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Author: Rob Knott[/caption]
The HCSA invited Rob Knott, former National Director, NHS Procurement, to provide his perspective on emerging developments affecting the NHS procurement landscape. He believes that it is time for NHS Procurement leaders to dust off their Procurement Strategies and keep themselves at the forefront of the supply chain modernisation agenda. Rob is a senior procurement and supply chain practitioner with over 25 years experience in leading procurement transformation at the highest level in both the public and private sectors. He is now Director of Health and Public Sector at leading digital technology company, Virtualstock.
We all know the script. The role of NHS Procurement has never been more important. In recent communications from the Department of Health, non-pay spend across NHS providers is now over £27 billion per annum. The Carter review gave NHS Procurement a savings target of £1 billion to deliver, of which more than £600 million will be secured by the NHS Supply Chain Future Operating Model programme (FOM). NHS Procurement must deliver this target while assuring the supply of many complex, mission-critical products which enable hospitals to deliver effective outcomes to their patients.
There is little doubt that NHS Procurement is going to change. All mid-to-back office functions are going to change. Trusts will be embracing any one of a number of emerging delivery models defined by initiatives such as STPs, hospital chains, GIRFT, and mergers. A number of leading trust CEOs have openly acknowledged that many hospitals simply cannot afford to deliver their own support functions to the standards required (taking aside the limited success any trust would have in recruiting the talent needed to lead and run them effectively).
The role of NHS Procurement will also be influenced, to some extent, by the outcome of the FOM and the emerging category towers. One of the FOM’s key outcomes is to eradicate “a complex, fragmented landscape with internal competition for the range of products, a widespread duplication of effort with procurement expertise spread across the system, and the disaggregation of demand”. Change is unavoidable though, notably, it will only influence circa £5 billion of non-pay spend, leaving £22 billion still on the table.
Over the last twelve months, numerous leaders in NHS Procurement have been engaged in discussion on an all-too-familiar topic – what will NHS Procurement look like over the coming years and what must they do to keep on the front foot.
The emerging blue-print for the FOM was influenced, to some extent, by what was observed in a number of US hospitals in 2014 (while politely ignoring the remarkably high prices that they paid). It was noted that one of the largest Group Purchasing Organisations (GPOs) had been transformed into a significant operation, supporting the needs of some 1,600 facilities while managing circa $27 billion spend per annum. The GPO guaranteed 80% contract compliance across key spend categories and they had successfully reduced their ‘core list’ of everyday healthcare consumables (EHC) from 7,000 to 1,400 products. Clinical Councils were the forums through which leading, influential clinicians were engaged in agreeing product specifications and the related supply management strategies.
The 80/20 rule – promoting the notion of optimum purchasing leverage – will soon be fully tested by the performance of the category tower providers, specifically, the proposed strategies and their subsequent execution in a devolved market. In 2006, the Supply Chain Excellence Programme (SCEP) declared that it would save £500m through the new ‘NHS Supply Chain’ service. The FOM recently declared that a much higher figure will be saved by addressing the same spend categories. Will this be a true reduction in spend, or simply returning the spend back to its original 2006 baseline? No-one can really be sure in absence of the comparative data but, as every senior practitioner in NHS Procurement knows, taking back control of key spend categories was always the right answer.
For the first time ever, crystal balls should be featured in the NHS Supply Chain catalogue – so many procurement people have been asking for one to see what the future holds for their profession. Will the emerging Intelligent Client Coordinator (ICC) move to NHSI, as is rumoured? Will NHSI merge with NHS England to establish a single ‘intelligent client’ across the whole NHS procurement landscape, incorporating the original CMU team, thereby recreating NHS PASA?. There is a hope that, someone, somewhere is the custodian of a master plan and detailed blueprint for NHS Procurement.
For NHS trusts, it is time to dust off the Procurement Strategy once again, while considering some of the key developments one expects to see over the coming years. If you have any doubts, take a look at that 80/20 rule again: 80% of non-pay spend will not be addressed by the current FOM programme. Trust boards still need a senior, trusted adviser to shape and lead the future direction of the strategic procurement and supply management function. Trusts need to deliver significant savings across all non-pay spend and investing in a high performing procurement and supply chain team can deliver ROI of 10:1 or more.
