Improving the public sector healthcare supply chain is, to use current manager-speak, ‘a no-brainer’. Less money wasted on procurement and logistics, on lost, excess or obsolete material and in wasted staff time, ultimately should mean more money to spend on patient care. The problem though is that healthcare is intensely political, and outsourcing supply chain functions could be a political hot potato.
National health services are vast entities. The English NHS is reputed to be the third largest employer in the world, after the Indian Railways and the Chinese Army, we were told. Trying to get any sort of control on its supply chain is never going to be an overnight accomplishment.
However, there are signs that the NHS is getting to grips with the task. RogerWest, director of procurement at NHS Supply Chain says the new DHL-operated organisation now has contracts worth around €2.5 billion in place with various NHS trusts and hospitals although there is no obligation on themto use NHS Supply Chain.
Supply chain expert Professor AlanWaller, who as vicepresident of supply chain innovation at consultants Solving International has worked on several NHS schemes over the years, including the DHL outsourcing project, says: ‘It should result in a world class supply chain, when it is implemented.’
Already,West says he can point to improvements in the service delivered to NHS hospitals in all parts of the country. On-time performance is 99 per cent and standard delivery times are 48 hours, although new technology should soon cut that to 24 hours. Six regional distribution centres are in operation and a seventh is being added. ‘We also believe that we offer the lowest carbon footprint of anyone delivering to the NHS,’ says West.
Outsourcing a part of the NHS supply chainmight be a controversial issue; even, perhaps an emotional one but as Waller points out, a lot of what the NHS buys is not exactly life-saving equipment but things like office furniture, laundry supplies, uniforms or computers. ‘There is a need to get the right balance between choice and value. Just to give one example, in 2006 the NHS was buying 130 different types of calculator.Maybe they need half a dozen or so, but not 130.’ (A benchmarking exercise against the commercial sector backed this up.)
Too-diverse purchasingmeant that the NHS couldn’t exploit the economies of scale that an organisation of its size might reasonably expect.
RogerWest agrees, saying that amajor part of his role is to bring some rationality to the NHS’s purchasing. ‘We did find a few companies who supply as little as €1-worth of goods, which probably wasn’t very cost-effective for us, or for them. And it is possible to find over 60 suppliers on one contract.’
However, one has to be careful in applying commercial rules to the health service.Maybe a surgeon does only buy three sutures of that particular size and type in a year, and a purchasingmanager in a commercial retailer would have no hesitation in deleting it, but the health service cannot afford to do that. One of themmight save your life in an operation.
There have been attempts to reformthe NHS supply chain before, including an online catalogue.Waller points to the fact that it is incomplete butWest says that the task shouldn’t be underestimated. Even with some rationalisation of procurement, the number of individual productsmay ultimately not be far short of amillion, way beyond the wildest dreams (or nightmares) of the biggest online retailer. Moreover,many articlesmust be described in farmore detail than the Argos catalogue, with data sheets and dimensions.
Inevitably, whenever a public service is outsourced to the private sector there are suspicions that someone, somewhere, ismakingmoney at the public’s expense. However,Waller points out that DHL will earn itsmoney solely by achieving efficiencies – calculated at €127million a year for ten years. ‘Thatmeans £1 billion [€1.27 billion] would be released for patient care over the decade, and less cost to the taxpayer.’West points out, also, that it is a tightly monitored operation – there are actually controls in place to ensure that NHS Logistics does notmake toomuch profit.
DHL will invest in infrastructure including new DCs and NHS Supply Chain employees will transfer on similar terms, addsWaller. The downside is that it is a big change and the main worry for DHL is whether politicians and others can resist the temptation to interfere. ‘DHL, in taking this on, are taking a risk, but I think it’s a balanced risk,’ saysWaller. The trade unions are, understandably perhaps, nervous about potential job losses. But it could be argued that becoming part of a professional supply chain operatormight ultimately bemore fulfilling for staff. Traditionally, there has been an unwillingness in the NHS to spendmoney on things that are not directly related to patient care, even where that spending could save money.
The NHSmay be amassive organisation but within it, healthcare trusts and even individual hospitals and clinics have a lot of autonomy. However, AlanWaller believes that the desire for local control can bematched with supply chain efficiency. ‘Individual supermarkets in France have a lot of autonomy, and it doesn’t seemto undermine good supply chain management. And the NHS could have national agreements with suppliers but still have collections fromlocal outlets. There is no need to confuse the transactional channel with the fulfilment channel.’
Some of themooted developments in the NHS, including possible plans to create ‘polyclinics’ with a wider range of services andmore doctors in one location could actually pull against other efforts to streamline the supply chain, warn those with experience of the concept in the private sector. Adrian Burford, strategy director of WestoverMedical, which is in the process of rolling out a network of 15 private polyclinics across London says that, whatever the benefits of the concept as far as the patient is concerned, a neat supply chain isn’t one of them.
Westover has rationalised themore ‘routine’ aspects of its supply chain, but has found that even when doctors apparently agree that itmakes sense to streamline ordering of less commonly needed items, ‘it always gets chipped away, and within threemonths the supply chain looks exactly as it did before.’
Clearly, there is a reluctance to dictate to doctors, whomay have learned to do a particular procedure with specific pieces of kit – you don’t really want themexperimenting on patients, simply in the interests of supply chain efficiency. It has tried wholesalers, too, but found that costs tended to increase and, as wholesalers couldn’t supply all items so Westover still had to deal direct with some suppliers.
While themore routine items are ordered electronically, Burford has also found a reluctance among doctors to order more specialised items online. Itmay be force of habit, but it might equally be because they need to discuss specifications before ordering.
