More on Peto, and two very different procurement strategies

We featured the new on-line supplier catalogue and price comparison website, Peto, last week. We liked it on first sight, and it could be even more transformational for the NHS than you might initially expect. It also throws up some issues that go beyond NHS or even public procurement. (That’s an encouragement by the way for our private sector readers to persevere with this piece!)

The first point to note is that the lack of transparency in the health supply markets is a major problem.  Studies by the National Audit Office amongst others have shown huge price disparities between prices charged to different hospitals for instance for the same item  – up to 100% differences.  And even if prices have been arrived at through a competitive process, that often ends up as a long-term framework type agreement, where the price may not reflect market changes, or competitive issues, through the life of the contract.

So the Peto ability – once it reaches critical mass – to allow users to compare prices simply across markets, could change the whole balance of power in favour of the buyer, while giving scope for new suppliers to enter the market more easily than before.

Secondly, there’s a fundamental and inherent tension in procurement, and it’s an issue that also leads to some misunderstanding of procurement amongst stakeholders.  We’re referring to the tension between two different approaches to the market. One the one hand, we have the aggregate / collaborate / leverage approach.  On the other, we have the search / compete / switch model.

The procurement approach will often start with an attempt to aggregate volume. Let’s get all the spend on laptops corralled together and approach the market with that total volume. That may move from internal aggregation to external collaboration – certainly in the public sector, that can straddle different organisations. For a Nestle or Ford, it may mean getting different countries or business units to work together.  Now that all sounds fine. More volume = a better deal.

But there are downsides. In some markets, economies of scale just don’t apply after a certain point. And collaborative deals in particular tend by their very nature to be fairly long term – because they take a lot of effort to set up. Whether they are single supplier or multiple supplier frameworks, they can concentrate spend and certainly act as a barrier to new entrants, or even just firms who are unsuccessful at the time of contracting.

Now there are advantages as well – obviously, If there is commitment, greater volume can result in a better deal, and there is an operational cost saving in terms of not having to run multiple procurement exercises.

The other approach is to use the market. Find out what is available. Run regular competitions. Be fast and nimble even if you lose some benefits of aggregation. Where markets are dynamic, this may well be the better strategy.

In the public sector, we often see the over-simplification of a Sir Philip Greene report. It’s all about aggregation, bigger deals, use your buying power, which tends to lead to complex programmes to try and drive collaboration from the top down. But as well as being difficult to actually implement, when the public sector does actually manage to use these approaches, there’s a danger that it just shuts out competition for years on end. (To be fair, I know that folk in the UK’s Government Procurement Service for instance are well aware of this danger).

And you have the paradox of the press complaining about different prices being paid for copier paper one minute, then complaining about how hard it is for smaller stationery firms to sell to Government the next!  (That would be because of the national copier paper deal perhaps)?

So one key strategic role for procurement people is to balance these two approaches. Skilled procurement people will constantly review their approach over time and look at the most appropriate strategy for each of the products or services they buy.

Back to Peto. It may just be that it can bring something of the best of both worlds. It is going to encourage bottom-up collaboration – people working together because they have a real requirement, now. So it isn’t going to get bogged down in huge bureaucracy. And it gives the opportunity for buyers to aggregate volume for spot buys, or for longer term deals. But it is also open to new suppliers, and encourages buyers to compare prices and look at dynamic market changes and opportunities.   It may well lead to fewer long-term contracts in some markets  – but maybe that’s a good thing on balance.

So, maybe Peto will be transformational. And in the final part of this series, we’ll have a look at how it might affect the dynamics of the health market place – for procurement organisations and suppliers.

