Is Value Analysis Your Responsibility?
I was paging through AHRMM’s 2009 Material Management’s survey to look for trends that might be of interest to my readers. One trend that jumped out at me was that only 28.7% of the survey’s respondees reported that they were responsible for value analysis for their hospital. This is an astounding statistic when you think about it: 71.3% of MMs aren’t responsible for VA at their healthcare organization!
My first reaction to this eye-opener was that this must be a typo, but then I realized that this number was consistent with AHRMM’s 2007 (30.7%) and 2008 (36.5%) survey results, so it must be right. I also know that many hospitals, systems and IDNs don’t have active value analysis teams, so that’s one reason why this number is so low. Another reason it’s low is that not all supply value analysis programs report to material management. I have often seen this vital function reporting to nursing service, not materials management.
My thinking is that even if this number is a little off, it still shows a dangerous trend in healthcare: Material management isn’t 100% in charge of their healthcare organization’s supply value analysis programs or there is no VA program is place to do so!
As I see it, VA is a mission-critical function of materials management. Every hospital, system and IDN should have a supply value analysis program and it absolutely should report to materials management. This is because price is the smallest factor in the total cost equations (about 21%), while 79% of your product, service and technology cost is attributed to the in-use cost of the commodities you are buying. Based on our empirical experience, only VA teams can drive out these unnecessary and unwanted utilization costs…period!
In brief, if your hospital, system or IDN is to get ahead of the wave in the new healthcare economy that is upon us, you will need to embrace the value of value analysis in controlling your total supply expenses. This means, in practice that you will need to take charge of your VA program if it reports to another department or establish VA teams to get this hard work done.
The alternative is to either ignore this proven cost-cutting methodology or leave it to someone else in your hospital, system or IDN to get this important work done. This doesn’t seem like a plan to ensure your job security to me, so I would suggest that you take charge of your VA program today or get your VA program started to protect your turf and to keep your paychecks rolling in for the foreseeable future. It doesn’t take a whiz kid to see this as the road you should travel.
Saving Money Isn’t Getting Any Easier
There used to be more new savings opportunities just lying around waiting to be implemented than there is today. In fact, GPOs are announcing more price increases than decreases on every contract that comes across your desk. Standardization has been achieved at most hospitals, systems and IDNs and value analysis teams are spending most of their time on GPO contract conversions with meager savings results. Saving money isn’t getting any easier, but that isn’t a good reason to throw up you hands in frustration, since most healthcare organizations are looking for savings in all the wrong places.
There is actually 7% to 15% overall in new supply expense savings available to you right now if you decide to reorient your savings efforts in three supply chain areas of your operations:
Utilization Management
We have proven beyond a doubt that healthcare organizations are bursting at the seams with utilization misalignments in their supply chain operations. These wasteful and inefficient consumption, misuse, misapplication, misappropriation and value mismatches are bloating your budget and need to be attacked by your value analysis team(s), and not waste their limited time on GPO contract conversions.
To this end, we recommend that you should have a Value Analysis Team dedicated to GPO conversions, if your VA teams are spending all or most of their time on this GPO activity, so they can focus their valuable time where your real supersized savings reside.
Demand Management
This is a new area of your supply chain operations that encompasses “measuring the velocity, intensity and frequency of the products, services and technology utilized over time”. We have found this to be a key metric to enable supply chain managers to begin a meaningful dialog with their physicians and department heads to understand why the utilization of any commodity they are buying is increasing or decreasing — beyond normal acceptable justifiable limits.
Contract Management
With few exceptions, we are observing that healthcare organizations aren’t ferreting out obvious and visible savings in their purchase service contracts where up to 18% in savings overall can be achieved. Every hospital has millions of dollars of purchase service contracts no matter how many occupied beds you have. These contracts should be benchmarked for price, utilization and demand reduction opportunities at least annually, to ensure that they are within acceptable justifiable limits.
These three areas of your supply chain operations are ripe for hundreds-of-thousands dollars (maybe millions) in supply chain savings for your healthcare organization if you decide to refocus your time, talent and VA teams on these untapped gold mines. This will then make saving money a whole lot easier, while everyone else is looking for savings in all the wrong places.
What a Great Model for Any Hospital Value Analysis Program
Last week I was on site at a client’s location conducting an advanced 1-day LEAN Value Analysis Training Program for their value analysis team leaders and team members. This was this client’s annual value analysis refresher course which I think is a perfect model for all value analysis programs to emulate. Why? Because too often hospitals start their value analysis program without any training whosoever (they just tell their teams to “Go Save Money”). Therein lies the problem! That’s why I like this client’s value analysis model: Annual refresher course to keep their VA teams on target, on budget and on the money each and every year!