If you are revising, or writing from scratch, your trust’s Procurement Strategy, you should take into consideration some of the emerging, key developments which are likely to influence the future direction of the procurement and supply chain management function.
- The Healthcare Data Supply Chain. Data is going to play a pivotal role in transforming the procurement and supply chain landscape across the NHS. Delivering excellence in the ‘data supply chain’, to retail or manufacturing standards, has been unresolved for decades in many healthcare economies. In the last 12 months, the Purchase Price Index and Benchmarking (PPIB) tool has illustrated the importance of exploiting data to deliver ‘price parity’ (often one of the first and most fundamental procurement transformation catalysts) across NHS trusts. Over the coming years, initiatives and interventions across the NHS’ supply chain will surface key data that will expose a range of process efficiencies, value levers, and cost-down/cost-out opportunities, for both trusts and key suppliers. (This is the prime reason why one major retailer employs over 60 staff in its supply chain analytics team alone.) New integrated data streams, such as Clinical Value Analytics, will expose cost driver and efficiency opportunities across key, clinical service lines. Delivering real-time interoperability and ‘data supply chain optimisation’ across many disparate legacy systems across the NHS will be critical. Every trust will be required to publish and execute an effective GS1 adoption strategy and plan.
- National Category Strategies. Can anyone recall the last time an effective, national category strategy was created, promoted and adopted by all NHS hospitals? Over the coming years, national strategies developed through formal category management methodologies exploiting accurate and complete demand data, will determine that a number of everyday healthcare consumables (EHC) should be sourced and supplied, once, across the NHS. To stress the point, the GIRFT programme recently published that they had identified price variation of between £1,467 to £2,336 for a basket of surgical supplies exposing a potential 59% efficiency opportunity. Initially, there will be a shift towards greater standardisation and commoditisation, before the pursuit of any product innovation and value differentiation.
- National Sourcing Groups. The category towers will be sponsored and funded to deliver the sourcing of specific spend categories. Wherever possible, trusts will be encouraged to adopt the strategies and projected outcomes of the towers to deliver the prime objective of capturing more than 80% of in-scope demand. For some commodities, the strategy may be sole-source, while for others, complex multi-lot frameworks may persist, through which regional or local procurement teams must call-off (or run mini-competitions) to extract the final, desired outcome. On EHC products (examination gloves, for example) it may be determined that one national team will source this standard commodity on behalf of all trusts. They will eventually reach a level of maturity where they can understand and expose the total cost dynamics from factory gate to point-of-use. Clinical evaluation will be conducted by a handful of relevant clinicians on behalf of many of their colleagues. Over time, one can imagine that the notion of product or price variation across specific product ranges will become obsolete in the English NHS.
- The reemergence of NHS Logistics. The existing NHS Supply Chain infrastructure will continue to be exploited in supplying many everyday healthcare consumables to NHS hospitals. The potential for the existing logistics capacity to be optimised will be realised through range reduction and rechanneling in the medium term (potentially triggered by the move of office products to the Crown Commercial Service).
- Embracing ‘dropshipping’. In many of the most advanced supply chain models in healthcare, many key categories and commodities are still supplied through wholesalers and distributors, direct from the manufacturer to hospitals, outside of any EHC delivery infrastructure. In the absence of significant investment in the existing NHS logistics infrastructure, trusts will need to identify and embrace the strategies, advanced analytics, tools and techniques to make informed decisions on the value of all relevant supply channels. Agile supply chain management will be very dominant in the future when greater numbers of products and services are pushed out to communities along integrated care pathways.
- If you cannot beat them, join them. If a major hospital owns an existing, significant, high performing, procurement and supply chain team, they may be expected to form a ‘cluster’ from which they will deliver a shared service to other trusts. It may be aligned to a hospital chain, an STP or merger, or to an initiative similar to the influential Yorkshire Working Together programme where seven like-minded trusts have formed a value-chain network. The emerging Lancashire Procurement Cluster will be worth examining in greater detail in coming months. A number of major trusts have also created wholly-owned operating companies (subsidiaries) and it is conceivable that they will absorb many mid-to-back office functions (including procurement) to become sub-GPOs.
- From Supplies to Supply Chain Management. In one major US hospital, the Supply Chain Director was responsible for managing the supply of all critical products to the hospital, including blood and drugs, many of which were specified and sourced, nationally. There is little doubt that, across acute hospitals, this area requires the most significant investment in skills, processes, and technology. To achieve the standards seen in retail and manufacturing, trusts’ supplies teams must be transformed into supply chain management functions and additional capacity recruited and developed at pace and scale.
