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Why Value Analysis
Some supply chain decisions have long-
term consequences, including restraining
trade and promotion activity, aligning in-
centives, reshaping practitioner behavior
and a ecting patient outcomes. Evaluating
a service o ering or piece of new technology
requires a careful, well-thought-out process
and boundary-spanning thinking. That's
why HealthTrust recommends deploying
value analysis on all new product and new
Because price, though necessary, is an
insu cient part of the value equation in
modern health care, some supply chain lead-
ers have recommended value analysis as an
important balance for the value evaluation.
However, there are many other resources
and tools that could be overlooked if a de-
partment engages the value analysis process
too quickly. The di culty in value analysis
comes from the complexity inherent in per-
spective-based analysis: What perspective
should be taken when examining intangible
benefits? Should physician familiarity have
more weight than emerging clinical outcome
benefits? Whose benefits are worth most?
What is the appropriate weighting plan?
Value analysis must be anchored by the
functional outcome of the change contem-
plated by the process. Therefore, before
beginning the desired outcome, setting and
user should be clearly articulated, and the
impact of change should be quantitatively
Besides the complexity required to align
organizational, departmental and individ-
ual priorities, another layer of challenges is
underneath: the requirements of e ective
What is Required for E ective
Assessing enterprise value requires a large
measure of cost accounting. The value analy-
sis process is best informed by granular data,
i.e., what are the fixed and variable costs
a ected by the good or service? Without the
following elements, it is di cult to evalu-
ate the true value potential of a project.
1. Cost transparency about the
2. Benefit accounting about the future
state, including fairly rigorous
3. Project implementation management
These controls are among the most
di cult of the three to acquire, but they
are necessary to ensure a successful
At its conclusion, the value analysis pro-
cess quantifies the multidimensional value
equation, including the costs associated
with change and management, or the cost
to deliver the outcome.
When to Employ Value Analysis
Value analysis is designed for situations
where asymmetrical alternatives, or in-
complete substitutes, are viable options
to solve a clinical, operational or financial
problem. Value analysis is not designed
to defray controversial supply decisions.
Project champions and organizational lead-
ership should manage these controversies.
Instead, a small set of situations should
trigger the value analysis process. These
situations are those where a facility en-
counters decisions that include:
• Ambiguous or emerging potential bene-
fits in patient care, outcomes or satisfaction
resulting from a technology, process or ven-
• Outsourcing a core organizational func-
tion, such as food service or biomedical
• Innovative and new supply options that
displace multiple current modalities, such
as new diagnostic or therapeutic options
that replace current care pathways.
Value analysis can be employed in ven-
dor substitute selection where one vendor
displaces another one entirely; orthopedic
or cardiac implants are a prime example.
However, if the clinical studies and medical
opinion support the notion that vendor A
can substitute for vendor B, value analysis
is arguably unnecessary. Justification can
be done without the diversion associated
with the process.
Furthermore, the group purchasing
organization (GPO) a liation of the orga-
nization can be used to justify most vendor
replacement decisions. GPOs have well de-
veloped processes for value analysis and
clinical advisory boards. As a member of
a GPO, the hospital can reduce cost and
increase speed by adhering to contracted
supplier schedules for most requirements.
Replicating the GPO assessment rarely has
a positive return for the hospital.
Value analysis remains an important
tool in the supply chain managers' arsenal.
Using this powerful tool should be reserved
for di cult situations where the power
of the process has the greatest potential
positive return. •
What is Value Analysis?
Value analysis is an evaluation process where alternatives are profiled according
to the total value expected from the use of each competitive alternative. Value is
determined by a simple equation:
Value = Tangible and intangible benefits - Cost
Need Value Analysis?
LOOK TO SUPPLY CHAIN SOLUTIONS
Parallon Business Solutions provides value analysis services under its Supply Chain
Solutions o ering. Supply Chain Solutions uses a shared services approach to
provide consulting and outsourced services designed to optimize members' supply
chain operations in the areas of Clinical Resource Management (CRM), value analysis,
inventory utilization and product standardization, pharmacy order entry, operating
room operations, purchasing, accounts payable, and distribution.
For more information on Parallon Business Solutions, see story on page 32.
10 Third Quarter 2011 | The Source
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