While private manufacturers and retailers have pushed the boundaries of efficient and effective stock management in recent years, all too often their counterparts in the utilities, the public health services or the armed forces have been stuck in the paper and pen age.
In the UK, it is often said that lack of investment in the public services is to blame, but that is not the whole story. Whereas retailers and manufacturers generally conform to a pattern and can use supply chain systems and software almost ‘out of the box’, the public sector embraces a huge variety of activities and many of its supply chain patterns do not fit neatly into processes and techniques that have been developed for private industry. A single public sector organisation can cover a multitude of widely-varying activities – the health service supply chain might cover anything from spares for a sophisticated dialysis machine to a mop and bucket.
Some public sector supply chain activities are truly massive. The US military’s logistics bill for the 1991 Gulf War was reportedly €4 billion. It can also be difficult for supply chain managers in the public sector to persuade their paymasters that money spent on supply chain remodelling is worthwhile when the concepts are barely understood in government circles.
But despite the monumental task facing public sector supply chain managers, there are signs that they are grasping the nettle. The winner of Logistics Europe’s 2002 European Supply Chain Excellence Award for Service Industries, Utilities & Public Sector, Electrabel Netmanagement Flanders – a division of the giant Belgian utility company – rationalised operations into a single distribution centre and, according to logistics manager, Johan Cuyt, saved 45 per cent of its inventory as a result.
Spending under pressure
With public spending in Europe under pressure as never before, there are huge incentives to get the supply chain right. Business is brisk at NHS Logistics, the specialist body set up by the UK health service to co-ordinate its supply chain. Activity level has ‘gone through the roof’ says chief executive, Barry Mellor. Turnover, under €900m a year ago, is forecast to reach the €1bn mark and there are a host of new initiatives in play.
Among these is a web supplier portal launched in October 2003; e-trading has been fully enabled, and electronic invoicing is being rapidly rolled out.
Suppliers can log on and access KPIs whether by trend, location or sector and check their ranking among their peers.
NHS Logistics has achieved full transparency of all its own inventory systems and suppliers can also access the data to find out what is being ordered. In time, this service could be extended, perhaps to allow suppliers to manage their own inventory, for example.
On the technical front, hospital trusts are making increasing use of hand-held barcode readers at the ward level and the equipment used has been upgraded to Intermec 700s – the same as Tesco has just ordered. ‘The new equipment is so powerful that it will enable a whole programme of future developments,’ says Mellor. ‘For example, you could keep a complete electronic catalogue on the device, including product factsheets which are very important in health and safety. This will mean that we can access information much faster than before.’
The devices can also be used while nursing staff are doing the rounds of the wards, which has greatly improved stock management.
Just as important to the revitalisation of the NHS supply chain as new equipment, though, is new knowledge. The online NHS Supply Chain Knowledge Centre, as Mellor explains, allows any authorised person to log on and gain access to a wealth of best practice, case studies and descriptions of projects.
To further extend its knowledge base, NHS Logistics has created a pool of external consultants. The thinking here is that the organisation acting alone would never have the funding to undertake every piece of supply chain development work itself – hence the need for outside assistance.
A difficult message
Supply chain management can be a hard concept to get across to those outside the industry but talking in terms of: if you do this, the money you save will pay for a new dialysis machine or pay the wages of ten extra nurses a year, and most trust managers’ eyes light up. So, the three ‘show projects’ Mellor’s team are currently implementing are couched very much in those terms. In one example, the theatre project in Sheffield will save an estimated 4,000 hours in clinical time a year, as well as a €1.5m one-off saving in inventory.
‘The ongoing operational savings are especially important,’ says Mellor, ‘especially when there is such a shortage of nurses.’
Similar projects, if rolled out across England would probably save around €45m a year,’ says Mellor, who adds that NHS people are encouraged to visit these lead sites so that they can acquire the tools they need to go away and achieve similar benefits in their own areas.
Getting people to ‘think supply chain’ can be counted as one of NHS Logistics’ main achievements to date. ‘People have needed encouraging but two years ago, supply chain wasn’t a term that was used at all in the NHS,’ Mellor says. ‘The NHS has a lot of procurement professionals and they’ve said to me: “Show us the proof.” Like a snowball, it takes a while to get going but now things are getting interesting.’
A fair way to go
He is the first to admit, however, that ‘the NHS is early in this journey – we’ve got a fair way to go’. A late starter it may be, but the processes are essentially the same as in the private sector. (NHS Logistics in fact runs the UK Logistics Benchmarking Club, www.logmark.org which includes such luminaries as Procter & Gamble and Woolworth’s.)
