1. Delivering value to the NHS NHS Supply Chain Segmentation Analysis Jahanara Choudhury Geoff Ellis

2. Delivering value to the NHS Background information

3. Delivering value to the NHS An introduction  Centralising procurement  Achieving value for money for the NHS  Reducing management costs  Managing financial risk  Making the most effective use of resources DHL appointed 1 st October 2006 to manage on behalf of the DoH an organisation – NHS Supply Chain NHS Supply Chain is the integration of NHS Logistics, Part of NHS PaSA and DHL // The Department of Health (DoH) engaged with industry to identify and appoint an organisation to fulfil a set of key objectives: NHS Supply Chain has exclusive scope from the UK Department of Health covering over £5bn of market. This represents over 28% of NHS procurement spend.

4. Delivering value to the NHS Who do we work with? NHS Supply Chain works with around 600 trusts to provide an end-to-end supply chain service or one of our key services: –Acute care trusts –primary care trusts –mental health organisations –ambulance service –private sector service providers –collaborative procurement hubs –patients in their homes.

5. Delivering value to the NHS Our customers

6. Delivering value to the NHS Product categories Food and kitchen office products, print and stationery uniforms, clothing and linen furniture and office equipment medical and facility furniture lab/pathology products and equipment medical supplies medical and surgical equipment operating theatre supplies patient appliances maintenance capital equipment.

7. Delivering value to the NHS Logistics overview 33m lines despatched annually national fleet of 340 vehicles national trunking fleet to facilitate cross dock services and supplier backhauls delivery service to all NHS England trusts integrated warehouse management and ordering system dedicated call centre and customer service.

8. Delivering value to the NHS Core logistics services offering: 51,000 product lines consolidated service using a combination of stock, cross dock, co-ordinated direct delivery and patient home delivery service break bulk to specific order requirements, e.g. ward, department, clinic, home 48 hour service or 24 hour for critical care, eg theatres 98% availability, 99% on critical lines 98% delivery on time measured to within +/- 30 minutes of promise five hour emergency response when needed. Logistics overview

9. Delivering value to the NHS Summary

10. Delivering value to the NHS Key facts We supply to over 250,000 NHS requisition points we deliver to over 10,000 delivery locations we service 120,000 patients in their own home our catalogue range covers over 610,000 different products we manage over 4 million NHS orders every year, servicing over 30 million order lines we send out only 52 invoices a year to each trust dedicated and closed loop transport fleet.

11. Delivering value to the NHS Commercial arrangements NHS trusts are not obliged to use NHS Supply Chain Prices will include a margin as they have previously Cost base transferred from Department of Health for NHS Logistics Authority and NHS PASA; increased by new recruitment No underwrite of profit for DHL but upper cap in place.

12. Delivering value to the NHS Why do we need to segment? To drive increased cost efficiency and profitable sales growth by migrating customers towards best in class behaviours To ensure we selling the right items to the right people Increase return on investment through targeted sales and marketing To ensure our service development meets customers needs Theatre / Surgical Services Medical Food & Facilities Clinical Markets Capital & Maintenance

13. Delivering value to the NHS Customer segmentation Initial segmentation conducted to understand the user group of every single requisition point on our system - >100,000 points reviewed and labelled Identification of 91 customer departments Analysis of 4 million transactions across 10,000 requisition points as a sample to understand buying behavioural types across those segments, undertaken by a consultancy with segmentation expertise Review of outputs and qualification of findings

14. Delivering value to the NHS Contract Segmentation Phase 2 of segmentation based on products analysis 26 million transaction records analysed over a one year time frame Analysis of all classifications of trusts broken down into each region and classification Departmental contract segmentation completed 316 contracts analysed with over 51,000 individual products 6 clusters created incorporating profitability, market value and transactional activity Customer information analysed at trust and department level

15. Delivering value to the NHS 2D Segmentation The combination of segmentation by Product & by Customer Review of outputs and qualification of findings Identification of 13 behavioural types/segments Next ready to start to use results to drive business strategies –Understand and develop strategy for each segment –Influence multiple buying behaviours of each segment and migrate towards best in class

16. Delivering value to the NHS The Use of PASW (or even SPSS!) Geoff Ellis

17. Delivering value to the NHS Segmentation aim A 2D segmentation Each product belongs to a segment Each Customer belongs to a segment Each combination of product & Customer belongs to a unique segment

18. Delivering value to the NHS Some technical details 2 Step Clustering –Similar to the combination of Hierarchical & Non-Hierarchical (K means) clustering techniques –Analogous to CHAID Variables –What variables to include –Continuous / Capped / Binned data –Are some variables more important than others How should they be weighted Number of clusters –How many do you want –How do different solutions compare Missing Data –Discriminant Analysis on variables present

