NHSScotland expects to benefit from major cost savings and improved patient care now that it is developing a fit-for-purpose, modern logistics infrastructure based on a national strategy as well as the creation of a National Distribution Centre. The new strategy, called Logistics Project, will take three years to implement and follows a major survey of the healthcare organisation’s supply chain.
The man charged with installing the new strategy is logistics implementation project director Sandy Agnew (above), who heads a full-time project team of five – the number will increase to 14 later this year. Agnew led the Logistics workstream within the Best Procurement Implementation (BPI) Project, producing a detailed logistics strategy for Scotland’s NHS and which will deliver significant benefits.
The Logistics Project is part of a wider change management programme taking place in NHSScotland, and its one of three key components. The other two are strategic sourcing and systems.
Agnew explains: “Strategic sourcing is about better buying by leveraging the spend with suppliers through a more intelligent contracting process. Instead of the older style volume commitment over a period of time, it is about understanding what the cost drivers are with suppliers, how we can improve the cost base both internally and externally and take cost out. It is how these cost savings are shared both in terms of either product or service price reductions.
“Systems are the other side of the project, in terms of IT infrastructure, to support both the logistics and the strategic sourcing programmes – e-Procurement Scotland is the public sector-wide implementation of “best of breed” e-procurement systems.”
Over the past two to three years, NHSScotland has developed a joined-up approach across these three main activities. This has been primarily through recognising a need to improve service – that is the delivery of product or service through to the point of use – as well as enhancing cost efficiency across front line services.
Agnew points out that NHSScotland’s logistics overhaul is not following the same route as that undertaken by the National Health Service south of the border, where historically there has been a procurement function with the NHS Purchasing and Supply Agency (PASA) and NHS Logistics operating in isolation to each other. “What we are going to do is have our contracting activity very much part of the logistics strategy, and getting to the benefits as one organisation and not as two separate ones. Historically there has been this divide where NHS Logistics actually undertakes contracting and PASA does the same.
“We will have a more joined up approach in terms of the way that we are taking that forward. A joined up approach is more efficient, and you don’t split off essential elements of getting to the end result.”
Another important difference to the approach taken by NHSScotland is that the logistics service will be mandated with no opt-out.
The Logistics Project has been born out of a need to improve service as well as cost. NHSScotland undertook a detailed review about 18 months to two years ago of what its supply chain practices were. It discovered that there were certainly improvement opportunities:
- Its own logistics infrastructure lacked investment.
- It was not supported by the type of IT and physical infrastructure it required.
- There was a low level of expertise on the logistics front.
Agnew says: “These factors combined meant we were not leveraging the kind of efficiencies that we should in reducing costs and increasing service levels the way we would want.”
He puts the low level of expertise down to the fact that within NHSScotland “logistics has never really been highlighted as being a supply chain key issue. Procurement has always been recognised as important but logistics practices and activities have been formed on a fairly piecemeal basis locally, and haven’t been given direction and no real benchmarking to compare what’s happening internally or what’s recognised as best practice externally”.
The review confirmed this along with the fact that product was being pushed through in an inefficient way because it was not being properly managed. Externally, NHSScotland recognised that it was not managing effectively the supply base, and that it had placed demands on the supply base that would build in additional costs. “We really needed to get to grips with the supply chain logistics activity both internally with what we were doing, and externally how we were managing the supply base,” says Agnew.
NHSScotland operated “a very diverse infrastructure”, says Agnew, where there were some very good practices but no real means of sharing that. It had stores, rather than distribution centres, as that was the level they were working at and there were very different infrastructures within each healthcare organisation.
In some cases third-party operators provided distribution in to point-of-use and others would have a stores infrastructure and others would use a broad mix of activity so there was no pre-defined key criteria outlining to customers what the service was or informing suppliers of the performance requirements. “We didn’t have that kind of visibility at all,” says Agnew.
He continues: “We didn’t have good visibility on what the direct costs were nor indirect costs.”
A key issue that came from the findings was that several “work arounds” were happening daily because of failures to supply product in to point of use. However, the product was always made available because internally there would be a “work around”. “You would get on to the manufacturer or distributor and pull that stuff through to meet that particular need. That is costly and inefficient. The picture was not good.”
As a result, a decision was taken to resolve the issue by ensuring an agreed and clearly understood service is in place and which is cost-effective too. That was when the review process was initiated, looking at commercial sector practice. Agnew explains:” You’ve got your Tescos of this world and a range of other commercial enterprises that we touched base with. We engaged supply chain consultancies to assist us in this process because in terms of expertise we were operating at a low level.
“We also looked at public sector best practice and NHS Logistics does exhibit that. There is no doubt about that. They have been in the game for 12 years and we are very impressed with what they are doing and how they’re doing it.”
Agnew says the next stage entailed establishing a model of best practice, and looking and what had to be done to change in terms of moving from “the as is situation into the where we want to be future state”.
NHSScotland currently comprises 15 health boards – 12 on the mainland and three on islands. There are also eight special health boards comprising organisations such as the Scottish Ambulance Service and National Services Scotland.
