Value Analysis in Supply Chain Management

Today, myriad value analysis committees are working on multiple projects in hospitals and provider systems. Unfortunately, when judged by outcomes, too few projects meet acceptable thresholds of savings to overcome the committee’s costs if labor expense is tallied.

Certainly value analysis is important, but the process is difficult to effectively execute and often misapplied. While notable exceptions exist, we have all observed value analysis used as a tool to justify things that could have otherwise been adopted or rejected with more routine supply chain management processes. Managers are encouraged to consider only deploying the value analysis process in cases where the change contemplated is complex, difficult and risky. In a conservative view, the most approximate context to use the value analysis process is when compiling requests for proposals (RFPs), but we will discuss a few of the other contexts in which value analysis is prudent.

Why Value Analysis

Some supply chain decisions have long-term consequences, including restraining trade and promotion activity, aligning incentives, reshaping practitioner behavior and affecting patient outcomes. Evaluating a service offering or piece of new technology requires a careful, well-thought-out, process and boundary-spanning thinking.

Because price, though necessary, is an insufficient part of the value equation in modern health care, some supply chain leaders 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 department engages the value analysis process too quickly. Deploying such a powerful tool as value analysis should only be done on special occasions.

The difficulty in value analysis comes from the complexity inherent in perspective-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 contemplated by the process. Therefore, before beginning the desired outcome, setting and user should be clearly articulated, and the impact of change should be quantitatively estimated.

Besides the complexity required to align organizational, departmental and individual priorities, another layer of challenges is underneath: the requirements of effective value analysis, and when to employ value analysis.  I’ll touch on both of those points, in my next blog post.

-Gunter Wessels

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