The 32nd International Hospital Federation Congress

Hong Kong

15 – 18 May 2001

Eric Jackson

Background

NHS Purchasing and Supply Agency

• an executive agency of the Department of Health

established on 1 April 2000

• modernise and improve purchasing and supply in the NHS

• remit includes any body or organisation providing NHS services

The goals of the government

• to modernise government (“Information Age Government”)

• the UK to be the best environment in the world for E-commerce

Government targets

• all departments to have e-business strategiese-business strategies by October 2000

• by 2001 90 per cent low value goods (by volume) purchased

electronically

• in central civil service government 50 per cent of tenders will be sent

and received electronically by 2001

• the above figures will be increased to 100 per cent by 2002

Modernising governmentstructure

Information AgeMinisterial Network

Information Age Government Champions Group

Gisela Stuart

Ron Kerr

E-commerce drivers in NHS

e-business agenda e-commerce agenda

Activity at the level of government

Activity at the level of the NHS

Cabinet Office

Modernising

Government

(e-business targets)

OGC

(e-commerce strategyfor central government

Departments)

Building the Information

Core – Implementing

The NHS Plan

NHS PaSA

(e-commerce strategyfor the NHS)

The changed NHS environment

• 37 financial ledger systems

• 20 purchase order systems

• national approach – national HR and payroll system shortly to

be awarded

• Agency collaborating with the finance function on a national

integrated e-trading and e-finance IT solution

• collegiate approach – global company

Vision for E-commerce

• definition – “exchange of information across electronic networks

at any stage in the supply chain, whether within an organisation,

between businesses, between business and consumer, or

between the public and private sectors”

• B2B

• not an IT system – business relationships, information and

culture

• just about technology

• a panacea

• a quick fix

• a substitute for good procurement practice

• an end in itself

• a mechanisation of existing processes

E-commerce – what it’s not

The NHS in England

• £11 billion annual non-pay revenue spend

• £5.7 billion annual revenue spend on goods and services

Spend on goods and services£5.7 billion

£5.7 billion annual spend 1998/1999

Medical and scientific supplies

29%

Pharmaceuticals 21%

Non-medical supplies 50%

A typical trust• fragmented buying arrangements

• limited systems integration

• fragmented receipt and invoice matching arrangements

• departmental/functional receipt and storage arrangements

• low internet access for buying departments

• almost no internet procurement

• almost no EDI ordering – except for Pharmacy

major buying departments:major buying departments:- purchasing - use trust purchase order system linked to

financial systems- catering - independent catering system- pathology - manual paper based system- estates - independent estates system- pharmacy - independent pharmacy system

Trust requisitioning and ordering

• paper system

• over 20 different purchase order systems in use in supplies

departments

• some departments order manually – no IT system

• some departmental IT systems are not linked to the financial

systems

Trust requisitioning and ordering (cont)• purchase order processing in a typical trust ranges from:

- handwritten

- paper – typed or purchase order system generated

- fax or phone

- on-line

- supplier provided (download) order system

- direct order links with suppliers

• high process costshigh process costs

Research in acute trust A

• 3,500 suppliers

• seven per cent of suppliers provide 80 per cent of goods by value

• 43 per cent of supplier invoices average less than £100

• it takes 11 days from raising a requisition to placing an order

• delivery of goods takes a further 21 days

• management information very poor

• data quality is poor causing significant levels of rework

Research in acute trust B

• 3,000 suppliers

• 60 per cent of requisitions average less than £50

• 30 per cent plus of requisitions require modification

• it takes five days from raising a requisition to placing an order

• ‘walking across’ the requisition is common but costly

• delivery of goods takes a further 21 days

• people find ways around the system e.g. abuse of call off

information

• management information very poor

The NHS supplier base

• fragmented market

• many suppliers are small and local to trusts – ‘SME’s’

• 5000 + suppliers to the NHS???

• 1428 suppliers contracted to the Agency

• no logistics consolidation

• no integrated supply chain

• degree of IT sophistication varies dramatically

• culture to change varies enormously

Strategic supply information

Lack of information at the level of whole NHS:

• suppliers

• goods

• services

Leads to risk:

• lost opportunities

• missing cumulative effects

• red faces?

