With the NHS under pressure to make billions of pounds-worth of savings by 2020, a strategy for consumables procurement could help it make significant strides
The Covid-19 pandemic has driven home just how important the NHS is when it comes to dealing with the nation’s emergencies as well as longer-term healthcare. At the same time, however, coronavirus has placed even more pressure on already tight hospital budgets. Now more than ever, managers will be looking for ways to reduce non-clinical spend to ensure that as much money as possible goes into essential health and medical care.
Previously, an independent review of operational productivity in NHS Trusts outlined a number of areas in which savings could be made, including efficiency of employees, improving procurement and better estates management. Focusing on the procurement of consumables used to maintain and repair NHS equipment and buildings would help all three. In other industries, this is known as MRO procurement (Maintenance, Repair and Operations) and in the health sector covers everything from light bulbs and fuses through to replacement parts for an MRI machine that’s no longer under the manufacturer’s warranty.
Challenges facing the NHS
In terms of MRO, there are two particular challenges facing the healthcare industry: understanding the principles of a good MRO strategy and the difficulty in implementing such a strategy across multiple Trusts. “Organisations don’t always understand what MRO is in the first place, and therefore they do not see the need or value in having a strategy in place to deal with MRO,” says Helen Alder, Head of Knowledge at the Chartered Institute of Procurement and Supply (CIPS).
Put simply MRO costs, although often for low-cost items, mount up both in terms of total expenditure and, more importantly, in the hidden costs involved in ordering them. By following a clear strategy and improving the process it's possible to slash costs significantly, which will help the NHS reach its targets.
The challenge with achieving this is the fragmented nature of the NHS. “All the Trusts in each region are run independently, so there is not a huge amount of co-ordination between them,” explains Kudzai Manduvi, Industry Sector Manager, RS Components. “As such, the Department of Health has difficulty in leveraging the scale of the NHS to achieve better cost reduction. Across the entire NHS you will see thousands of different suppliers being used rather than a smaller number where better value and service levels can be agreed.”
The solution is to move to a more joined-up approach, where individual or groups of Trusts work together with key suppliers. Using a smaller group of suppliers can potentially mean better prices and you can access data that helps identify where inefficient spending is occurring. “At RS, a big part of our role is to collaborate with customers and share data on MRO spending,” says Manduvi. “This allows customers to see what is happening and take steps to improve their processes.”
Often, individual trusts and hospitals will order a variety of brands of the same products. By standardising these products down to one brand and supplier it is possible to increase efficiency and negotiate better product costs. “To put it in simple terms,” says Manduvi, “across the entire NHS people will currently be ordering dozens of different brands of screwdriver, and they are negotiating a small reduction on each purchase through competitive quotes, but by standardising to one or two brands of screwdriver you will save significantly more.
“The first step to achieving this is more collaboration across Trusts. Suppliers such as RS can help facilitate this process by sharing insights that prove the value of a more strategic approach to procurement.”
"The hidden costs in terms of the amount of time spent approaching five suppliers then reviewing those quotes far outweighs a small reduction in the product cost"Kudzai Manduvi, Industry Sector Manager, RS Components
Another change that Trusts need to look at is with how individual employees can be more efficient. Manduvi points out that a huge amount of time is wasted by engineers and facilities managers when it comes to sourcing consumables. “Because there is such pressure within the NHS to find the best possible price for everything, people are often getting four or five quotes for everything they buy,” he explains. “This may achieve the cheapest list price, but the hidden cost in terms of the amount of time spent approaching five suppliers then reviewing those quotes, far outweighs a small reduction in the product’s cost.
“This is often a hard concept to get through to organisations,” Manduvi adds. “This is because – particularly when there are significant budgetary pressures – the focus is always on driving down visible costs that appear on a spreadsheet. But the fact is, our research at RS shows that the hidden costs of MRO procurement are on average twice the amount of the cost paid for a product due to the time taken up by inefficient ordering processes.”
Alder believes that by focusing on the big picture NHS Trusts can achieve the level of cost savings they need. “The answer is to have a reliable set of approved suppliers that you can trust to have the products you need in stock, at a price you are willing to pay and that can deliver when and where you need them,” she says. “It’s vital that you choose suppliers and distributors that understand your business really well and will work with you to improve the procurement process.”