Feature / Long haul to savings

The NHS is expected to make big savings in procurement. But this involves much more than securing the lowest price, says the Department of Health’s Tim Kempster.

The NHS has been set a steep target for delivering savings through procurement. In March the NHS was challenged to save £4bn by 2012/13 as part of an £11bn cross-government initiative. NHS procurement is expected to deliver £1.5bn of this. The service has been asked to respond through the QIPP initiative (quality, innovation, productivity and prevention) and we anticipate sustained pressure for savings and efficiency.

Procurement is not the biggest area of spend in the £100bn-plus NHS budget. Expenditure on goods and services is often put at about £20bn, but the full extent with commercial suppliers is nearly £34bn, including purchase of healthcare services from  the independent sector, temporary staff and utility costs (see table overleaf).

Clearly major savings opportunities are available. Yet good procurement is much more than just buying goods as cheaply as possible. Sourcing at the lowest price is important, but the efficiency of the total supply chain is also critical. The NHS needs to develop the skills to manage and understand how an effective supply chain can deliver savings in areas other than sourcing goods and to benefit the whole organisation.

Part of the role of the commercial support units (CSUs), introduced last year as part of a commercial model for the NHS, is to foster the development of those skills across the NHS. Focusing on an efficient supply chain provides not just cash-releasing savings, but leads to greater organisational efficiency.

There are opportunities to save in many areas, but the starting point is to get information on what is happening now and use this information to plan and act effectively to make things better. Market and data transparency is essential. Understanding suppliers, how they operate, their markets and how they manage them are also essential in creating effective relationships with them.

Supplier management isn’t just about driving the hardest bargains, it’s about working with suppliers to ensure they understand customer needs and provide the right level of service.

The information needed to support good procurement is not an end in itself – it’s a tool. Ideally it should come as a by-product of process, it shouldn’t add a bureaucratic burden and the cost should be as low as possible. If it costs too much, it undermines the very savings and efficiencies it is meant to help deliver.

Accessing information and understanding what it means are a key part of identifying where opportunities for improvement lie. This won’t just come from the procurement team alone but from engaging with those whose activities consume the supplies and  generate the information, clinicians or otherwise.

The techniques and technology used elsewhere in the commercial world can be used in health. It doesn’t have to be cutting edge, bespoke or expensive. Adopting approaches with a proven record is a good starting point.

There is no panacea for delivering savings through procurement, but it will require management focus and collaborative work to develop procurement as a strategic tool with a role in transforming the NHS. We must move beyond the traditional view of procurement as a sourcing and supplies function.

The section below identifies opportunities or enablers that can have a beneficial impact on procurement, including initiatives that can help deliver savings and develop skills:

Collaborative procurement NHS Supply Chain and Buying Solutions don’t get everything right but they are good at buying and supplying bulk commoditised goods as well as goods in specialised areas. It is worth taking a broad view of what they provide. Assess how baskets of goods add value through the total service offering.

Use of standardised product coding If all suppliers to the NHS adopt GS1 coding for their products and the NHS uses those codes, the quality of data will be transformed. A single unique code throughout the supply chain means a product from a supplier can be identified anywhere. GS1 coding provides the means to identify a product in a consistent way – and information associated with it.

Identifying a product using information that originates with and is maintained by the supplier and is used in all subsequent business processes provides a source of data that:

• Has a lower cost
• Reduces the cost to serve for suppliers
• Provides greater market management opportunities for procurement organisations working for the NHS
• Provides a means of consistent data comparison
• Supports improved stock control
• Contributes to efficient business processes
• Improves performance benchmarking and financial reporting in non-pay spend areas
• Means a product is identifiable as the same item throughout the NHS supply chain
• Supports product traceability and improves patient safety
• Enables patient level costing.

Rationalise the range of products used
It takes time but working to reduce the range of products used in a trust will generate savings and make for better deals. Look into range rationalisation with other organisations and aggregate the potential benefits. Again, CSUs can assist in facilitating this activity.

Product substitution Take a look at alternative branded and unbranded products. If they meet the specification, why use a more expensive alternative?

Catalogue services Those who order goods should be given access to an electronic catalogue that allows them to order only what the organisation has agreed. This ensures that:

• There is a record from point of order, which can be tied immediately to a purchase order
• Contract compliance can be assured because the routes of supply and contracts are embedded in the system
• Data needed for later analysis is generated directly from the system.

Outsourcing to a specialist provider will reduce the internal burden and save cost.

Consolidated invoicing Every invoice processed costs money, so reducing the number processed each month will save costs.

Sid4health Information on suppliers is available from sid4health on a single site and it provides the NHS with free access to Dun & Bradstreet financial reporting on suppliers.

NHS-eClass As a common classification of spend owned by the NHS, the use of NHS-eClass facilitates collaborative working and is compatible with GS1 and the United Nations’ standard products and services code, UNSPSC.

Data sharing The appropriate use of shared data for analytical, management and comparative purposes is essential in improving the cost effectiveness of the supply chain. This data is not only useful for carrying out price analysis but is crucial in evaluating the optimum supply chain for different organisations. It is a key requirement to encourage and support more collaborative procurement.

If data is generated using GS1 coding and grouped according to NHS-eClass, it will be immediately usable by all in the NHS who are compliant and help drive the development of tools and systems by third-party vendors.

Purchase order matching Data sources for spend analysis are compromised where there is no direct correlation between the initial order and the received invoice. The use of electronic systems can assist in ensuring such a tie-up exists, but applying a policy that no order is to be placed without a purchase order makes a big difference to data quality and the level of detail available around spend. The difference in emphasis between how the private sector and NHS view this issue is very marked.

Materials management and stock control Improving stock control and materials management in the NHS has been demonstrated as a big cash-saving opportunity to be realised in three key ways:

• Client organisations are forced to carry out a detailed stock take as part of introducing a system. As a one-off exercise, this has been shown to identify very substantial unrecognised value in current stock.
• Monitoring the data generated by the system allows the trust to fine tune its re-ordering process and monitor stock levels and obsolescence.
• The procurement teams and local clinical users can use the data generated by the system to carry out effective range rationalisation exercises backed up by    objective data.

In addition, data made available to clinicians offers a valuable way to engage with the procurement team and carry out product reviews, range rationalisation activity as well as direct costing of patient care pathways.

Many of these items have already been adopted in some areas or are being used as demonstrators, some incorporated in QIPP planning. Others, such as the use of GS1, have already been widely adopted in the NHS to improve patient safety, but will need national support to get suppliers to adopt coding.

How these actions are taken forward will vary. Some will require action at a national or regional level; other cases will need a local approach. But the ultimate aim is the same: they all have to deliver the required savings and service transformation.