A success story - £500 million a year

In the English NHS:

• at least 85,000 active requisition points

• 36 million requisition lines per annum

70 per cent of NHS transaction volume is already handled by NHS Logistics70 per cent of NHS transaction volume is already handled by NHS Logistics

• through a singlesingle electronic system (Resus)

• interfacinginterfacing with all trust financial systems

• aggregating aggregating demand for the whole NHS

• supported by logistics consolidation logistics consolidation

and 50 per cent 50 per cent of this is already paperlessis already paperless

The supply chain to the NHS

manufacturers

and

importersNHS

Hospitals

Clinics

Community

GP surgeries

etc

Wholesalers and

Distributors

NHS Logistics Authority

• high supply chain costshigh supply chain costs

Problem points along the current supply chain

• contract compliance difficult to measure (reliant on information from suppliers)

• maverick purchasing (non use of purchase contracts)

• purchase data not readily available

• difficult to aggregate information quickly or comprehensively

• inefficient tender process

• different supply chains – for example stationery, sutures

Supply cost savings

• studies show that 48 per cent of United States medical supply chain process costs are avoidable (A T Kearney)

• savings achieved by greater efficiency in the sharing of information, management of orders and movement of products

NHS policy on E-commerce

• embraces and integrates all business processes from demand

through to payment

• embraces all key players in the NHS supply environment

• changes the function of purchasing from transactional to

strategic

E-commerce solutions must provide for :• integrationintegration

- with trust financial systems / supplier sales order systems- integrate with (or replace) trust purchase order systems- applicable to all types of purchase order systems in a trust

• catalogue managementcatalogue management- one central catalogue maintained by suppliers- hospital supply strategies and ‘product view’ management

• transaction managementtransaction management- requisitions, orders, receipts, invoices and payments

• supply chain managementsupply chain management- logistics consolidation- information sharing

Main business changes – English NHS

• every transaction with a supplier will be electronic

• the process will be standardised

• the process will be integrated with other systems

• ability to customise choice

• ability to aggregate across English NHS trusts

• ability to aggregate across the whole English NHS

Identify requirement

Specification /cost estimate

Request

Authorise

Catalogue check

Tender/quote

Evaluate

Source decision and

award

Check availability

OrderOrder promise

Order fulfilment

Expedite

Visibility

Delivery arrangement

Receipt processing

Supplier invoice

Invoice matching

andverification

Passed for payment

Enters ledger

Payment OperationsOperations

((transactionstransactions))

Consumptiondemand analysis

Risk analysis

Variety management

Cost control

(New) supplier

development

Contract performance

Supplier performance

Product, supplier, expenditure information

Reconciliation and financial report

ManagementManagement

Opportunity analysis

aggregation and

substitution

Compliance regulation

Sourcingstrategy Integrated

supply chain

Strategicanalysis

Supplystrategy

StrategyStrategy

PolicyPolicyBoard

decisionsInter-organisation collaboration

HR SupplymanagementIT Systems

Impact onpatient care

EnvironmentalMaterials Management

VFM Delegation and empowerment

3

10

15

20 % Savings

Automate processesAutomate processesempower employees forempower employees fordesktop requisitioningdesktop requisitioning

CollaborationCollaborationB2B SCM, projectsB2B SCM, projects

Strategic sourcingStrategic sourcingnew buying modelsnew buying modelsnew bids, aggregationnew bids, aggregation

Supplier consolidationSupplier consolidationpurchasing analysis internal purchasing analysis internal conformance all purchasesconformance all purchases

How the Internet changes purchasing

Progress in 2000-2001

• E-commerce team established (September 2000)

• E-commerce paper - Building the Information Core: Implementing the NHS Plan (January 2001)

• E-commerce project board established working closely with the Shared Financial Services Project Board (joint membership) January 2001

• Web-based catalogue – first CD Rom catalogue ever to use XML

• Links to contracted suppliers’ websites – product and technical information

Progress and Targets for 2001/2002• outline business case for e-trading and e-financial system June

2001

• OJEC advertisement July 2001

• full business case for national integrated e-trading and finance

system January 2002

• contract awarded for national integrated e-trading and finance

system – February 2002

• e-tendering pilot successful and implemented

• EU contract notices – electronic

• purchase cards - £9m turnover

What is the Agency doing?

research into e-commerce B2B solutions, their scope and functionality

establish standards in e-solutions for tendering, cataloguing, ordering, invoicing and integration

central source of advice and guidance to trusts on best practice, pilot lessons and market trends

monitoring the e-commerce marketplace and conducting due diligence assessments of providers

using web technology for sharing information on suppliers, products and added value services

research

standards

advice

monitoring

information

work with suppliers to understand their e-commerce strategiessuppliers

the Agency will establish a long term, ‘big picture’ and inclusive e-commerce strategy for the NHS strategy