NHS Supply Chain – saving money for the health service with really, really big warehouses

I recently paid a visit to a really, really huge warehouse.  Now let’s be honest,  there are only so many things you can say when faced with this situation.

“Wow, that’s a really huge warehouse” is probably the most obvious.

“Isn’t it tidy and well organised”?  That doesn’t apply in all cases, but certainly did in this case.

“What a lot of tea-bags and washing up liquid” – now, that was one I didn’t quite expect.

Because the NHS Supply Chain warehouse at Rugby operated by global logistics firm DHL is huge, certainly appears to be efficiently run, and does indeed stock a lot more food and other domestic consumables than I had expected. It reminds you that the UK’s health system requires a lot more day to day products to keep it running than “just” the medical equipment, consumables and products that we tend to think of when we consider procurement and supply chain management in the sector.

I was in Rugby to meet Nick Gerrard, the CEO of NHS Supply Chain and his senior colleagues and have a chat about what is going on in their world. DHL were awarded the 10-year contract in 2006 to operate the Supply Chain business, which means  that the Department of Health (DH) have to decide next year whether to start a new competition, or award DHL a 5-year extension. So both DH and DHL are engaging strongly with customers, suppliers and stakeholders generally to help inform that decision. It’s clear what decision DHL would like of course, but the DH have to balance what they might get out of a competition versus the hassle and cost of such an exercise.

Since the contract started, revenues for Supply Chain have grown from under £1 billion to some £2 billion a year. There is some £5 billion “in scope” spend for DHL to go after, so their market share is good but with more potential. Interestingly, it is still growing, despite the emergence of more competition with some of the original health hubs having been acquired by US specialist healthcare firms (HealthTrust Europe) or other players (NHS Shared Business Services).

The growth for Supply Chain has come largely in new areas rather than the traditional consumables (and tea bags) – mainly new clinical areas and capital equipment.  That’s also been supported by investment in technology, from sourcing (using the Intenda platform) through to electronic catalogues and mobile ordering capability. Stakeholder engagement has also been developed – for instance, there’s a Customer Board, with an independent Chair, which includes representatives from trade bodies, and also a Supplier Board.

“We’re proud that 29% of our spend is with SMEs (smaller firms)” says Gerrard, and that is an impressive number (better than most government departments for instance).  Supply Chain act as an agent, so are bound by EU regulations in their procurement. Their procurement work is based on a category management approach, and they’ve recently engaged Positive Purchasing to update their skills in that area with training and IP.

“We’ve doubled the number of procurement professionals to 180 since we started, and 80% are CIPS qualified – we’ve also got the CIPS organisational accreditation”, says Gerrard.

One of the criticisms of health procurement has been that organisations such as Supply Chain offer too wide a range of products, which means the NHS doesn’t get the benefits of scale and rationalisation. It’s a tricky balancing  act though – if they don’t offer what certain customers want, they will just buy elsewhere. Supply Chain have tried developing own-label products, but this “didn’t work so well” – however, as Gerrard explains, “we have driven re-engineering in the supply chain to improve value, for instance by driving reduced packaging with some products, or by taking more risk ourselves”.

On that note, we’ll look at a couple of interesting and successful initiatives in more detail in part 2.

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Voices (4)

  1. Sam Unkim:

    Supply Chain have tried developing own-label products, but this “didn’t work so well”

    Maybe the understatement of the year. !!

    Let’s be frank, they “dropped the baby” badly on this one and its costing the NHS millions annually in lost savings.

    Can you imagine the bidding wars that could of (should of) ensued as potential suppliers of, for example, examination gloves battled to become the supplier of the NHS brand for 2013-14.

    Precious little competition exists at the moment !!

  2. Stephen Heard:

    If Supply Chain purport to be the specialist in health procurement then they should use their endeavours to ensure products like continence pads and other clinical consumables are purchased with aggregated spend and leverage in order to reduce prices.

    The latest round of negotiations have seen these critical products increase in price due to the old chestnut of rising raw material prices. If Supply Chain are to break into the £3bn additional spend then they need to demonstrate their value by using their purchasing power to fight off price increases like this on behalf of their customers.

    With NHS providers seeing increasing demand on their clinical services and therefore increased demand on the consumable products that NHS Supplies supply then surely this increased demand should present itself in reduced prices to their customers.

    All NHS providers are struggling to balance their budgets and any increase in prices will be seen as a negative for the procurement organisation that providers use forcing them to look elsewhere.

  3. Bill Atthetill:

    From what I’ve just read above Peter, the NHS Supply Chain contract was implemented in 2006 (7 years ago) and in that period, the spend being addressed (through-put) has risen from circa £1billion to £2billion – but its actual scope is £5billion per annum? So, put simply, there is a further £3billion of spend per annum which NHS Supply Chain could have influenced and addressed, but hasn’t managed to within the last 7 years? (Was it hiding in a stock room on a hospital ward?)

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