Agnew says that with the existing operation a product going into a health board or major hospital location can go through a whole variety of different logistics channels because there are a significant number of ordering points with no rationalised demand being placed on the suppliers. And he adds that there may be a range of different suppliers providing similar product. “That’s why you’ve got a very complex, costly and potentially low level of service coming out of this kind of infrastructure.”
He says that a predominantly paper-based solution is not efficient, there tends to be invisible cost and a lack of control.
The aim now is to have a logistics operation that:
- Is efficient.
- Is IT-enabled.
- Is accountable and measurable so the service levels being provided into the customer base are known.
- Manages the supplier base.
- Comprises a fit-for-purpose, modern infrastructure.
- Is highly reliable so customers know they are going to get product when they need, where they need it, and the right product 98% of the time.
When contracting for product NHSScotland will decide what the logistics route is and how it is being distributed. Agnew explains: “It will be appropriate for some product to still go through from point of manufacture into point of use and that will be based on key criteria around supplier capability, frequency of use of the product and the nature of the product.”
As part of the overall strategy, NHSScotland plans to have a national distribution centre (NDC) in place.
Excluding medicines, NHSScotland is spending about £1.2Bn on products and services a year and at least half of that figure is made up of product procurement. The initial focus, says Agnew, is going to be on about £115M which is predominantly medical and surgical sundries. “We are concentrating on this because that spend is predominantly moved through the system by third-party commercial distributors, and we use quite a number of them.”
He continues: “We take control, we develop a strategy which is embedded in the contracting process where we define which route the product comes through, whether it be direct from the supplier, manufacturer, coming through the NDC or coming through third-party commercials. There is still a role for third-party commercials to play.” Apart from managing the process, as part of the contracting NHSScotland will not be engaging on a narrow front which says “here’s the volume which we wish to commit over that period of time and here’s the route we wish to put the product through”. The organisation will collaborate with key suppliers on a whole range of activities.
“We need to understand their production planning requirements – are we pressing demands on them in a way that makes them inefficient in terms of the way they are producing? Are we able to take packaging out from the product if we secure the supply line? Can we de-package and take costs out of that? Have we got good end-to-end business processes?
“There’s a whole range of diverse areas that we can get into discussions with key suppliers on that take cost out and improve service efficiency. While taking cost out is important, the aim primarily is ensuring there is a high degree of reliability in the service to support front line staff in the delivery of patient care.”
Agnew says it is about product management at point of use which is not new in the commercial world or to NHS Logistics. It is about having a dedicated resource in major areas of product usage in a hospital, in a busy setting. “You might have one individual looking after 15-20 ward areas. That individual’s whole rationale for being there is to ensure that product is available when it’s needed, where it’s needed but it’s done on an economic basis. That individual will act as the supply chain resource for these clinical areas.”
The changes being applied mean that front line staff will be able to dedicate their time to what they are expert at, which is providing nursing care for instance. There are about 150,000 employees at NHSScotland.
Driving through different types of service delivery is also on Agnew’s logistics policy agenda to support a change in healthcare provision. “If there’s going to be more care given at home` because of an increasingly aging population and a move away from treatment in a defined building and it’s done in the home environment what we don’t want is a whole string of white vans following each other around delivering clinical products, delivering medicines or delivering dietary products. If there’s a change in to service delivery we need to flex and put an infrastructure into place to cover that requirement cost-effectively.”
As part of the Best Procurement Initiative (BPI) programme, the NHSScotland needs to eliminate £50M of cost inefficiencies a year as laid down by the Scottish Parliament. A fifth of that figure relates to logistics. “This is a very rational approach to taking cost out and making sure we have money to reinvest in the service, and it is one that has got full endorsement at ministerial level within Scotland – that’s the BPI programme and the Logistics Project,” says Agnew.
An outline business case has been prepared and submitted which covers the current situation, where the logistics operation needs to get to and how it achieves that. The activity currently centres on taking forward the project to FULL business case, entailing taking cost estimates for the major parts of the strategy through from market quotations to actual tendered costs.
Agnew expects to have the full business case approved by either December 2005 or early January 2006. “That will allow us to take forward at full speed the implementation process.”
That includes ensuring the right communication and IT systems, covering warehouse management, inventory management and ward product management, are in place and that they interface with each other.
Physical logistics is also a key element and covers putting the NDC in place. A location has not yet been decided on but Agnew says the 9,300sq m facility will be close to Glasgow, possibly on the west side of the M8 corridor or on the north-west side of the M74. The Glasgow area is the ideal location as more than half of the health boards are closely located in the area.
He is currently looking at three sites. The facility will be about 9,300sq m, extendable up to 18,600sq m to allow for future expansion, but will not be heavily automated “because it is not appropriate for the type of business that we’re in. We’ve got very different product profiles coming in which can change depending on how we want to put them through in terms of units of issue or units of purchase”.
And Agnew concludes that creating the modern logistics infrastructure will involve major investment but it is necessary if it means front line staff can concentrate on their core jobs – caring for patients.