Savings Beyond Price™
Innovative Supply Savings and Quality Solutions That Work
by Strategic Value Analysis® in Healthcare
Did You Know...?
That Value Analysis Was Developed Back In the 1940's After World War II as a Way to Find Lower Cost but Higher Quality Alternative products and methods. This was Due to the Lack of Material Resources At The End of The War.
Savings Beyond Price -Weekly eNewsletter - September 10, 2009
Robert T. Yokl
President & Chief Value Strategist
Value Analysis Works Best with Pareto’s Law
Greetings
Most of us have heard of the Pareto Law (or 80/20 rule) that was invented in the 1800s by Italian Economist Vilfredo Pareto. In its simplest terms the Pareto Law says that any problem we encounter can be broken down statistically in order of severity or importance by their largest and smallest elements to understand its complexity and significance.
For example, 80% of your requisitions are generated by 20% of your hospital’s departments. 80% of the dollar value of your inventory is in 20% of your items. 80% of a company’s sales are made by 20% of their sales representatives. This law holds true for anything you do!
We found that value analysis woks best with Pareto’s Law because you need to find a way to sort through the millions of dollars of purchases you make each year to find your best value analysis candidates and then organize this data so that it is meaningful and actionable.
Before my clients had MMIS systems (this wasn’t that long ago) I relied on the Pareto Law to search out the best value analysis savings for them. I did so by requesting a copy of my client’s account’s payable runs sorted from the highest to lowest dollar expenditures. This then revealed where my client’s best value analysis savings opportunities were hidden. I remember that I had a big “Aha” while performing this exercise when I found that one of my client’s biggest annual expenditures was coffee, eggs and meat products. This important information was then the starting point for my value analysis studies.
I also found that the Pareto Law makes sense to use when evaluating custom packs, kits and trays, since we have found that 80% of the dollars in these products are represented by 20% of their components. Therefore, I didn’t need to value justify ALL of the items in my client’s custom packs, kits and trays, just the top 20% of them, to wring out 80% of the available savings. This is a great time saver that I teach value analysis practitioners who have limited time to get their value work done!
Now that we employ our Utilizer® Dashboard to identify our client’s best value analysis candidates, ALL of our data default settings are arranged from the highest to lowest (80/20 rule) savings opportunities so our clients don’t need to manipulate their data to see their best value analysis candidates. Technology has made it possible for even a novice to apply the Pareto Law to every aspect of their value analysis studies without the hassle that I had to go through when data was paper-based, unwieldy and hard to find.
One last thing! The Pareto Law or Universal Sort, as quality guru J.M Juran called it, is the easiest and fastest way that I know of to open the window wide to uncover big value analysis savings for my clients. You too can experience these same positive results by focusing in on the 20% of people, processes and products that make up 80% of everything your healthcare organization provides your patients and staff.
Your Partner In Savings Beyond Price™,
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
1-800-220-4274
P.S. If you are still challenged by uncovering your best value analysis candidates you might want to take a “test drive” of our Utilizer® Dashboard that makes this important chore easy and hassle free.
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