An Introduction NHS Supply Chain Patrick Johnson 30 April 2007 Thank you very much for the invitation to speak at today’s conference. My name is […] and I am […]. NHS Supply Chain is very keen to engage with all its stakeholders and this event is an important opportunity for us to update you on our work and set the scene for future discussions. Over the next twenty/twenty five minutes or so, I would like to present a brief introduction to NHS Supply Chain, with a particular focus on the procurement process and how we are working with suppliers. I would then be very happy to take any questions.

An introduction to NHS Supply Chain The Procurement Process Agenda An introduction to NHS Supply Chain The Procurement Process Working with Suppliers More specifically, I would like to: begin by explaining NHS Supply Chain’s key objectives and activities; turn specifically to the procurement process; make some comments specifically on working with suppliers and the innovation landscape more widely. I would then be very happy to take questions.

NHS Supply Chain It might be helpful to begin by recapping on the process that led to the formation of NHS Supply Chain. Three years ago the Commercial Directorate in the DH was charged with looking at how the business of procuring and supplying in the NHS could be improved, in order to ensure the health service was achieving the best value for money in its purchasing. This was motivated by a number of factors, including the Review of DH Arms Length Bodies and a range of procurement initiatives being introduced across government. The review concluded that NHS Logistics and parts of NHS Purchasing and Supply (PASA) should be brought under a single management team with a mission to enhance and develop the processes. The ultimate objective was to to deliver £1 billion of savings over 10 years - so that the money could be reallocated to front line patient services.

Who is NHS Supply Chain? A 10 year contract to provide procurement and other supply chain services to the NHS in England The organisation comprises over 1700 colleagues from: DHL NHS Logistics NHS Purchasing and Supply Agency Novation A rigorous procurement process then began to select a suitable operator for the new arrangements. Over a period of two years, DHL Logistics, which some of you may have known as Exel plc, became the preferred supplier from an original list of 65 candidates. We were awarded a ten year contract and took over operational responsibility for the new organisation in October 2006 on behalf of the NHS Business Services Authority - which was also created as part of the Review of Arms Length Bodies. As you can see, we are made up of a mix of management and employees from across the different organisations, to ensure we continue to maintain and develop the skillsets we have inherited as well as adding new experience. Novation, the US healthcare procurement specialists, are contracted to provide four consultants to give strategic consultancy on procurement programmes. NHS Supply Chain’s contract focuses on England but we will be in contact with relevant organisations in the other nations as appropriate.

NHS Supply Chain Sites Runcorn, Cheshire Normanton, West Yorkshire Alfreton, Derbyshire Bury St Edmunds, Suffolk Maidstone, Kent Bridgwater, Somerset I thought you would be interested to see our key sites across the country. We have six distribution centres in England and employ around 1,600 staff. The NHS can order our products via the logistics route, using our warehouses and vehicles, or order goods directly, thereby bypassing the logistics network. Our Head Office is in Alfreton. We are also planning to create around 1,000 additional jobs over ten years and build two new distribution centres in 2008 and 2011.

DHL DHL Logistics: Is part of a global group – Deutsche Post World Net DPWN employs 500,000 people worldwide Employs over 70,000 staff in the UK in over 600 locations DHL Logistics has a rich history of working in the healthcare sector: Management of NHS Logistics’ site in Bridgwater Manages significant logistics operations for NHS trusts in London: has generated major savings for trusts enabled medical staff to focus on patient care Works with most of the major technology and pharmaceutical suppliers In the interests of completeness, I should add that DHL Logistics is owned by the German Post Office, Deutsche Post World Net, which is one of the largest public sector organisations in the world. It is a very successful group, and each unit has its own distinct management team to ensure there is an appropriate focus, direction and mixture of experience available to the business. More relevant to us today, DHL has been working in the healthcare sector for some time. We have worked with the NHS for many years, both with NHS Trusts and the former NHS Logistics to deliver substantial cost savings and other benefits. One of the benefits of these arrangements is that it has enabled our customers and medical professionals to focus on patient care and improved their ordering and delivery processes – saving them both time and money. A good example is our contract with the Central Middlesex Hospital […]

