by Scott Pryde
They might not be the most glamorous of technologies that the NHS buys, but items like bedpans and patient wipes are big business.
After reviewing the spend in the Southern Procurement Partnership (SPP) on these products, and 10 categories like them, we would estimate the NHS England secondary care market size to be £250m, and if the recent focus week on driving better value in these categories is anything to go by, there is a £40m national savings opportunity for aggregating demand, rationalising products and making commitment.
In addition, there is also an improved partnership based relationship on the table with key suppliers that are offering lower price breaks in return for a relationship which promises reduced; risk, logistics cost and demand volatility.
The bullwhip effect
This opportunity for improved supply chain efficiency shouldn't come as a surprise to anyone in procurement. The bullwhip effect is one of the most proven dynamics in supply chain management where demand uncertainty, volatility and risk, are amplified down the supply chain, creating inefficiencies such as additional inventories and logistical costs. These costs can only be passed on in product price and increased risk to customers.
In manufacturing where lean, agile and JIT methodologies are commonplace, managing demand stability is taken seriously in a way which has yet to reach the NHS.
As a result, NHS supply chains are unpredictable and inefficient. When NHS buyers ensure commitment and demand management, then the anticipated costs and risks of a supplier fall, and the resulting benefits can be passed on in the form of price and risk reduction to the NHS.
Analytics & information sharing
Information flows have been shown to have a significant influence on the bullwhip effect, but those who know healthcare supply chains know that often volumes and prices are shrouded in obscurity, and there is rarely pro-active information exchange between buyers and suppliers.
This was the starting point for the SPP who embarked upon a focused effort last week to review and drive commitment based demand aggregation into a core list of commoditised categories.
Procurement professionals from across the region worked with BravoHealth to analyse their past two years of spend data to identify; demand, distribution, product and pricing trends. We bench-marked across the region and uncovered some interesting dynamics.
There was excessive supply chain inter-mediation and interference and incremental inflationary price increases even on categories such as wipes. There was also a lack of clarity around variable rebates and price breaks.
In supply chains management, where clarity and cost transparency are best practice in other industries, instead their seemed to be obscurity in these supply chains. In commodity markets where there were multiple competitors and falling commodity prices, the benefits of competition and price reduction were not being passed on to the NHS.
Commitment based,or bulk buy deals, on the table from suppliers, were being turning down because of Hospital Trusts being tied into other agreements or frameworks, agreements that inhibit the natural competition of the market reaching a better deal for both the NHS and the supplier.
After category analysis, each of the procurement professionals gave an STP (Situation, Target, Proposal) presentation which included category analysis and expert market knowledge including; clinical sensitivity, raw material, commodity price and currency trend analysis.
Another important aspect of the approach, was that a version of these presentations, including regional demand profiles, market shares and trends etc. were shared with the supplier. As became clear, the future supplier relationship and contract would be based upon shared risk and commitments, with shared data and information a foundation for jointly managing commitments.
The supply base responded positively and an opportunity saving of 20-30% in each category surfaced.
Should the savings and operating model be delivered from this activity, it will mean a step change in the way that the SPP Trusts engage with their supply chain. It will also highlight the urgent need for the wider NHS to take these types of operating model seriously and to claim these savings nationally.
Supply chain inefficiency impacts patient safety
In the 'commoditised' core category supply chains, inefficiencies result in higher costs to the NHS and lost funding which would otherwise have found its way into patient care. However, these inefficiencies are only a distraction of scarce resource. In other areas of the NHS supply chain, inefficiencies have a more direct impact not only on cost, but on patient outcomes.
In medical technology supply chains, for example, the bullwhip effect is felt even more acutely. A contrast is found in comparison with manufacturing industries management of inventories. When Vendor Managed Inventories (VMI) were implemented, shared information and demand management went hand-in-glove. It was inconceivable that a supplier would fill up your warehouse with what they wanted, when they wanted. But over the past 10-15 years, that is exactly what has happened across hospital supply chains where VMI was introduced by suppliers for suppliers. Medical technology inventories as a result, are now a key source of inefficiency for the industry and as innovation has led to wider more complex product offerings, so too these inventories have become more complex and unmanageable.
Add into the mix clinical specifiers who don’t care about supply chain management, and buyers, who can’t control the specification, and you find that the medical technology supply chain is broken.
High inventories and obsolescence costs lead to high pricing. In class III and other physician preference items, there is increasing product fragmentation and incremental innovation. There are also a growing number of recalls and adverse product events.
Several of the biggest product recalls in history have happened in the past few years, hip resurfacing, breast implants, and pacemakers to name just a few.
Clinicians have in the past distanced themselves from commercial and procurement initiatives, citing clinical expertise as being the only valid decision making criterion for product use, and trusting medical technology companies to manage their supply chain.
However, it is now clear that healthcare supply chains are broken and the resulting inefficiencies detract not only from scarce resources, but also directly impact upon patient care and outcomes (contact me for some examples). There is surely now an ethical imperative for clinicians to work with procurement to reduce these inefficiencies.
Where do we go from here ?
The group of procurement professionals that were assembled for the SPP event were asked to take a week out of their normal business to focus on some common categories. There was some skepticism at the beginning as to what could be accomplished, but by the end every-one was clear, that collectively, they had the opportunity to turn these categories around, and not only that, but there was also a glimpse of a better NHS operating model and strategic supplier relationship.
Across the UK healthcare supply chain, the current state of affairs is not working and the future procurement operating model is once again on the operating table.
What is clear from last week’s SPP event is that the knowledge capability and enthusiasm to deliver a world class supply-chain is available in today’s NHS procurement landscape (albeit dispersed).
Also clear, is that there is a strong, supportive appetite for change in the supply base including the ‘big ticket’ Medical Technology supply chain.
But we've been here before....
To deliver a better operating model, there is a need for collaboration,to share scarce expertise across the system, for existing commercial models to be radically changed and investment in enabling technologies to be made.
We are certainly heading for some trying times in the NHS supply chain and who knows what will happen next. Your feedback on this question would be valued greatly.
For our part, enabling improved supply chain information flows and collaboration are key objectives. We firmly believe that in doing so our effort will ultimately contribute to more efficient, safer healthcare supply chains and hopefully, in some way, improved patient outcomes.
Please feel free to get in touch if you would like to discuss further.