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October 15, 2004         

by Robert T. Yokl, President

6 Reasons Why Most So-Called “Value Analysis Programs” Fail To Produce Double Digit Savings Results Annually!

Measure Your Results & Outcomes Vigorously

“Most Value Analysis Programs are Underachievers When They Are Measured By The Savings They Generate And The Long-Term Impact In Changing Their Organization’s Culture.

Let’s face it…most so-called “value analysis programs” don’t work!  They are just window dressing.  If they did they would be producing double digit results, not just talking about them!  In actuality, most value analysis programs if measured by savings results are generating less than 1% savings annually.   What a pitiful picture this represents when you consider that my clients are saving, on average, 26% annually on their supply chain expenses.   Here are six reasons why these so-called “value analysis programs” fail to generate double digit savings:

1.                Lack of vision and mission

Most value analysis programs start out with one thought in mind –- to save money!  While this is one element of a value analysis program’s mission, this is a weak starting point for this endeavor, because your value analysis program’s real mission should be to introduce a high quality decision making system for the value justification of the millions of dollars of products, services and technology you purchase annually.

Let’s not forget your vision, which is missing from 99.6% of all value analysis programs, and should describe how you will change your culture from “price thinking” to function, quality and customer thinking, so you can reinvent the way your hospital purchases…evermore.

2.                Lack of cultural commitment

Too many value analysis programs are the sole creation of supply chain professionals with no cultural commitment from their executive management team or department heads and managers. This cultural commitment is essential if you are to construct positive behavioral changes hospital-wide which is compulsory if you are to reduce your supply chain costs to the lowest levels possible. 

3.                Lack of team architecture

How you structure and organize to save is a critical success factor for your value analysis program. Committee structures of any kind are anachronistic in the 21^st century. Because of their inherent risk aversion temperament won’t move you to the next level of savings performance. Only a team structured architecture can make savings happen for you continuously.

4.                Lack of training and resources

New counterintuitive skills are required for new challenges like the search for “best values” at your healthcare organization.  These skills can only be learned through “formal” training programs.  “Winging It” won’t raise your level of performance, but instead will only diminish it.

To be successful in value analysis, you will also need resources to support your value teams to insure that they have all of the requisite skills, training and means to conduct their  value studies successfully.  

5.                Lack of true Measurement

All measurement of your value analysis program’s success starts with baseline metrics (a measure or standard represented by numbers or ratios) as a starting point that you can reliably compare your healthcare organization’s supply chain to identify performance “gaps” in your value analysis program.

 What I mean by this statement is you need to benchmark yourself against hospitals with the same or similar operating characteristics (or outsource this function to a third party), thereby, know with certainty the global and departmental line-by-line supply chain savings opportunities available to your hospital.  Then measure your success based on these baseline measurements, not by “gut feel”.

6.                Focus on price and aesthetics

A recent study I conducted for a client showed that 44% of their annual supply chain savings were generated by recurring manufacturer rebates, 25% from new GPO contracts and 31% from value analysis studies. Since I consider rebates and new GPO contracts actually price related savings, this client’s actual “price oriented” savings was 69%. 

These are the facts, but here is the rest of the story.

Based on a line-by-line analysis of my client’s savings categories, their value analysis savings were -- on average – five to ten times higher than their price oriented savings.

This finding didn’t surprise me since our studies have shown that price savings, while important, are generally meager compared to the savings you can generate from value analysis studies if you focus on function (not the aesthetics of the product, service or technology), quality and customers vs. price alone. 

Simply stated, most value analysis programs are underachievers when they are measured by the savings they generate and the long-term impact in changing their organization’s culture. This is because they fail to measure their results and outcomes vigorously and are satisfied with “meager” results. 

Here is one “big” idea, if you want to move to the next level of savings performance in value analysis program and avoid being an underachiever, I would suggest for starters that you adopt a savings goal of 26% annually. By just establishing this savings goal you will position your value analysis program to reach a new level of savings performance that you hadn’t previously believed was possible, probable or doable.

About the Author

Robert T. Yokl, President, The HCP Group, Ltd., has over 35 years of experience as a consultant and manager in the field of Supply Value Chain Management and is one of the country's leading healthcare experts in value analysis, value engineering, Non Salary Expense Reduction and materials management. He is the developer and program leader of the award winning Certified Value Analysis Practitioner Training Program™. Mr. Yokl is also the developer of the healthcare industry's leading ValueNetCentral™ Value Analysis Software. Over the past two decades he has trained thousands of healthcare managers in his patented Strategic Value Analysis™ and Team-Based Project Management™ processes and has assisted scores of organizations in developing their own value management programs. He has published six books, videos and audios on supply/value chain management. His latest book being, “ Strategic Value Analysis™: The #1 Smart Strategy for Taking Cost Out of a Healthcare Organizations’ Healthcare Supply Value Chain”.

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