somebody is focused only on, on one piece of the process, it's so easy to wind up in a bad place.

[00:25:08] Volker: So say if you do not have a department for these kind of work.

[00:25:12] So of course I can understand NPI engineers, they see, let me get rid of this problem as soon as possible that I can go back to my normal NPI work and it leaves behind a lot of gems, a lot of golden nuggets that you just need to pick.

[00:25:28] Eric: I want to invite our listeners to check out Volkers blog on his website.

[00:25:34] That's VECE-consulting.com. There are some really interesting topics that he's got up there already and some very exciting ones that are going to be coming up. Volker, what are some of your favorite things that you've written about so far or that you're looking forward to writing about on your blog.

[00:25:53] Volker: What's written so far. It's more say the basics. I'd like to start with the basics. What is an approved manufacturing part list? What is it good for? What is a PDM system also about why is data quality so important? Why is it so fundamental? The next one will be a little guideline of how to find components in these times of shortages. A little cookbook of what are the tricks to finding it.

[00:26:18] Eric: Relevant for everyone.

[00:26:21] Volker: Yes. Yes. I hope people will find it interesting. So the plan is to write an article a week, and once I get enough articles together, I will make a book around it.

[00:26:32] Excellent. And we will all find out why component engineering optimization is even more profitable than selling drugs.

[00:26:44] So Volker in poking around on your website. One of the things that stands out is the banner about saving a million or letting you do it for them. Tell us a little more about.

[00:26:56] Yeah, that's a true story. That happened 18 years ago when I started my career as a value engineer. So I did a business trip to Chicago and by chance met a guy in the hotel who was a senior management of Honeywell.

[00:27:11] And he said, Hey, Folker nice to meet you. What are you doing in the meanwhile? And I said, I'm doing component and value engineering. He said, nice. So go out and save a million. And I thought, wait a minute, this guy must've been smoking the wrong stuff this morning. So a million, that's quite a lot of money. And three years after that I saved $3 million on component and value engineering.

[00:27:40] So I didn't believe it myself what he said, but it went to reality. It came true. And yeah, and at the other part of the statement is now, let me help you achieve the same.

[00:27:54] Eric: Thank you so much for a, an amazing discussion that was really wide ranging and for being our guest today.

[00:28:02] Volker: Hey, I have to thank you for inviting me.

[00:28:04] It was a pleasure. Any time again,

[00:28:07] Eric: I'd like to thank you again, Volker for sponsoring this episode of the Intelligent Engine podcast. And a special thanks to you, our audience for tuning into this episode, be sure to tune in for new episodes that will delve into more of the electronics industry, upcoming episodes, we'll explore location-based advertising technologies and the changing landscape of traditional electronic product contract manufacturing, and the government's perspective of the electronics industry.

[00:28:36] Be sure to share our podcast with your colleagues and friends, you can also sign up to be on our email list to receive updates and the opportunity to provide your input on future topics. Go to SiliconExpert.com/podcast to sign up. Until next time, keep the data flowing.

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