- Accelerating Modern Technology Adoption. In the last five years alone, there have been numerous, notable advancements in procurement and supply chain technology, but the NHS is still too far behind the curve in its effective adoption. NHS trusts must develop radical adoption plans to embrace relevant modern procurement technology at a faster pace. Many leading companies have introduced advanced automation across every aspect of their entire procurement life-cycle. While leading firms are fully exploiting advanced analytics and are now proactively measuring the impact and potential of AI and machine-learning, for example, the NHS has only just deployed a national price benchmarking tool. While reasonable progress has been made in areas such as e-tendering, significant gaps still exist and trusts need to proactively develop an advanced technology strategy and roadmap for their procurement and supply management function. It is recognised that major performance gaps exist in key areas such as catalogue management and purchase-to-pay (P2P) because of the dominance of legacy systems. Over the coming years, there will be a dramatic shift away from the existing legacy finance systems towards modern, agile, consumer-style platforms for the delivery of product data management and purchase-to-pay. Digital marketplaces will also emerge which will connect buyers and suppliers in real-time. The CCS’ Crown Marketplace is a relevant example of Central Government's direction of travel, while Amazon are building a product catalogue and fulfilment capability in healthcare. Similarly, the technology adoption strategy needs to pursue rapid investment in an advanced, modern, inventory management platform.
- World Class Workforce. Professional skills are essential in every key discipline and procurement is no exception. At the heart of every high performing team are high calibre people demonstrating exceptional processes, skills, and competencies. The future focus for the procurement profession in the NHS must be on delivering excellence in category management and supply chain management. Advanced professional procurement skills will also be required in key areas such as commercial management, cost management, supplier relationship management (SRM), risk management, contract management and negotiation. There also needs to be continual investment in a range of core skills including change management (especially facilitation and influencing skills), programme and project management, and financial management. In 2013, the NHS Academy of Procurement Excellence was conceived. The Academy’s purpose and key functions were shaped by CIPS, the HCSA, and by many senior procurement leaders who had every intention of exploiting its capabilities to develop their teams to a world class standard in category management. The Academy was pulled, along with the agreed central funding, and this critical, centre-led intervention never happened. Advanced, online academies (such as the NHS Procurement Academy provided by Positive Purchasing) are proactively attempting to fill this gap. In stark contrast, NHS Digital know that modern leadership skills are critical to the success of delivering a world class IT function in every NHS trust and are creating and funding an academy to develop 300 ‘digital leaders’. Beyond doubt, modern digital technology is going to radically reform the procurement function. There needs to be a new breed of ‘digital procurement leaders’ within the NHS, acting as exemplars across all hospitals in promoting and delivering a modern NHS Procurement. The Department of Health has taken a positive step towards reinforcing the need for effective professional leadership in NHS Procurement by recruiting Melinda Johnson (a seasoned, senior procurement practitioner) to succeed Pat Mills.
- Measures that matter. Key metrics and performance measures in procurement will increase in both complexity and frequency. Currently, they are basic (e.g. contract coverage, PO, catalogue compliance) but they will become more sophisticated as NHSI deploys relevant expertise and experience. Metrics aimed at improving productivity in procurement should be anticipated and these may bite in a way which encourages trust teams to collaborate on key initiatives.
NHS Procurement is a vital, strategic function. It is one of very few strategic functions that can have a positive impact upon every product, every service, every supplier and every member of staff, and is critical to the success of running safe, effective, productive and efficient hospitals. In the NHS, a high performing procurement team can have a significant impact on both the top and bottom lines (income and cost) in improving a hospital’s financial performance. A modern, model hospital can only be delivered – like today’s modern retailers and manufacturers – when there is a modern, model supply chain. It is still the role and responsibility of NHS Procurement to deliver this, and in line with world class best practice, it starts with a Procurement Strategy.
About Rob
One of the most forward-thinking people in the health area, whilst National Director, NHS Procurement, Department of Health Rob was co-author of Better Procurement, Better Value, Better Care (August 2013), the strategy and programme for transforming NHS Procurement. Rob is currently poised to deliver ground breaking solutions in conjunction with NHS SBS as a pilot in Hampshire.