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SPANNING THREE DECADES OF VALUE MANAGEMENT LEADERSHIP

December 2, 2001

HOW TO FIND TIME TO ANALYZE THE THOUSANDS OF PRODUCTS, SERVICES AND TECHNOLOGIES YOU PURCHASE?

A healthcare organization annually purchases 15,000+ products, services and technologies, so how can we value justify all of them?

A common concern amongst material managers (MMs) today is that they have too many products, services and technologies to analyze and too little time to do so!  This is really a two-prong challenge, since MMs must not only value justify existing products, services and technologies they are buying today, but must also find time to evaluate new purchases.  How can MMs devise strategies and tactics to effectively manage and control all of these critical purchasing decisions?  Here are some ideas to assist you in this area of your purchasing responsibilities: 

1.                All Purchases Must Have Line Item Budget Approval Prior to Purchase

One of the most powerful tactics to hold back unnecessary purchases is for your hospital to link all new purchases to their annual budget process. Meaning, if a product, service or technology hasn’t been submitted and approved (by line item, not hidden as a miscellaneous item) in any given budget year, then it won’t be evaluated or purchased until it is budgeted and approved.  No longer will department heads and managers order anything they want, any time they want without line item budget approval.  This tactic will reduce you new purchase requests by 50% or more.

2.                Sales Representatives Are Required To Value Justify and Guarantee Savings or Quality Gains on All New Purchases 

It has been estimated that a hospital purchases 14% more new products, services and technology annually, because sales representatives have recommend it.  Therefore, another best practice is to have all new purchases recommended by sales representatives value justified by them in writing and to have them guarantee these purchases to either save your hospital a minimum of 5% or improve quality by 5% or they won’t be consider for purchase in any given budget year.  This should be the first step in your new products, services or technology approval process, prior to budget approval.  Remember, no soft dollars in the savings equation, the savings must be justified in hard (measurable) dollars! 

4.    Attack The Value Few Purchases For Value Justification Annually, as Opposed to a Scatter Gun Approach

Most healthcare organizations spend 80% of their time value justifying purchases (e.g. IV start kits, catheters, dressings, syringes and needles, etc) that only represent 20% of their purchasing dollars.  A much better strategy is to value justify the 20% of the purchases (e.g. stents, pacemakers, implants, etc.) that represent 80% of your purchasing dollars annually.  This way you will be able to target the value few purchases that impact your hospital’s bottom line, as opposed to focusing your energies on the useful many products, services and technologies that have little or no consequence on your hospital’s finances.

When you link these three strategies and/or tactics together into a series of processes you will find that you have dramatically reduced the number of products, services and technologies you need to have on your radar screen.  This will enabling you to have the quality time to value justify the value few purchases that influence the economic health of your healthcare organization.

 Copyright © 2002 The HCP Group, Ltd.

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 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’ Supply/Value Chain”.