‘There are in fact a lot of techniques that we’ve taken direct from supermarkets, such as cross-docking, backhauling and RF picking technology. In other areas, we’ve used the technology, but in different ways. ‘The organisation has looked at automation, including site visits to people like Boots, but has decided to go for simple quick win solutions. But the NHS has moved ahead by piloting an upgrade of its existing RF technology to include voice recognition.
One area where there are marked differences is in the relationship with suppliers. ‘Supermarkets, for instance, have strong control, and a standardised type of service. The NHS isn’t like that – it’s 600 legal entities, within which each trust might contain four huge hospitals, each with hundreds of units and departments, all autonomous.’ While the trend in private industry might be towards centralisation, the trend in the health service is if anything the other way, with the creation of entities such as foundation hospitals.
One issue in the medical sector is that individual practitioners may have their own preferred brands of equipment or disposables – often going back to what they were taught with at medical school – and one of the roles of the clinical groups is to help to ensurethat such decisions are based on hard fact.. They can also produce sets of standardised procedures.
‘However, we can’t impose anything,’ says Mellor. ‘What we do is show management the opportunity and it’s up to them whether to follow it up.’
Another peculiarity of health logistics is that ‘many of the products we provide are critical and there’s little opportunity for product substitution. It’s not like going to the supermarket and buying a different brand of strawberry jam because your preferred one isn’t available. Even needles on syringes may need to fit into specific machines.’
This affects the way NHS Logistics operates. ‘We tend to hold a wider product range and we need a higher degree of resilience in the supply chain.’
And the unexpected can happen. When the SARS epidemic broke out in 2003 it put real pressure on the handful of surgical facemask manufacturers in the world as the general public in Asia started buying them. At one point there were fears that there might not be enough for medical staff.
The resilience factor
NHS Logistics, therefore, is always asking itself: ‘How much resilience do we need to build into the supply chain?
‘The good thing, though, is that staff are now relying on us to do it. Before, nurses and other people had their own little ‘squirrel’ stocks, but we’ve educated them to trust us. Customers still keep ward level stocks but most other intermediary stocks have been removed.
‘It’s vital, though, that NHS Logistics does not let people down, otherwise they are likely to revert to their old habits. Confidence in a high quality, consistent service is something we have to guard all the time.’
Public sector firms are constantly being exhorted to be more entrepreneurial, but they need the tools to achieve that – particularly specialist software. Many are saddled with old mainframe computers – ironically because some of them were early adopters of technology during the 1960s and 70s, but unfortunately for them, things have moved on a bit.
Many are now getting to grips with this problem. Software firm Yantra, for example, has been helping the Royal Mail get to grips with its complex internal supply chain, which needs to handle items ranging from a postman’s cap to a driving licence application form.
Part of the spur to improve the system, explains Yantra’s European managing director, David Stephenson, was Royal Mail’s winning of a number of external contracts such as the one to distribute thousands of driving licence application forms to country halls. ‘They had a lot of requirements for different customers, which is what attracted them to our technology,’ says Stephenson.
Royal Mail already had a mainframe but needed something cheaper and more flexible and chose Yantra from a shortlist of 18. One thing about the public sector, Stephenson adds, is that ‘it doesn’t like being exposed to risk in implementing schemes’.
While this was an incredibly cost-conscious project, he continues, a good financial case could be made simply for replacing the old mainframe with something that was much easier and cheaper to maintain. ‘There are opportunities in the public sector to do a technology refresh and swap-out on a pure cost basis. Any additional functionality is a bonus.’
Yantra is taking care of the order management component and fulfilment (a warehouse management system was already in place). The software company was able to build in more flexibility and, says Stephenson, this means that new customers can be added more cost-effectively and could even take the organisation into areas such as direct internet fulfilment. The system could later be extended to other parts of Royal Mail’s existing business, such as secure transport.
‘I do think technology has an important part to play in the public sector and especially in the supply chain, where there are two drivers – reduction in stock and giving better service.’ In fact, the public sector supply chain is probably one of the few remaining areas where major gains remain to be made simply by introducing new software, he says.
Post offices are also major retailers in their own right, though again they have often not had the hardware tools available to major supermarkets.
For instance, according to an IDC study of the €61.6bn-a-year revenue US postal service’s use of Teradata technology, by no means all its 38,000 retail outlets had installed point-of-sale terminals and in no sense of the word was there a unified POS system capable of giving ‘a single version of the truth’ for the organisation. Now, though, the USPS has a much better picture of workloads throughout its retail empire.
If outsourcing in the health service or post office can be controversial at times, the problems are even greater in the military – almost everyone involved in the supply chain seems to have a military story and tales of logistics cock-ups have probably been circulating since the days of the Roman legions.
