Born out of the old NHS Supplies organisation, NHS Logistics is tasked with supplying a huge range of products to hospitals around the country. Finding ways of improving the efficiency of the operations while, at the same time, reducing the cost has been central to the strategy of the organisation.
The scale of the operation is huge. NHS Logistics last year had a turnover of more than £730m with 80,000 customers in the 600-plus NHS Trusts. It handles 43,000 product lines and delivers to 10,000 delivery points.
Mellor points out that when he joined, the NHS was going through huge structural changes and the supply chain was critical.
“This business has been around since the early 1990s – mainly as a wholesaling operation but it was set up as a separate entity in 2000.”
However, he says, it wasn’t doing what the customers wanted. “Customer satisfaction scores were not good. Sales were £500m but had reached a plateau. The business needed to transform itself.”
On the positive side, he says, there was an enormous amount of enthusiasm within the operation to get things right.
“We had the skills and loyalty of people within the business.”
This was particularly important he says given that customers don’t have to use NHS Logistics- they are free to go where they can get the best service.
The first step was to talk to the stakeholders to find out what their expectations were and to see what was going wrong.
“The Department of Health wanted us to be a full supply chain service provider to the NHS.”
Service excellence was at the heart of the strategy that he devised. “It has to be a reliable, high quality service because it affects patient care,” Mellor points out.
At the start it was variable with a lack of consistency. With little scope for product substitution, high service levels are essential.
Key targets included all products to be available 98 per cent of the time and 98 per cent of deliveries to be on time to agreed appointment times.
Some of the solutions involved very basic things like ensuring that there were enough tote boxes and roll cages were available – a shortage had hampered services in the past.
Some solutions involved the used of IT and automation while changing staff attitudes was another important area so that staff understood the implications of a mistake to customer care.
Service levels have risen substantially with on-time delivery rising from 97.4 per cent at the start of the process to 99.4 per cent now – well ahead of the promise to customers. Over the same period product availability has risen from 97.7 per cent to 98.4 per cent with over 99 per cent for critical products.
Mellor points out that the product range has increased over the period from 10,000 lines to more than 43,000 and is still growing.
A key element in the transformation has been the use of IT. The organisation has developed its own e-commerce system which is now operating in every single NHS trust. Mellor points out that this is currently the only truly national system in the NHS.
All 33 million orders handled by NHS Logistics are e-enabled so it is a complete paperless system.
In operation, the system is very like home shopping with one of the big supermarkets where the customer completes an online order and the goods are then delivered to an agreed timetable.
E-enabling the process has enable the cost of the ordering process to be dramatically reduced. Mellor says the process of purchase to pay now costs 39p per item compared with figures as high as £7 for a paper-based system.
Of course, its all very well making changes but benchmarking is essential to make judgements about the effectiveness of the measures.
“We want to be in the top quartile world-wide,” says Mellor. In February 2002, the NHS Logistics Authority started on its first benchmarking exercise. It was quickly realised that there was a shortage of data that could be picked off the shelf and used. As a result it took the decision to form the benchmarking club, www.logmark.org, initially targeting the operations element of the logistics function.
The club has grown to some 30 members – many of them blue chip companies – and including a number of leading third party logistics providers such as Exel and TNT. Anyone can join, says Mellor, but their membership has to be approved by the existing members.
NHS Logistics provides support and consultancy services to support the development of a world class supply chain across the NHS. It also works with product suppliers to streamline the inbound operation.
The NHS is still going through substantial structural changes. In fact, from April 2006, the NHS Logistics Authority will become part of a new NHS Business Services Authority alongside a number of other agencies which currently stand alone.
There are some major challenges ahead, says Mellor. “We have got to get on people’s agendas. We have come a long way over the past four or five years and there is now a good proportion of customers who understand the importance of the supply chain and what we are about.”
However, he says, there is a challenge to educate and build awareness at board level – particularly at the moment “because the NHS has not finished its structural changes – so it is important that we get to the top table,” he says.
“We are delivering some £110 million a year in benefits to the NHS from the changes we have made but we need to continue improving and not allow the benefits to be whittled away.”
Resilience is another key issue, says Mellor. Product sourcing is increasingly done on a global basis. As a result supply chains are getting longer and there are real issues to be faced over terrorist attack, closed borders and so on. The question, he says, is how to maintain supply without excess stocks. He points out that while the NHS Logistics Authority handles 20 per cent of NHS supplies by value, it is 75 per cent by volume. Disruption of supply could be very damaging.
Sustaining continuous improvement is an issue, he says. Customers get hit from every angle with a massive range of issues from reducing waiting lists to dealing with MRSA. So there is an issue about how they can be persuaded to make changes to improve supply chain efficiency. One major area of continuous improvement has been information technology which has been developed over the past five years – now, for example, it is possible for customers to order direct from outside companies as well as from NHS Logistics stock through the e-commerce system.
NHS Logistics has been steadily improving the efficiency of its warehouse operations – for example stock turn has risen from 14 to 16.5 in the past year. The next development will be the implementation of a pick by voice system.
Mellor says it ran a trial at the Alfreton distribution centre last year which showed up weaknesses in the particular system used. But it is now planning to install a more robust solution from April this year at all six distribution centres.
He expects to get a 10 per cent improvement in picking productivity through voice picking but, he says, “the biggest benefit is the quality – it almost totally eradicates errors and should have a huge impact on customer satisfaction.”
This focus on improving quality and efficiency has been recognised over the past few years with a string of wins in the European Supply Chain Excellence Awards – this year it won the award for service industries, utilities and public sector.
Awards are always nice, but Mellor points out that, as well as providing a welcome accolade for the people in the business, an award is also an important form of benchmarking. In addition, it is a marketing tool telling customers that they are dealing with a world class organisation.