Let’s face it value analysis is not as easy as it looks. If you were to tell me that you could establish a Six Sigma Teams without training black, yellow and green belts and then expect these teams to achieve Six Sigma outcomes you would be just kidding yourself. Your team members would need extensive training in Six Sigma to accomplish superior results. Value analysis is a discipline very much like Six Sigma or Lean Management. To be proficient at value analysis you need to have extensive, continuous and up-to-date training for peak performance!
That’s why this client not only began their VA program with extensive training for all their team leaders and team members, but they also realize that this education is never ending and that in order to continually improve their VA program they must refresh their VA training each and every year.
For example, this client told me that they contracted with a trainer last year who focused on evidenced based management. This year they hired our firm for advanced value analysis training as well. This is not a one-time event for this client, but an ongoing stratagem to continue to hire the best value analysis trainers and on an annual basis give their VA teams new and even better strategies, tactics and techniques that they can employ to boost their VA team’s performance.
It was also important to note that this client had their Chief Operating Officer attend this training session and then spoke to the group during a break. He reaffirmed how important all of their VA work is to their hospital, especially since their reimbursement is not going to go up any time soon even though higher technology expenses are still pushing their costs up each and every year. I can’t tell you how significant it is to have an executive management sponsor, like this COO, fully engaged and very active in hospital’s VA program! From my perspective, it will certainly make these team leaders’ and team members’ job easier and their teams much more successful.
One of the reasons this client’s VA program has been so successful over the last few years is that they keep the momentum going with VA training each and every year so that their VA teams never lose focus of how important they are to the financial success of their healthcare organization.
It’s easy for any hospital, system or IDN to put a VA team(s) together and say “Go Save Money”. It’s usually followed by capturing some low hanging ripe fruit that’s ready to be harvested. Nevertheless, we have found that the true test of a VA program’s sustainability, profitability and productivity is for them to achieve measurable and meaningful savings after their low hanging fruit has been picked clean!
An annual VA refresher course on the most up to date techniques in value analysis would be a good starting point for you too to keep your VA team(s) focused and motivate each and every year.
Last but not least, it doesn’t take a lot of time, effort or money to do so.
Make Savings A Team Effort!
Our research, surveys and empirical data tell us that too many supply chain professionals are trying to make all or most of the supply chain savings for their hospital, system or IDN themselves. While this is a commendable effort, it isn’t productive, prudent or cost effective in the long run.
A much better way is to share the workload with your value analysis team members. I will guarantee that by doing so, you will increase your savings output by 300%, 400% or even 500%. If you don’t have a value analysis team(s) now, then it is high time you establish one to lighten your workload, increase your throughput and boost your buy-in on your savings ideas.
It then becomes your job to facilitate, coach, train and consult with your VA team leaders and VA team members to ensure that your VA team is on track, on budget and on target to save big for your healthcare organization.
One of the secrets of personal productivity is DELEGATION: Assigning others your responsibility, but not your accountability to get things done! That’s what a VA team can do for you. It will provide you with many extra experienced hands that you will need to operate at peak performance. The alternative is to continue to be swamped, frazzled and overworked while getting little, if any, real, robust savings work done.
How to Select the Best VA Team Leaders
Indentifying the best value analysis team leader candidates can be like playing a game of roulette if you don’t have a list of proven characteristics that are known to be a good predictor of success. To help you in your selection here are four characteristics you should look for in your Value Analysis leaders:
1. Team leadership experience
Your candidates should have managed at least one team previously, before even being considered as a VA team leader. This is not the time for on-the-job training if you are looking for a high-level of performance for your value analysis teams.
2. Problem-Solving Skills
This is an essential skill that your team leaders must possess, since this will be a big part of their job as a VA team leader. This important skill will help their project managers when they hit the wall on their projects and think that no solution can be found to move their projects forward.
3. Proven Track Record
Just because a candidate has led a team before, doesn’t mean that they have done it successfully. Look for candidates with a proven track record of results (quantitative and qualitative) before assuming that they have the leadership abilities necessary to lead one of your VA teams.
4. Excellent Communications Skills
One of the most important leadership skills a VA leader can have is to be an excellent communicator, since this is 80% of what a VA leader does. A VA leader must provide frequent, consistent and timely verbal and written communications to their team members that are clear, motivating, and goal oriented. If a leader doesn’t have this skill they will be ineffective in leading their VA team in the right direction.
These are just a few of the characteristics we have found that VA team leaders must exhibit if they are to be effective, successful and competent in leading their VA teams. Don’t forget to use them the next time you make the important selection of a VA team leader. This will ensure your ability to get a good fit – not a mismatch!
