7 Value Engineering Lessons from SpaceX Supply Chain

Do you know how to use value engineering (VE) to drive your costs down effectively? We will explain 7 lessons from the space project management you can use.

Background of Value Engineering (VE)
No matter how complex your international business environment is, there will always be a way to reduce manufacturing costs. The simplest yet effective method is called "Value Engineering".

Due to material shortages during World War II, companies needed to find alternative materials on a regular basis. In 1947, Lawrence D. Miles of General Electric developed the groundbreaking technique that cut cost significantly. The (original) underlying concept is the series of questions that you should ask yourself about your current material usage as below,

- What is it?
- What does it do?
- What does it cost per year?
- What else would do the job?
- What would that cost?

It may seem to be too simple but this concept spread like the wildfire. This method was extended within the industry and later it's called "Value Analysis" or sometimes called "VA/VE". After that, the Japanese auto industry adapted this concept to its situation and they called it "Target Costing". It's now widely used in lean manufacturing and six sigma initiatives.

SpaceX and Value Engineering
Do you know the online payment system called Paypal? The person behind its success is Elon Musk. Musk sold the company for millions of dollars, after that, he studied how he should invest the money he got. Then, he found that building a rocket for transportation purpose might be a good idea (at that time, many people tried to talk him out of this craziness).

In June 2002, Space Exploration Technologies Corporation or SpaceX was established with the goal to make the space launch service way cheaper. In fact, he has managed to make it (jaw-dropping) 100 times lower than any competitors in the world! And on 25 May 2012, they made a very remarkable achievement by being the first privately-fund company who could send cargo from the earth to the International Space Station.

We try very hard to find how he does it but it's very difficult because there is no article dedicated to this. So we have spent lots of time digging into many discussion threads on Quora where some of the aerospace experts and current/previous employees of SpaceX make the comments. The results are pretty interesting...

1. Analyze lessons learned from others
To figure out why rockets are so expensive, Musk studied a lot from other companies. He found that the main engine is always optimized for the highest performance and equipped with high-tech gadgets which makes it very expensive. Then he decided to use the mature technology from the Apollo program to cut the cost down.

2. Keep product design in-house
Musk knew from the start that the product design is a very critical mission because it dictates the type of materials, manufacturing processes, and source of supplies. Keeping it in-house makes perfect sense.

3. Use standard components and modular design
To reduce procurement cost further, Musk tries to utilize standard inventory that is highly available within the aerospace industry in California. Another reason is that custom parts for aerospace suppliers are super expensive and it takes years to develop, even with hard negotiation. SpaceX also produces some important parts in-house.

4. Choose the type of materials wisely
Another smart decision is about the type of materials, namely, propellant. Musk used liquid oxygen and kerosene instead of traditional liquid hydrogen. This cuts the cost down to as low as that of a commercial airplane.

5. Pay attention to internal coordination
Musk uses a flat organization to encourage internal coordination. This is a very important thing that can help you prevent a project delay.

6. Do simulation before actual production
Due to the advance in computer application, SpaceX conducts a simulation analysis before the actual production so they can test the design ideas and identify problems before it strikes.

7. Be positive and learn from mistakes
Since SpaceX is a newly established company, they can only afford 3 test launches (too many failures also damage creditably to the eye of NASA and other potential customers). On the second attempt, the rocket flew smoothly, however, there was a series problem. When the vehicle tried to detach from the main rocket, they lost control of the vehicle. Everyone was frustrated but Musk said that it was the success even it's only half of the operations. Because there are so many companies/countries fail to execute even the first the stage of the flight like SpaceX did. Only weeks later, the team identified possible causes of the failure.

Implications of Value Engineering Program
We got feedback from the readers that these principles seem to be too obvious. So, let's discuss it a bit more.

Suppose you want to develop a bottle of shampoo, applying the principle number 4 alone (changing type of material) the below is the possible product configuration,

3 types of caps * 3 types of bottles * 3 types of labels * 3 types of printings * 3 formulas of shampoo = about 250 combinations

As you now see, it's obvious but it's not easy.

The most important principle is then no. 1 (to learn from others). For example, in the past, a copy machine maker had to dissect a machine produced in Asia and study them, piece by piece. Say there are about 3,000 parts, the real challenging is how to apply which principle to where in order to minimize the total cost (a rocket has many more parts for sure).

That's why what SpaceX did is an amazing achievement!

- Miles, L. D. (1962). Techniques of value analysis and engineering.

Last review and update: August 20, 2019
About the Editor
Ben Benjabutr is the editor of SupplyChainOpz. He holds an M.Sc. in Logistics Management with 10+ years of experience in various functions in supply chain magement. In his free time, he enjoys reading business and management books. You can connect with him via Twitter, and Quora or drop him a line via e-mail.