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 The key features of the commercial arrangements can be summarised as follows […]

Governance Relationship with the NHS managed by the Business Services Authority Contract contains extensive audit rights NHS has step in rights for service failure

A target of over £1 billion savings of the course of the contract term Our Vision NHS Supply Chain will deliver customer-focused, procurement driven supply chain services to the NHS, enabling health providers to achieve sustainable value, focus on quality patient care and control costs A target of over £1 billion savings of the course of the contract term By bringing together the expertise that existed already and applying some processes that DHL has found to be successful for its other customers all over the world, we believe we can create a world-class supply chain service that is completely focused on the needs of the NHS. Our customers are, of course, NHS organisations, and our aim is to ensure that we work closely with them to understand how we can improve their procurement and logistics processes to save them time and money, so that the savings made can be redirected into other patient services. How will we achieve £1 billion of savings in ten years for the NHS? We believe this can be delivered by developing relationships with NHS Trusts, Collaborative Procurement Hubs and other organisations to help them make best use of their purchasing power. There are two key elements to this: i) We can then work with suppliers to buy higher stock levels. The higher the level of commitment made by an NHS Trust to buy a particular product, the lower the price per item that will be paid, so realising a saving. Incidentally, it is DHL that will pay for orders up front and not the NHS - a significant change from the past. ii) We have already strengthened our customer teams on the ground to ensure that they spend as much time as is possible in hospitals with clinicians and procurement teams, to understand their needs and offer creative and cost effective packages.

Procurement Overview Given the interests of today’s audience, I would now like to focus specifically on the procurement process.

Product Categories Food and kitchen Print and stationery Laundry and cleaning Bedding and linen Uniforms and clothing Furniture and office equipment Medical supplies Dressings Patient appliances Laboratory equipment This list summarises the product areas we are responsible for. As you will see, they are very broad, ranging from office supplies to specialist medical devices and diagnostics.

Procurement Overview NHS Supply Chain aims to: Deliver the highest quality products at the lowest total cost to the NHS Use our customers’ purchasing volume to increase market share for suppliers while decreasing costs Provide suppliers of all sizes access to our 600+ customers Promote new technologies and innovative products to relevant customers at the best possible value Support supply efforts via marketing and sales programmes In summary, we aim to achieve the following objectives. Most notably, we wish to deliver the highest quality products as the lowest total cost. It is also important to note that we wish to explore how we can promote new technologies that meet these criteria through our sales and marketing programme.

Product Pricing Strategy NHS SUPPLY CHAIN Supplier Trust 3 Low Volume/Commitment ££££ Trust 1 High Volume/Commitment ££ The prices that are agreed as part of a national contract that will be made public. However, as this diagram shows, the greater the volume that an NHS Trust commits to purchase via NHS Supply Chain, the greater the savings it will achieve on an individual basis as a result. In this way, there will be differential pricing depending on the size of the commitment made to the supplier. Trust 2 Moderate Volume/Commitment £££ Differential pricing based on volume and commitment to supplier

Procurement – Key Stages Product assessment; market assessment; market research; choose procurement procedures Identify Customer Needs Finalise contract award matrix; define final specifiications; send to all eligible tenderers Tender Development Determine total delivered cost and quality available; compare among tender respondents Tender Analysis Clarify terms and conditions; focus on value for money; develop implementation plans; finalise supplier agreement Issue Resolution/Clarification Decision Making Determine low best tender based on contract award matrix; involve councils and task forces; make recommendations This is a summary of the key stages in the procurement process, which is made up of eight basic steps. I would now like to focus on step five - the decision making point - and in particular to explain how we will be using clinical expertise to inform the process. Finalise supplier agreement; draft contract summary; begin contract approval process Finalising the Award Launching the Agreements Notify all tenderers and customers; develop marketing plan in collaboration with supplier; perform sales training Provide legal department with original signed copy of agreement Records Retention

