DHL NHS Supply Chain Contract – Extended for Two Years, Improved Terms for Buyers

Last week, the Department of Health (DH) through the NHS Business Services Authority (BSA) announced that DHL had been awarded a two year contract extension to run the NHS Supply Chain organisation up to October 2018. (BSA acts as the contract manager for the Supply Chain contract).

It’s a year or so since the DH said that DHL would not be getting the full five-year extension allowed under the contract, but it was not clear what the alternative might be – a whole new competition, letting the market determine a solution (i.e. no central logistics contract at all) or the shorter extension.

As we’ve said before, the views amongst procurement professionals in the NHS range from those who think NHS Supply Chain is a very good organisation, to those who would happily abolish it and find different solutions. But the latter idea was probably impractical. Many hospitals do rely on Supply Chain for a large proportion of their day to day supplies (and more) and there would be huge disruption in the system if the contract was simply abolished. And this is not a time for such a step change given the parlous financial straits of the whole health system, particularly hospital trusts.

But even those who support DHL and Supply Chain recognise some of the negatives about the operation, and the new contract looks like it is hoping to tackle some of these at least. There is recognition that there are far too many items in the Supply Chain catalogue, and we expect to see this addressed. There is a commitment to deliver more savings (although frankly the paucity of good measurement systems means this is largely guesswork). And there is talk of “greater transparency” in the contract management of DHL – although it is not clear how that will work. Here are the main improved terms as described by the BSA:

  • A target to deliver £150m of cash releasing savings to the NHS by the end of the contract in September 2018. This is in addition to the existing target to deliver £150m of cash releasing savings by end of March 2016.
  • Greater transparency through the introduction of an open book contract management model.
  • Greater flexibility to determine what and how services are provided (including the removal of the Master Services Agreement (MSA) exclusivity clause for procurement activity).
  • Revised contract terms starting a year early (October 2015) to maximise the benefits of the changes to the NHS over the remaining contract period and extension term.

Fundamentally, DHL / Supply Chain need to support the goals of the health system, not maximise their own profit. That should mean (in our opinion) fewer products offered; more committed spend to drive better deals; a creative approach to category management to look for innovation, new suppliers and solutions; excellent customer service; and technology investment to improve the whole purchase to pay cycle and the logistical elements of the process.

However, the two year extension does mean that we are only a year or so away from DH having to start another strategic review of the contract! Given the complexity of issues such as TUPE and transition, potentially a new competition would need to commence probably early 2017 if the contract is to be renewed in late 2018. So a year’s breathing space then back into the analysis and consultation...

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  1. Bill Atthetill:

    Peter, good post.

    And what you have exposed is why this contract has been so flawed for so many years. The key things that the BSA have negotiated should have already been captured in the current contract over the past 9 years. (The NAO must have been asleep at the wheel with this one – it’s been so obvious to everyone else.)

    This is what I’m being told….

    DHL/NHSE Supply Chain won’t be able to drive any better deals until they agree single, effective*, national specifications and standards, aggregate demand across the NHS, execute NHS-led category strategies**, and then drive compliance to minimise leakage. This is a million miles away from where they are today. Individual trusts have recently delivered savings of 30%+ across a range of basic clinical consumables but these were delivered entirely by trusts themselves – using NHS Supply Chain for delivery only (and for compliance to EU procurement).

    The med tech industry will look for (at least) four, major, rapid changes: a single (excellent) team buying the same commodity for all trusts, buying teams in trusts no longer purchasing these same commodities (“that team is now responsible for buying our gloves”), the eradication of local clinician preference, and, systems to capture and measure both demand and compliance.

    The ‘open book’ model is because, until recently, they changed invividual prices in their catalogue over 3,000 times per week – just like retailers – so it was impossible to track true price (and cost). Despite the DH’s promise to embed transparency across procurement, NHS buyers have had no visibility whatsoever of the buy-prices – only sell-prices – in this central (DH) contract.

    And exclusivity? Seriously? So, over the last 9 years, if they under-performed, or simply couldn’t be bothered, or it just wasn’t profitable, in any category of spend, DH could not step in? Why has it taken so long to address such a major flaw?

    The entire NHS is going through significant, constant change – in comparison, reletting this contract (even with a radical model) would have been a walk in the park.

    Sadly, we can do very little about it. We’re up poo-creak with little more than a spoon for a paddle. We need to save lots of cash and quick and we’re all in the same canoe.

    *the DH recently launched a number of failed national procurements under the banner of ‘core list’ but they are now sitting on a mountain of unsold/unwanted stock?
    **to date, there’s been a complete absence of any NHS-led category strategies. I’m told these are actually quite complex to develop and agree, but perhaps you can quickly grow them on a tree?

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