HCSA Event – Thoughts on the Future Operating Model

Coming back to the recent Healthcare Supply Association (HCSA) conference, there was a lot of focus on the FOM (the Future Operating Model) – including a panel discussion, and I covered it briefly in my keynote too. The FOM is the initiative that covers the 20% or so of NHS procurement spend that is related to common goods across pretty much all hospitals, from medical equipment to consumables, stationery to bandages. The items will be provided through central contracts awarded via 11 “category towers”, with the Department of Health overseeing the process.

Despite much talk initially of “exciting” new firms entering the bidding, the six contracts awarded recently have gone to DHL, the incumbent provider for NHS Supply Chain, who won two. The CPP (collaborative procurement partnership) a group of four existing NHS collaborative procurement organisations won three, and one went to a JV between DHL, Vizient and the Oxford Academic Health Network. No one organisation was allowed to win more than three “towers” – there are rumours that the CPP may have “won” all six, and that there were only four bidders in total.

Now you might look at that as a failure of the competition to attract these sexy new bidders, or that the incumbents such as DHL and the CPP had a strong natural advantage which perhaps deterred others from bidding, or indeed that they are simply the right people to do this work. “We are going to have the best category strategies in the world”,  said the man from DHL.  (As I’ve said before, to anyone who claims to be world-class at category management – have you read the Future Purchasing report and taken on board all the content therein?)

But my view is that the competition must be regarded as disappointing at best given the lack of new players, and some analysis of why that happened might be useful – if only as input to the next procurement exercise.

There are questions in any case. Has the Department of Health got parent company guarantees from these organisations? Remember what happened in the Uniting Care contract in Cambridge last year where the two NHS Trusts who won the contract pulled out when it became clear they couldn’t make any money, and the commissioners were left high and dry? Indeed, who is standing behind the CPP – do their “owners” understand what they’ve signed up to? We hope so. (We heard from others who might have been expected to bid, but didn’t, that the contracts were “too risky”.)

The relationship between the towers and the “intelligent client coordinator” function (ICC) concerns us too. The ICC will be the interface with clients, but we can see tensions if the towers feel that they aren’t getting the right access to clinicians or procurement staff because of this intermediate layer. If the tower providers are heavily incentivised, then they won’t be happy if the ICC gets in their way.

That question of incentives is also key. Everyone on the HCSA panel when this came up said the right things about both working together with other towers, and that clinical outcomes rather than simply cost reduction would be the goal, but the incentives must reflect that, not just some sort of notional “savings” target.

Finally, Jin Sahota (who leads the programme) told Supply Management magazine that the beauty of multiple providers for different towers was that if one doesn’t perform, the work can be moved to another. Well, we think that would be illegal (breaks procurement regulations which would require a further competition), and is a worrying reminder of Richard Granger’s idea of “the weakest husky gets eaten by the others” which he propounded as part of the NPfIT programme some years ago. And we all know how that ended up … We suspect there will be no quick and easy fix if one or more provider doesn’t perform.

Anyway, there seem to be some good people working on the programme, we have no doubt that DHL and the CPP will make every effort to make this a success, and we wish everyone well. The transition is going to take some time, that was clear from HCSA discussion, so we probably won’t know for about two years whether this has been a success. But we’ll keep an interested eye on what is going on.

Voices (6)

  1. Bill Atthetill:

    Imagine this. You show the FOM to a number of organisations with world class reputations in category management and supply chain management. You’d be laughed out of the room. That’s all you need to know.

  2. Mark Lainchbury:

    @ Secret Squirrel

    As I understand it, the towers will replace the existing DHL buyers who contract the goods, presently stocked in NHS-SC warehouses.

    So the logistics will not change much, but we are expecting far more NPC codes & e-Direct deliveries ( orders placed via NHS Supply Chain’s ordering portal, but delivered by supplier).

    If fact DHL’s existing stationery team have been tupe’d across to C.C.S. already

  3. Secret Squirrel:

    Can someone help me here.

    How do the towers work? I get the model in theory (which is a crib from the government IT tower model as far as I can tell, which in itself has proved difficult). but how do some of the awarded parties, especially CPP, deal with logistics?

    Just for my interest.

    1. Peter Smith:

      I think the logistics contract in being competed so won’t necessarily stay with DHL but the idea is it will cut across all the towers – so I assume the category tower service providers have signed up to using that common logistics provider?

      1. Secret Squirrel:

        Interesting. So who pays and how? Are the towers paying to use the service and pricing it in? Or is the logistics provider to take the towers price and add their element? At what point does the logistics provider take responsibility? Are goods made available to it EXW or are they shipped under a delivered type Incoterm?

        1. Bill Atthetill:

          Currently, the cost of all sourcing and supply (circa £250m not including DHL’s profits of circa £40m…?) is built into the price of each product sold by NHS Supply Chain to each trust/client. If you recall, one of the criticisms was the number of price changes per week which DHL used to try and ensure that they not only covered these costs, but successfully met their projected profit target too. (There were 3,000+ price changes per week.)

          In the future (April 2019), the ‘cost’ of all sourcing and supply, and the systems, and the trucks, vans and sheds, logistics, trust engagement, and so on, and so on….will simply be top-sliced out of the NHS provider budget. Trusts will still have choice over the sourcing and supply channel arrangements, but they will have no choice in the costs that have been stripped out from their top line to pay for FOM.

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