Product Councils A key principle of the procurement model is to engage clinical professionals in the assessment process Key functions will include ensuring that all products are assessed using a consistent process reviewing and recommending supplier contract shortlists analysing financial and non-financial information against an agreed matrix Each council will meet twice a year and have ongoing contact A variety of recruitment channels – including NHS Trusts and professional bodies One of the key principles underpinning the procurement model is to engage clinical professionals in the process - and we will achieve this by establishing a series of Product Councils. We will shortly begin recruiting for the first Product Councils, and I would like to outline how they will work. There will be around twelve to fifteen members in each group, and both the chair and vice chair will be clinicians. NHS Supply Chain will manage the work programme and provide secretariat services. We will also support the recruitment process, although final selection decisions will be made by the Chair. The Product Councils will: ensure all products up for tender are assessed consistently identify products that are physician-preferred identify and evaluate new and innovative products analyse financial and non-financial information featured in the ‘Contract Award Matrix’ review and recommend supplier contract shortlists across all product categories based on this matrix.

Product Councils and Task Forces Materials Management Council Perioperative Council Nursing & Clinical Practice Council Wound Management Paediatrics Council Cardiology Council Orthopaedic Council Anaesthesia Council Diagnostic Imaging Council Respiratory Council Food Council Laboratory Council This shows the broad areas that will be covered by the Product Councils, but each council grouping would then drill down into another specific area. It is also worth noting that the precise format will be driven by the products that are due to be tendered as set out in the Procurement Calendar which is available on our website. Task Forces will also be established as required to deal with very specific specialist areas. Capital Equipment & Facilities Strategic Information Council

Working with Suppliers I have sought to make all my comments today with the supplier in mind, but I would like to make some further comments about working with supplier and other organisations with an interest in NHS procurement more widely.

Working with Suppliers A series of events and meetings with suppliers and trade associations Ongoing information and updates via the website – including the procurement calendar Feedback provided on procurement decision making process Explore the opportunities for new approaches marketing and promotion activities supply chain reorganisation Ongoing contact with other organisations in the Innovation Landscape We have been in discussions - both with individual suppliers and a range of trade bodies - since we assumed operational responsibility in October and expect to continue this process. We also provide information and updates through a range of information including our website. We will also be providing feedback to unsuccessful applicants as part of the tendering process. We will also be exploring opportunities for innovation. For example, we would like to consider how our marketing programmes can be used to promote specific products and classes of products - particularly in the case of a new product launch. We also wish to explore how the supply chain can be developed to encourage even greater savings in time and money for our customers.

Innovation Landscape I am sure many of you will be familiar with the latest report that was published under the auspices of the Healthcare Industries Task Force, HITF, earlier this month, entitled Innovation for Health. HITF is a joint initiative between the government and the medical devices industry designed to examine how the interests of both the patient and the industry can be supported and promoted. One of the issues highlighted in the report was the very large number - and very complex mix - of organisations with an interest in the business of introducing new medical technology into the NHS. This was described as the “Innovation Landscape” and I have reproduced an image from the report here. Many of these organisations will be very familiar to you. The key issue is to ensure that they share information and best practice, co-ordinate their activities and support the highest standards of patient care while ensuring the best use of resources in the health service. We are very conscious of the need to communicate with the other bodies in the innovation landscape, and began a programme of briefing meetings when we took over operations in October. It covers organisations such as PASA, CEP and NICE, the professional bodies and supplier organisations, and we will be continuing these contacts on an ongoing basis.

Summary NHS Supply Chain will build on existing knowledge, relationships and capabilities We believe working with other organisations with an interest in procurement a key part of this process We will implement new pricing strategies driven by customer commitment in order to deliver savings to the health service There will be new opportunities for suppliers to grow market share I would like to conclude with the following points […] I hope I have provided clear overview of who we are, our key services and product areas and the development of the procurement process and our governance arrangements. And once again, thank you for giving me this opportunity today, and I would now welcome any questions.

Questions & Answers