Saturday 1st Oct 2016 - Logistics Manager

DHL targets government food procurement with £100m carrot

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DHL is targeting public sector food buying arguing that a more collaborative approach run by the private sector could save £100 million – about one fifth of the current level of spending.

DHL operates the NHS Supply Chain and reckons it has saved the health service  more than £100m over the past three years. It has approached DEFRA, DCSF and the Office of Government Commerce with its ideas and is hoping the government will take on board its vision for the future.

In England there are about 24,500 schools spending some £550million a year on food. However, DHL points out that there is no consistency or consolidation in the supply of food for schools with many local authorities and public bodies operating in isolation and with procurement efforts and costs needlessly duplicated across the network.

Roger West, DHL’s head of procurement outsourcing and former procurement director for NHS Supply Chain, argues that the lessons from health can be applied to wider food procurement in the public sector.

“If we use the schools’ food bill as an example, allowing private sector providers to compete over food supply for schools could deliver huge cost savings at a time when we are looking to reduce public sector spend,” said West.

“Getting individual public sector bodies and organisations to work together to reduce complexity and duplication is an unwieldy and slow-moving process which ultimately is impractical. The key point here is our belief that providing collaboration on the supply side delivers more substantial savings much more quickly and painlessly than collaboration on the buying side.”

The DHL approach uses the “supermarket” concept – an organisation that brings together all the products and ingredients needed by its customers. The would provide choice and leverage the buying power of the public sector which at present is fragmented and uncoordinated, West argues.

The case for this is that it would make it easier for schools and other food buying sections of the public sector as all of their needs could be met from a range of competitive suppliers, which would help drive down costs. In addition, a co-ordinated procurement system would create new opportunities for producers, who would be able to reach a large market which they could not necessarily manage by themselves.

DHL argues that, looking at food purchasing across the public sector more broadly, “there are good arguments for the Government to cut a swathe through the disparate buying and associated administration costs across multiple Departments by replicating the approach to NHS procurement by creating a single food supply chain contract.”

Private sector specialists could be contractually tasked to deliver savings over the overall bill of between 10 and 20 per cent over a five year period.

 “The dynamic is so simple that you don’t actually see what is happening,” said West. “A private supplier organisation established by the public sector determines what ‘demand’ customers have (across multiple buyers, organisations and geographies) and then offers them that choice. They become the aggregator of demand and use this knowledge of its customers to secure best pricing from its suppliers. It’s the model that works in retail and has been proven to work in NHSSC for the public sector”

The same system could also be extended to take in NHS Trusts, Prisons, local authority funded care homes, emergency services and UK based military services delivering even greater levels of savings across government.