For instance, during the first Gulf War, the story goes that the US Department of Defense, unable to accurately track the right containers among the thousands littering the theatre, ended up having to feed troops a breakfast meal three times a day because it was unable to find the ‘dinner’ containers. And when the dinner containers did turn up, GIs found themselves munching dinner morning, noon and night.
The US military was even said to be holding stocks of mule shoes until recently (mules have not seen combat since World War I). Some of this may be apocryphal but it does indicate what a difficult, lumbering beast the military supply chain can be.
More seriously, the ‘missing body armour’ case in the recent Iraq war has led to calls for a rethink of the military supply chain. In fact, one logistics expert we spoke to claimed that the last Gulf war was fought ‘almost totally on inventory’. It could be argued, though, is that the secret is not to amass supplies – arguably, this causes as many problems as it solves – but to deploy technology that allows material to be tracked and traced effectively.
While the UK military is now pondering whether to outsource a portion of its warehousing and transport, the pressures are similar throughout Europe. The US, with its huge military spending programme and massive war machine is more advanced.
‘In the past few years, there has been a big increase in the demands of military supply chains and budgets have come under increasing strain.’
Supply chains have been geared to the relatively predictable demands of largely static armies in central Europe during the Cold War, but the new war on terrorism’ is much harder to predict.
The modern military also has to fulfil a lot of humanitarian and rebuilding functions. The US military in particular has seen more separate actions – often in some of the world’s most remote places – since the 1991 Gulf War than in the whole of the Cold War period.
As Accenture’s Jon Bumstead points out, ‘With military supply chains, most of the time there doesn’t appear to be an awful lot going on – but when it does have to move, it needs to move fast.’
Scott Pulsipher, director of solutions at Yantra (the company has done a lot of work for the US Defense Logistics Agency) points out that in the past, decisions on how much kit to ship and even how it was to be transported, were left to field commanders and they, not unnaturally, tended to ship on a ‘just in case’ basis. ‘Now, though, the model is more: “tell us what you need, when and where”.’
If field commanders’ trust can be gained, a much more efficient and effective supply chain could be the result. It could almost eliminate some massive logistics costs. Compare shipping a few 40-foot containers across the Atlantic for a few thousand dollars with the cost of chartering a dozen Hercules planes, repeat the exercise a few thousand times and the savings soon start to rack up.
And Deloitte senior director Mike Looney believes that RFID technology could make as big an impact in the military as it might potentially in retailing or manufacturing. Indeed the US military has already mandated such technology by 2005. While there are technical hurdles to be overcome – especially in the field – they are not insurmountable, he argues.
In fact, Pulsipher reckons that the military is ahead even of Wal-Mart in developing RFID technology.
What might also help would be to move away from the all-or-nothing approach to shipping – perhaps borrowing from the kitting techniques used in the automotive industry whereby a complete kit of parts needed to finish a specific car are packaged and shipped together, rather than shipping ten containers of boots, followed by half a dozen loads of mess tins and so on.
Some of the prioritising techniques used by private industry could be equally useful in the military field, says Dan Odette, vp global industry consulting at data warehouse firm Teradata. Ford, for example, can now prioritise the most urgently-needed spares through its supply chain – for example, those needed to replace those for product recalls – and in similar fashion, supplies to a unit that has been moved to the front line could receive a higher priority than others not yet in action.
The analytic tools offered by data warehousers could also be used to make more informed decisions, says his colleague, Niall O’Doherty, in charge of industry marketing and strategy for supply chain and manufacturing, who adds that firms like Boeing and, now, the US Air Force can use sophisticated models to, for example, predict failure rates (and hence need for spare parts) of aircraft flying in different weather conditions or types of operation.
A detailed picture
It has been possible to capture data in the past but until very recently ‘we’ve not been able to put it into an integrated system. Now, though, we can build up a much more detailed picture of failure rates’.
And finally, one illustration of the sheer complexity of the war machine is the fact that, according to Teradata’s in-house magazine, its database gets 70 million updates a month in near real time, along with 50 million batch updates.
NHS Logistics in figures
- Serves a customer base of over 450 organisations in the English NHS
- Receives 100 per cent of orders electronically
- Over £900 million of products per year
- 27 million line items delivered per year
- Over 41,000 lines in national product catalogue
- Transaction manager of 75 per cent of trust supplies activity on products
- Seven strategic distribution centres, with 1350 employees
- A fleet of over 200 lorries making 1,200 deliveries a day, serving over 10,000 delivery points
- 750 suppliers, 83 per cent of orders issued electronically
- Pays 420,000 supplier invoices per annum
- Stocked products delivered on a 48-hour lead-time
- Consistent 98 per cent service level for product availability and delivery to a half hour ‘window’ of agreed time
- 24 hour emergency service