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
A glance at any daily newspaper will tell you that the NHS is under severe budgetary pressure, often with tensions between employees and the government as a collective solution to paying for the nation's long-term healthcare is sought. With most NHS trusts facing a funding deficit, there is an urgent need for cost efficiencies.
The independent Review of Operational Productivity in NHS providers by Lord Carter of Coles spelt out that £22 billion-worth of efficiency savings need to be found to help bridge the NHS's funding gap by 2020. Central to these savings, Lord Carter outlined a number of key areas that Trusts should focus on, including: improving the efficiency of employees, improving procurement and better estates management.
All of these areas can be helped by a focus on the procurement of consumables used to maintain and repair equipment and buildings in the NHS. The common term for consumables in other industries is MRO procurement, which stands for “maintenance, repair and operations”, and in the health sector would apply to everything from light bulbs and fuses through to replacement parts for an MRI machine that is no longer under the manufacturer's warranty.
Challenges facing the NHS
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.
Quite 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 Damian Wynne, 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. By using a smaller group of suppliers you can potentially get 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 Wynne. “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 Wynne, “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"Damian Wynne, Industry Sector Manager, RS Components
Another change that Trusts need to look at, which ties in with Lord Carter's recommendations, is concerned with how individual employees can be more efficient. Wynne 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,” Wynne 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.”