Feature / Buying in to buying

Procurement strategies can help achieve value for money, yet they are not commonplace among primary care trusts. Mark Abrahams suggests how this should change.

You will no doubt be aware of the number of articles relating to the NHS that use phrases such as ‘facing unprecedented financial challenges’. Yet there have also been claims that the NHS is ‘wasting billions’ through its procurement practices. Could now be the time for procurement to come to the rescue?

For primary care trusts, the procurement challenge is not new. The formal world class commissioning (WCC) programme may have halted, but it highlighted important issues.

The panel reports last year showed that while improvements have been made, outcomes for competencies 7 (effectively stimulate the market to meet demand) and 9 (secure procurement skills) lag behind other areas.

Further analysis of these two competencies has been undertaken as part of a research project. In competency 7, sub-competency A (knowledge of current and future provider capacity and capability), 60% stayed at the same level. In competency 9 sub-category A (understanding of provider economics) a similar number stayed at the same level. But in sub-categories B and C (negotiation of contracts around defined variables and creation of robust contracts based on outcomes) 42% and 8% respectively actually got worse.

Recognising a challenge is one issue, but defining how to address it is quite another. But a procurement strategy appears a logical starting point. This would go beyond what already exists within the WCC framework by setting out clear intentions as to what was to be implemented, when, by whom, and with what outcomes.?This would give a clear direction of travel to meet the current challenges.

The National Audit Office has backed procurement strategies as a means of achieving value for money, while academic work has identified having a clear procurement strategy as one of seven characteristics of effective procurement. Yet when the sample group of PCTs were asked if they had a procurement strategy, only 42% indicated ‘yes’.

There is a shortage of definitions for what constitutes a procurement strategy. One considers it to be involved with the ‘design and management of systems to achieve the best integration of people, structures, processes and resources in reaching organisational purposes’. So, in a commissioning environment a procurement strategy would focus on:

• Identifying roles and responsibilities
• Analysing procurement spend and mapping the procurement portfolio
• Developing the market
• Analysing skills and addressing shortfalls
• Devising procurement policies
• Conducting options appraisals.

Many of these workstreams have been noted previously as key commissioning challenges.

Different approaches

It may be argued there is no need to devise a procurement strategy, as commissioning is completely different to procurement. Research shows the terms ‘commissioning’ and ‘procurement’ are often incorrectly used synonymously, while elsewhere a survey of local government procurement managers found 58% felt the terms interchangeable.

One view is that while procurement and commissioning differ, procurement sits within commissioning and is driven and fed by the commissioning cycle – in particular, options appraisal, sourcing and delivery activities.

If there is a need for a procurement strategy, as the NAO recommends, adapting one from elsewhere may offer a fast-track option, rather than reinventing the wheel.

There is evidence to suggest that strategies can be transferred from one organisation to another. Research has concluded that, regardless of the type of organisation, procurement has several common themes, such as adding value via better contracts, quality improvements, client relationships, supplier relationships, and cost reduction. Examples have also been noted of a cluster of small organisations developing a procurement strategy, and a consortium with a joint strategy.

Thus it would seem that there are many characteristics of a procurement strategy that could be transferred between organisations.  But could it be possible to adapt a strategy from outside the healthcare environment?

Local government model

The national procurement strategy for local government (NPSLG) could be a suitable strategy to clone. Although published in 2003, it is still regarded as good practice.

Further, the Department of Communities and Local Government’s review of the NPSLG (2008) commended council achievements, congratulating an ‘impressive track record of procurement innovation and efficiency’.

In its first three years, 21 workstreams were completed or partially completed, with just three behind schedule. Practitioners were similarly complementary – respondents contacted felt the NPSLG had been successful at least to some extent.

Respondents also indicated that the NPSLG had set the agenda, was a good starting point for procurement improvements, helped improve processes and acted as a catalyst. It also concentrated the minds of those with procurement responsibilities, gave the sector a roadmap, and raised standards to an acceptable level. This is surely similar to aspirations for improved procurement in the NHS.

The NPSLG would seem a natural choice. Strong links already exist with joint commissioning arrangements and commentators have suggested ‘local authorities are more advanced in terms of commissioning and contracting expertise’. It also seems appropriate as it contains strands of outcomes instantly identifiable as commissioning aspirations:

• Partnering and collaboration
• Capacity building
• Stimulating markets and achieving community benefits
• Conducting analysis of procurement spend
• Mapping procurement portfolio
• Market analysis
• Performing options appraisals
• Identifying roles and responsibilities
• Ensuring those carrying out the activity have the necessary skills
• Producing a forward plan
• Monitoring implementation using strategic performance indicators.

Many elements, far from being groundbreaking, are procurement tenets that have stood the test of time. As far back as 1978 commentators identified the importance of stimulating competition, improving supplier performance, establishing alternative solutions when faced with monopolistic supply sources, evaluating make or buy options, and being an attractive customer.

So taking the strategy as the ‘to do’ list, establishing the ‘by whom’ is the next conundrum. Those with first-hand experience of tendering will no doubt attest to the plethora of statutory and regulatory requirements. And given the embryonic state of development of some market segments, a considerable amount of effort is often also required for market stimulation and analysis.

This means a not insignificant number of staff are needed. Given the complexities of some of these areas, such staff need to be of sufficient calibre to effect real improvements.  The research project’s sample identified a third of PCTs did not have a head of procurement post in their structure. The average number of staff engaged purely in procurement was 1.92 (four indicated they had no staff at all), whereas the councils’ average was 10.7.

Shared resources

Funding such a team can be challenging in the current climate, making the synergies of a shared service model attractive. It may also be more attractive to prospective employees, lured by the potential of combined spending.

One example of a successful shared procurement service is NHS Bournemouth and Poole and NHS Dorset. Set up in 2008, a key benefit of the shared service with neighbours is that it gives economies of scale through greater purchasing power, taking away monopoly power from dominant providers.

It is also key in preventing the destabilisation of the market – separate procurement teams would mean pinching each other’s providers, so it avoids PCTs competing against each other.

This shared procurement model has been successful. It gave expertise, a consistent approach, access to knowledge, scrutiny and savings. Improved outcomes were noted for the services tendered; services were reconfigured and typically cost less, more sessions were held, and waiting times reduced.

Mark Orchard, director of finance at NHS Bournemouth and Poole, said it has paid for itself in savings many times over. ‘Additionally we can demonstrate expertise, we have a consistent approach and access to knowledge, we can scrutinise processes for stakeholders and the competition panel, and can also demonstrate savings and improved outcomes.’

A procurement strategy is not a silver bullet that has all the answers for commissioning. It should act as a suitable framework for defining priorities, tasks, resources needed and timescales. It is not so much about having a strategy per se but adopting appropriate elements within it as enablers to a more strategic approach to procurement.

The ultimate prize for procurement is improved health outcomes. Despite the positive results noted here, the jury may still be out on this subject nationally. Robust baseline data would be needed, and equally robust data for the present period, which in many cases seems to be lacking. However, the signs from those that do have data is encouraging.