Part Two: Value Analysis in Supply Chain Management

We’ve already discussed the importance of Value Analysis, and why it’s essential in supply chain management.  With that in mind, let’s delve into effective value analysis:

What is Required for Effective Value Analysis

Assessing enterprise value requires a large measure of cost accounting. The value analysis process is best informed by granular data, i.e., what are the fixed and variable costs affected by the good or service? Without the following elements, it is difficult to evaluate the true value potential of a project. Committees need:

• Cost transparency about the current state
• Benefit accounting about the future state, including fairly rigorous job-order-costing analysis
• Project implementation management controls

These controls are among the most difficult of the three to acquire, but they are necessary to ensure a successful outcome.

At its conclusion, the value analysis process 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 incomplete 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 leadership 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 benefits in patient care, outcomes or satisfaction resulting from a technology, process or vendor change.
• Outsourcing a core organizational function, such as food service or biomedical engineering.
• 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 vendor 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) affiliation of the organization can be used to justify most vendor replacement decisions. GPOs have well developed 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 difficult situations where the power of the process has the greatest potential positive return.