In my most recent blog, I advocated the need to review your Trust’s Procurement Strategy and recommended serious consideration be given to multiple emerging developments which are already affecting the future of your procurement and supply chain function. In today’s blog, and in continuation of this theme, I emphasise that the principal objective of any such review should be to embed ‘total spend management’ in each and every Trust.
What are the characteristics of ‘TSM’?
Well, when considering Trust Procurement Strategy and “TSM”, I recall how (many moons ago), I led the Global Procurement function in a major, private sector company with offices in over 30 countries. Over a number of years, the company had successfully navigated itself out of significant, long-term debt by firmly embedding a cost reduction culture, establishing a reputation as a global exemplar in TSM.
The secret to its success was that its policies, people, processes and systems were all aligned; an ideal operating model to underpin the delivery of Global Procurement and total spend management. Every member of staff was involved in managing its spend with careful consideration of every item of spend and every line of expense. In addition, cross-functional, multidisciplinary teams addressed every spend category and would maximise leverage in key supply markets by sourcing on a global or regional (pan-European) level. And dedicated Expense Line Owners (ELOs), operating in global roles, often decided what could ultimately be spent against any expense line. It was clear that spend management was firmly entrenched, not just in terms of processes and systems, but culturally, too.
Notably, the detailed spend data of every supplier in every country was available online, almost in real-time. Once, I remember asking the spend analytics team for a particularly complex, global spend report, and being told that it would be ready later that morning!
It’s hardly surprising, then, that “not a dime” was the mantra of our Global Procurement team. In short, we had the authority to pursue each item of spend and line of expense across the entire company – so that not a single dime was misspent. One particular story that brings this mantra to life was when our new European CIO decided to request an additional $10 million to spend on upgrading the LAN in London, shortly after arriving in the company. Naturally, we directed him to the Global Procurement Policy, as he too would need to raise an internal requisition through the company’s online purchasing system. The system’s workflow promptly distributed the requisition to a ‘virtual’ multidisciplinary team of circa 30 experts across the company who, within a week or so, collaborated to define the actual need and specification, and negotiate the final, total cost. His requisition was modified and approved, and the value of the order to the supplier equated to just 3% of his original estimate. You can just imagine his face!
Whilst these events occurred some twenty years ago, the lessons still stand today. Indeed, as senior practitioners in Procurement, we have known for many years that robust polices, modern processes and systems, cross-functional teams, and effective alignment to the core business and its primary supply markets, are all key in establishing a strategic, high-performing, Procurement function.
So, last November, at the HCSA’s Annual Conference & Exhibition, I listened intently to Nathan Joy-Johnson as he presented the relevant outcomes that he and his capable team are delivering at University Hospitals North Midlands NHS Trust (see below). It’s clear to me that one of his team’s prime objectives is to deliver a procurement and supply chain operating model that will embed an effective approach to total spend management, aligned to all major, internal and external business processes. As in the private sector, the key to success is to focus on every item of spend and every line of cost.
Nathan has opened the door to reveal what is being achieved at UHNM, and over the coming months, I will be supporting the HCSA to open the door to other NHS Procurement teams to uncover similar, excellent initiatives. It is also vital that we look to other, relevant sectors to understand the value of initiatives such as total spend management, and that your Trust’s Procurement Strategy incorporates relevant, industry best practice.
UHNM’s key initiatives:
- The Trust’s Board has recognised the Procurement function’s contribution to financial and operational performance by investing in a substantive team with a budget of over £2m per annum;
- The Trust’s spend is £325m per annum, but, through a partnership model, the Procurement function influences a spend of over £600m;
- Cumulative savings of £50 million have been achieved and the projected in-year savings (17/18) were £13.4m, across 460 measureable initiatives;
- The team’s price performance placed it in the top 10 of the PPIB league table;
- It was the first NHS Trust to reach Level 1 of the NHS Procurement and Commercial Standards, and reached Level 2 in October 2017;
- There is a centralised operating model and all non-pay spend is in-scope, including pharma. Aligned to best practice, category teams are aligned to Divisions (service lines) and to key supply markets. As commercial management has become more significant, the team has embraced a wider commercial role across the Trust to include PFI, retail, and contracting;
- There is a renewed focus on Supply Chain Management and Inventory Management. Long term investment has been secured to embed a relevant and resilient, local capability. This is being underpinned further through investment in the modernisation of the related systems, including product data and analytics;
- There is a significant focus on procurement performance, but not just on price. Performance targets are embedded within Divisional budgets, and there is Trust-wide ownership of efficiency savings supported by clear governance and accountability and a league table;
- There is a public dashboard with a strategic focus on ROI, not just a simplified metric (e.g.: cost of procurement as % of spend). Efficiencies and activities are measured across a range of key areas to ensure appropriate recognition;
- Operational alignment between Procurement and Finance across the Trust’s SFIs – with a low spend authority threshold of £100 – has enabled tighter spend controls while accelerating the move towards ‘total spend management’;
- Collaboration is seen as a significant driver in accelerating UHNM’s Procurement performance, particularly in embracing initiatives such as the STP and FOM.
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