Demystifying Value Analysis - Part 1 of a Series on Value Analysis

People who have not been exposed to value analysis often find it a mystery. It was invented for the industrial world, not only to take costs out of products but to take hidden costs out of production as well.  It became much more widely known and used in healthcare in the past 20 years or so. While they share some traits, value analysis is not Six Sigma.

 Introduction

Value analysis, or VA, should look at process costs, waste, damage done during a “production” cycle, missed revenue opportunities—and a whole host of other important factors.  Organizations who treat VA like a “New Products Committee” are missing the point—and the amount of value that can be unlocked from engaging in the process.  

Lawrence D. Miles

VA Fast Facts:

·      Invented by Lawrence D. Miles, a General Electric  engineer during World War II

·      Substitutions of materials were found due to a  shortage of labor and raw materials

·      Goal: Reduce problems and reduce costs

·      Examines process costs, damage, and waste as well as  material costs

·      Outcomes: Increased customer satisfaction and to  create added value

 Often called Strategic Value Analysis, VA should go well beyond the evaluation of a new technology or the price of it.  It should look deeply at the impact of that technology on process and procedures.  It should support the organization’s mission and goals and go well beyond a single department.  VA is a cross-functional process. When done properly, it usually involves many departments and a variety of staff.

Who is Typically on theValue Analysis Committee?
  • Physicians and Surgeons
  • Supply Chain and Purchasing*
  • Chief Medical Officer*
  • Finance*
  • Nursing Leader(s)*
  • Revenue Cycle Management
  • Other Clinicians Including Nurses and Technologists
  • Finance*
  • Department Administrators
  • Data Analyst*
  • Infection Control Leaders
  • Information Technology

*Indicates position often acting in a permanent role on a VA Committee

 

Value Analysis is a TeamSport

As illustrated above, value analysis really should be cross-functional, and employ people from across the organization to evaluate a product, service or their impact on a process. All too frequently, value analysis is confused with the role of the old “New Products Committee” which often acts only as a barrier to evaluating new and improved technology or products.  While a product “champion” may present a product at a committee such as this, there is usually no champion associated with the VA committee.  At their best, the members of a VA committee are neutral third parties examining procedures and the products associated with them.

 When VA is Deployed: Questions Customers May Ask

VA is not just about new products or technology.  High performing and well-managed VA committees often go back to existing and often high cost procedures, including the products associated with them. Ideally, the VA committee evaluates the impact of changes to a product and accompanying procedure, across an entire organization. It examines such things as:

·      Is the quantity of a product reduced?

·      Does the new product and procedure eliminate cost?

              o  Material cost

              o  Process cost

              o  Other procedure costs

·      Is the new product and procedure better for the patient?

·      Are costs reduced in other departments?  For example:

              o  Is prescription drug utilization reduced?

              o  Are there fewer imaging tests?

              o  Are there fewer laboratory tests?

·      Is procedure time reduced?

·      Does the new procedure involve less labor?

·      Are ancillary costs reduced as the result of a new product or procedure?

·      Is waste reduced?

·      Can we “make” the product or service more inexpensively or perform better than by purchasing the product?

 In almost every case in almost every healthcare facility, supplier representatives are not allowed to present their product or service in front of the VA committee. Over the years this has led to considerable grumbling by supplier representatives.  

 As a result of this factor, it is imperative that either incumbent or new suppliers ensure that a spokesperson on the committee is well informed. Over the years, many suppliers, in their desire to make certain that someone knows everything about a product or service,have hundreds of pages of materials supporting the claims for the product,white papers and a myriad of other sources. This is often called a “Value Analysis Pack”, or a “VAC Pack” for short.  Unfortunately, in today’s world, especially in the acute care setting, few members of the VA committee have time to read much of it.

 What Should a Supplier do?

The term “value” often can be broken out into two types: quantitative value which is easily measured, and qualitative value which is important but not quantifiable. Unfortunately, manyVA members look almost exclusively at quantitative value. In some cases, good qualitative value gets ignored. Both can be important in many cases and balanced against each other.

 Instead of hundreds of pages in a VAC Pack, suppliers should consider several factors.

·      It is desirable to have the hundreds of pages of articles, whitepapers, reports and backup information—but they should be held in reserve until such time either an individual or the committee seeks the information as “proof” of certain claims.

·      Distill your “value” into two key components:  The clinical value of the product or service, and its quantifiable and qualified economic value components.  This can be covered in a two-to-four page “leave behind” that can be used during the selling and educational process. It should cover those factors that the VA committee will be most interested in.  

·      Avoid death by PowerPoint.  Sure, you’re proud of your company, its longevity and how a product came about. That should take one or perhaps two slides…not 20. Limit your presentation to no more than 4-6 slides, again focusing on the key elements you need to cover and educate your audience prior to their presentation at a VA committee meeting.

·      Ensure your customer is armed with the right information,and not too much of it.  Your leave-behind should cover the salient points that need to be made about the product or service, why it is better and how it adds value.  If the customer has additional questions, make certain they are answered prior to their presentation at the VA committee.  

It Better be “New” or at Least Improved

If the product or service isa brand or product line extension or is simply “new and improved” it may not be right for VA if the customer is already using the “old” product.  Several years ago, a major supplier replaced a glass product with one made of plastic, in essentially the same size and shape, but charged about 14 percent more for the new product which served exactly the purpose of the old one it was replacing.

 “Safer” in this case was a qualitative value, and it took little time for a public outcry about the supplier’s tactics.  Many assumed the new product was cheaper to manufacture, but few if any customers could point to instances where the glass product had caused any injuries or led to improper results. In a VA world, new and improved products that do not deliver real,additional value will struggle for acceptance—especially at higher prices.  

 

Coming Next in the Value Analysis Series:  The Process of VA and How to Fit In