Procuring health in hard times
The UK National Health Service is a cherished institution. But financing the NHS has always been a challenge, and the UK economy is troubled. Today, as an austerity program aims to restore health to public finances, the need to improve NHS efficiency has never been more acute. New supply chain solutions may be the answer.
Over the last year, NHS Supply Chain - a unit of DHL - has set about reorganizing SECAMB's back-office operations, introducing a "one-stop-shop" system for purchasing, ordering, and delivery.
When Paul Ranson started his new job in early 2012, he brought something of a revolution. The new Head of Procurement arrived at the South East Coast Ambulance Service as it underwent sweeping change. Created by a merger of three ambulance services serving 4.5 million people in southern England, SECAMB was in the process of rearranging its operations to create a new system of ambulance bases dispersed across 12,000 square kilometers.
The new arrangement aimed to enable ambulance teams to meet tight response times for emergency calls. But it also created logistical difficulties in ensuring that vehicles were stocked with necessary consumables, that orders were processed in time, and that replacements were transported to the 120 "response points" where the units were stationed. Drawing on previous experience at a big London hospital, Ranson turned to NHS Supply Chain, a private logistics and procurement organization which operates a government contract managed by the Department of Health.
One-stop-shop system boosts efficiency
Over the last year, NHS Supply Chain - a unit of DHL - has set about reorganizing SECAMB's back-office operations, introducing a "one-stop-shop" system for purchasing, ordering, and delivery. The system "is now a lot more efficient," says Ranson. Unnecessary duplication in suppliers has been eliminated. So has paperwork, as employees use handheld digital devices to enter orders. The change has brought considerable savings - £250,000 off SECAMB's budget.
Ranson's initiative is just one part of an innovative project within England's National Health Service to boost efficiency and savings for Europe's biggest public healthcare provider. For years, the UK government has tried to control NHS costs, turning increasingly to the private sector for solutions.
The NHS is a cherished institution in the UK where healthcare ranks ahead of other voter concerns. But NHS financing has been a challenge for governments ever since the service was established in 1948. Now, as a Conservative-led coalition struggles to drive through an austerity program aimed at restoring health to public finances, the need to control NHS costs and improve efficiency is ever more acute.
The NHS spends around £18 billion per annum on products, goods, and services out of an NHS budget of £100 billion. NHS Chief Executive David Nicholson estimated that £1.2 billion could be saved through better procurement, and a 2011 report by the National Audit Office identified scores of inefficiencies across the NHS. It was to address these that in 2006 DHL was awarded a ten-year contract to procure and supply goods and NHS Supply Chain was created. Previously the job, which covers anything from replenishing stocks of surgical gloves to buying MRI scanners, had been carried out by NHS agencies.
"The rationale is to drive more value from procurement and the supply chain," says Nick Gerrard, CEO NHS Supply Chain. The company would take on the risk of investing in things not core to the NHS, such as distribution centers, allowing the health service to concentrate on its clinical responsibilities.
New scale of operations
DHL had worked with the NHS before, but this was a new scale of operations. Some 1,600 people who had worked in NHS procurement and logistics agencies were taken on. Today the 2,400-strong workforce handles some 4.6 million orders a year from seven distribution centers, and works with 850 suppliers and a catalog of 600,000 products. Sales have also risen from £800 million to £2 billion. And it all runs online, with NHS staff making orders directly via handheld devices.
"Public sector procurement is complex," says Gerrard.
"We develop expertise in particular categories - from gloves to orthopedic joints - and then remove duplication by offering one contact point." Combining procurement and logistics eliminates further costs. All this requires close cooperation with the NHS. "We do a lot of consultation," says Gerrard.The company is already halfway to its target of delivering £1 billion in savings to the NHS within ten years. But there is no room for complacency. NHS officials are watching progress and have flagged up the scope for further savings - something NHS Supply Chain says it is working on. "It is a learning experience for the public and private sector," says Gerrard.
For DHL, the novelty is a business model going beyond its traditional expertise and into procurement and the selling of products as well as the maintenance of capital medical equipment. The next step, says Gerrard, is capital planning. NHS Supply Chain is facilitating a £300 million Capital Fund on behalf of the Department of Health that delivers an average saving of 14 percent on a range of capital medical equipment.
This is all part of a deeper relationship, which Gerrard sees developing over years, and which could hold lessons for governments and business in other countries. The scope of business will also grow. As the UK population ages, officials anticipate more demand for patient care in the community. This will increase the importance of logistics. NHS Supply Chain already provides services to some 200,000 patients in the community, and is developing new products and services in this area.
Another novelty is the bottom line. There is a profit cap on the company's returns. "You genuinely see that you can make a positive contribution to British society," Gerrard concludes. "That is quite powerful for all our 2,400 people."