Voices (8)

  1. James Wrigg:

    Peter – a very interesting point you’ve raised regarding the conflict between the ‘collaborate’ and ‘compete’ models. In fact, here at King’s College London we have the best of both worlds and have had for the last 10 years. Our KCeP e-procurement system (provided by Science Warehouse) enables us to promote and generate compliance with collaborative agreements whilst also giving full side-by-side product comparison across suppliers. This works because all supplier data is standardised through the Science Warehouse catalogue engine and whilst we retain full procurement control over products and pricing it gives end users the flexibility to make value for money product selections where they have specialist requirements. Maybe we’re lucky enough to both have our cake and eat it!

  2. Jonathan Williams:

    Dear Sirs,

    I think the real problem and cost of NHS Healthcare consumables purchasing is because the National part of the NHS does not exist in England. Purchasing is decided at individual Trust level.

    Getting a product listed on the NHS Supply Chain catalogue does not guarantee any sales, you still need a salesforce of reps to drive the sales within all the various trusts.

    As a foreign manufacturer without its own UK sales force, this means my company is obliged to use Distributors to provide this service for us. As a result, our prices are double what they would be if I could meet a National buyer and agree a deal that would ensure consumption of a known quantity of product.

    Until this fundamental is changed, the UK will remain a high price market compared to Germany or France due the lack of any purchasing organisation within the NHS.

  3. Sam Unkim:

    @ Derek
    Hi
    The NHS is slowly adopting DUNS as the standard supplier index and has been using NHS-SID for years.
    http://www.sid4health.nhs.uk/home.action
    Within the next few years, most transactions will also be GS1/GTIN. Also many Trusts are going to or have moved to SharedBusinessServices on Oracle so there really isn’t “ever-developing range of systems” if anything it’s going the other way
    http://www.sbs.nhs.uk/media-a-events/press-releases

    On a more general note, the NHS needs fewer suppliers …IMHO.
    20 years ago we had 3 glove suppliers, now we have dozens & do we really need 325 Suction Catheters?
    Many of the new suppliers approaching us, have just picked up a product franchise up in some American (or increasingly Chinese) trade show and quadrupled the $ price to sell on to the NHS as a clinician preference item.

  4. Derek Lancaster:

    This raises a more general point that’s been exercising me for a while now. To provide more flexibility and interchangeability we need to make it much easier for suppliers to work with the public sector. But with an ever-developing range of systems and networks the lack of a common standard for supplier master data is a barrier to this. What’s needed is the equivalent of a Microsoft Contact file – a default standard for key data about the vendor that can be linked in to any compatible system.

  5. Sebastian Crowfoot:

    My business has an innovative and cost effective product range of medical consumables. We’re not alone in this as the UK has a very dynamic healthcare supplies sector.

    The issues we face are clinical adoption.

    NHS Supply Chain has contracts for products that the clinicians demand, the labourious and complex nature of gaining adoption is compounded by high barrier to entry on the NHS Supply Chain Contracts.

    Now it appears we are offered the solution of Peto -NHS Supply Chain lite, which we will be asked to pay for knowing that buyers and end users won’t be able to buy from us with a proper procurement undertaken in conjunction with clinicians.

    1. Sam Unkim:

      @ Sebastian Crowfoot

      I cannot find any reference to Crowfoot Healthcare, the company cited on you linkedin page.

      So maybe part of your problem is lack of visibility

  6. John Vasili:

    Peto is a great solution with out any doubt, the NHS doesn’t have a efficient a way of setting up vendors,creating orders tracking and finally settlement so however good Peto is (and it is good ) it will not change the current inefficient NHS P2P process. A very efficient low cost and data rich approach is the combination of Invapay & Peto.

  7. Sam Unkim:

    The main reason this has not been done successfully before is that, most of the time, NHS buyers have no authority at all to switch products. Similarly to the Airline Industry, we really cannot start buying what ever is cheapest on the day.
    A lesson reinforced by the recent PIP implant debacle!

    Also people seem to forget that NHS SupplyChain was formed originally from the merging of individual Hospital Stores Depts. into county wide warehouses and now scaled up to a huge nationwide organisation ( with a 250,000 line catalogue).
    So there are already massive economies of scale.

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