Interestingly,Westover has considered plugging into the same database that the NHS is using for its electronic catalogue, but actually found it too complex for its needs, with amyriad of different specifications for often quite similar items. If the NHS doesmove towards polyclinics, perhaps it toomight have to consider a different supply chainmodel for these facilities, Burford suggests.
The NHS Supply Chain contract isn’t DHL’s first involvement with the UK health body. For some time, it has been helping some London hospitals improve their logistics by putting in teams to helpmanage the operation. The difference between this work and the NHS Supply Chain work, is that the procurement decision remains in the hands of the hospitals concerned.
GlenMcCracken who works within DHL’s UK Healthcare Teamas hospital logistics businessmanager says that while the London hospitals contractmay have concentrated on themore routine supplies, ‘we are now looking at higher-end inventory in, for instance, cardiology and orthopaedics.’
Hospitals that DHL has worked for have realised benefits in reduced inventory and in the amount of expired stock thrown away. Equally important, though perhaps harder to quantify, are less clinicians’ time being spent in routine tasks. It is also possible tomeasure the value of inventory used in any particular operation or procedure – particularly important now that remuneration fromthe Government is often based on a ‘per job’ basis.
DHL is also working on automation and, crucially, on introducing an element of demand forecasting into the process. Retailers have used such techniques formany years, but, saysMcCracken. ‘Inmedicine, there is a crucial difference between something being bought and actually being used.’ Hospitalsmust keep stocks of certain items against possible future emergencies.
‘We spent a number of years researching techniques and tools fromaround the world and we have combined these with our own experience of working within the NHS,’ says McCracken. Nor is it quite the first time such forecasting tools have been used in themedical arena. ‘Japan and Asia seemto be leading the way here, pioneering the use of Kanban systems in hospitals and they are very efficient there.’
While it is hard to get a true picture on the potential savings to the UK’s NHS through better inventory control, DHL is working towards roughly halving inventory levels, but without impacting on availability. ‘Obviously, we’re not advocating running a hospital supply chain completely lean, but there is significant opportunity to reduce a hospital’s financial burden through effective inventory management.’
Paper, paper, everywhere…
Looking at the supply chain in broader terms, one pressing issue is the amount of paperwork. A significant proportion is generated by supplier invoices, says Chris Haden, managing director of Formscan, which has been helping the UK NHS’s shared service centre with the problem.
The UK’s health service faced a particular problemin that invoices –mostly paper rather than electronic – were multiplying. The healthcare trusts, which have a degree of autonomy, have been encouraged to use local suppliers, whichmeans that invoices come inmany different formats. While the NHS did have some scanning technology, Formscan was asked if it could improve its performance and get data into amore consistent form.
The efforts to outsource the NHS supply chain relate to the non-pharmaceutical side of the organisation. AsMario Johnson, commercialmanager at European pharmaceutical pre-wholesaler Alloga, points out, the supply chain in this area is rather different and a good deal of outsourcing already goes on. In fact, it isn’t really accurate to talk of ‘the NHS supply chain’ because different hospital trusts’ performance varies widely, he says. ‘Some primary care trusts have achieved amazing results, but I’mnot sure if best practice has filtered out to the others.’
His colleague, Pascel Regen, president of Alloga in France says that the structure is rather different. For example, prewholesalers are not allowed to contract directly with hospitals under current legislation. ‘However, some hospitals are looking to externalise their distribution.’ Progress is uncertain and patchy, though he is convinced that it will happen eventually. It is being driven partly by amore results-based funding system– hospitalsmay get paid depending on howmany operations they performrather than receive blanket funding whichmight drive outsourcing.
Improving care is as important a factor in supply chain improvement as themoremonetarymeasures used in commercial supply chains. ‘For instance,’ explains Johnson, ‘we’ve done consultancy work where we found drugs within hospitals changing hands 15 times.’ Not only is that potentially inefficient, but every handover increases the potential for something to go wrong.
Reducing errors is one of the driving forces behind the NHS’s huge IT programme. This hasn’t had the best of presses lately, but itmust be remembered that it is a vast scheme and it is now beginning to deliver substantial benefits, says Johnson.
France also has a big healthcare IT project, says Regen, although it hasmade less progress, seemingly. It was launched by the healthminister in the previous government, and it is hard to say where it stands now.
A lot of the focus in the health service has been on the external supply chain but there are equally large – and potentiallymuch greater – gains to bemade by focussing on what happens to patients within hospitals and clinics, points out AileenMcHugh, verticalmarketingmanager for healthcare at Zebra Technologies.
She quotes the National Patient Safety Agency (NPSA) report of two years ago which stated that out of eightmillion hospital admissions, 850,000 had some sort of ‘adverse event’.While fatalitiesmay grab the headlines,more mundane problems like a patient being wheeled into the wrong ward end up costing the NHS around €2.5 bn a year.
Technology ‘overspends’ in the NHSmay have had a bad press, but no one reports on what the cost of doing without IT systemsmight be. US statistics suggest, for instance, that hospitals introducing bar-codedmedication systems can expect to improve nurses’ productivity by the equivalent of 2½hours in every 12-hour shift.
The NHS could have national agreements with suppliers but still have local collections. There is no need to confuse transactional and fulfilment channels PROF. ALAN WALLER SOLVING INTERNATIONAL
Healthcare trusts, which have a degree of autonomy, have been encouraged to use local suppliers, whichmeans that invoices come in many different formats
CHRIS HADEN FORMSCAN
US statistics suggest that hospitals using bar-codedmedication systems can expect to improve nurses’ productivity by 2½ hours in a 12-hour shift
AILEEN MCHUGH ZEBRA TECHNOLOGIES
Pre-wholesalers are not allowed to contract directly with hospitals under current French legislation
PASCAL REGEN ALLOGA