19. Delivering value to the NHS clustering by customer the following variables were produced & used –Whether customer placed order in last week –Whether customer placed order in last fortnight –Whether customer placed order in last month –Whether customer placed order in last quarter –Volume sold of each of 19 product groups –Whether anything was sold to each of 19 product groups –Capped No of orders –Capped sales value Capped sales volume Capped margin Capped unfulfilled amount Capped Av order value Capped Av order volume Capped Av order margin Unfulfilled proportion Capped No products No product types Av price band Capped total quantity supplied (incl carton size)

20. Delivering value to the NHS How many clusters? strongly suggests a 5 cluster solution

21. Delivering value to the NHS total supply quantity

22. Delivering value to the NHS occurrence of sales of prod type B (staff uniforms) by cluster

23. Delivering value to the NHS cluster by ‘customers’

24. Delivering value to the NHS cluster by value of sales

25. Delivering value to the NHS clustering by product the following variables were produced & used –Av price band –No. departments buying the product –Unfulfilled prop –Carton size –Volume sold to each of 91 departments –Whether anything was sold to each of 91 departments –Capped No of orders –Capped sales value Capped sales volume Capped margin Capped unfulfilled amount Capped No unique ‘req point codes’ Capped Av order value Capped Av order volume Capped Av order margin Capped total quantity supplied (incl carton size)

26. Delivering value to the NHS Products by cluster

27. Delivering value to the NHS Sales (Value) by cluster

28. Delivering value to the NHS Cluster 3

29. Delivering value to the NHS Cluster 5

30. Delivering value to the NHS combined segmentation

31. Delivering value to the NHS definitions 1A1high buying customers buying popular general products 2A2top customers buying popular general products 3A3 A4 A5customers who don’t buy much buying popular general products 4B1 B2 D1 D2 high buying customers buying specialist products without high prices or margin 5B3 B4 B5 D3 D4 D5 customers who don’t buy much buying specialist products without high prices or margins 6C1 C2high buying customers buying low volume, high margin products

32. Delivering value to the NHS definitions 7C3 C4 C5customers who don’t buy much buying low volume, high margin products 8E1high buying customers buying top selling general products 9E2top customers buying top selling general products 10E3low purchasing customers buying top selling general products 11E4low purchasing but high margin customers buying top selling general products 12E5infrequent customers buying top selling general products

33. Delivering value to the NHS segment 11 1.Av Margin per Order = £24.56Av = £2.84 2.Av Value per Order = £506Av = £33 3.Av Supply Qty per Order = 106Av = 10.1 4.Av Price Band = 1.49Av = 1.19 5.Av No Prods Types/Cust = 6.1Av = 10.1 high value large orders for specialist products

34. Delivering value to the NHS cluster 11 – 0.7% orders metricskey features top departmentstop product types low purchasing but high margin customers buying top selling general products 1/3 the Av orders per customer 1/2 the Av orders per product relatively infrequent orders (Av cust = 3.5 days) 1.5x the Av carton size Items bought have 2x the Av no custs Customers buy 1/3 the Av no of products top bulk purchasing discount customers 258 products 709 value 10.3% volume 6.6% margin 5.9% av value £506.28 av volume 106.3 av margin £24.56 Audiology (84%) Domestics (5%) Pathology (4%) Lab Chemicals & reagents (86%) Laundry & Cleaning Materials (6%) Lab Instruments & Eqpmt (4%)

35. Delivering value to the NHS Av. margin per order by segment

36. Delivering value to the NHS 2D Clustering Every product / customer has been allocated to one of 12 groups. The client wanted to target specific customer groups with different messages according to their behaviour Buy a larger range of products, buy specific types of products, buy larger quantities less frequently these 12 segments cannot be applied uniquely to specific customers a further clustering was performed which grouped customers according to their pattern of purchases (as defined by volume, value and margin) across these 12 segments this resulted in 13 groupings of individual customers

37. Delivering value to the NHS

38. clustering by department 1A&E 6Chiropody / Podiatry 40Orthopaedics 42Paediatrics 63Theatre 68Audiology 86Supplies & Procurement

39. Delivering value to the NHS clustering by department Weighted by Orders

40. Delivering value to the NHS Targeted Marketing By hospital (postcode) & department A full day workshop with all marketing staff Where are they now? Where would we like them to be that’s feasible? Resulted in 11 specifically targeted marketing and communication plans

41. Delivering value to the NHS Any Questions?