The 32 nd International Hospital Federation Congress Hong Kong 15 – 18 May 2001 Eric Jackson

1. The 32nd International Hospital Federation Congress Hong Kong 15 – 18 May 2001 Eric Jackson

2. 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

3. The goals of the government • to modernise government (“Information Age Government”) • the UK to be the best environment in the world for E-commerce

4. Government targets • all departments to have e-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

5. Modernising governmentstructure Information Age Ministerial Network Gisela Stuart Information Age Government Champions Group Ron Kerr

6. E-commerce drivers in NHS e-business agenda e-commerce agenda Cabinet Office Modernising Government (e-business targets) OGC (e-commerce strategy for central government Departments) Activity at the level of government Activity at the level of the NHS Building the Information Core – Implementing The NHS Plan NHS PaSA (e-commerce strategy for the NHS)

7. 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

8. 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

9. E-commerce – what it’s not • just about technology • a panacea • a quick fix • a substitute for good procurement practice • an end in itself • a mechanisation of existing processes

10. The NHS in England • £11 billion annual non-pay revenue spend • £5.7 billion annual revenue spend on goods and services

11. Spend on goods and services£5.7 billion £5.7 billion annual spend 1998/1999

12. 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: • - 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

13. 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

14. 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 costs

15. 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

16. 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

17. 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

18. 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?

19. 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 Logistics • through a single electronic system (Resus) • interfacing with all trust financial systems • aggregating demand for the whole NHS • supported by logistics consolidation and 50 per cent of this is already paperless

20. manufacturers and importers NHS Hospitals Clinics Community GP surgeries etc Wholesalers and Distributors NHS Logistics Authority The supply chain to the NHS • high supply chain costs

21. 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

22. 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

23. 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

24. E-commerce solutions must provide for : • integration - 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 management -one central catalogue maintained by suppliers - hospital supply strategies and ‘product view’ management • transaction management - requisitions, orders, receipts, invoices and payments • supply chain management - logistics consolidation - information sharing

25. 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

26. Operations (transactions) Payment Identify requirement Enters ledger Specification/ cost estimate Management Passed for payment Consumption demand analysis Reconciliation and financial report Request Invoice matching and verification Strategy Risk analysis Product, supplier, expenditure information Policy Catalogue check HR Supply management IT Systems Opportunity analysis aggregation and substitution Supplier invoice Strategic analysis Supply strategy Materials Management Environmental Authorise Impact on patient care VFM Delegation and empowerment Receipt processing Supplier performance Board decisions Tender/ quote Variety management Inter-organisation collaboration Sourcing strategy Integrated supply chain Delivery arrangement Contract performance Compliance regulation Evaluate (New) supplier development Cost control Source decision and award Visibility Check availability Expedite Order fulfilment Order promise Order

27. 20 % Savings 15 10 3 How the Internet changes purchasing Collaboration B2B SCM, projects Strategic sourcing new buying models new bids, aggregation Supplier consolidation purchasing analysis internal conformance all purchases Automate processes empower employees for desktop requisitioning

28. 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

29. 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

30. What is the Agency doing? research research into e-commerce B2B solutions, their scope and functionality suppliers work with suppliers to understand their e-commerce strategies standards establish standards in e-solutions for tendering, cataloguing, ordering, invoicing and integration advice central source of advice and guidance to trusts on best practice, pilot lessons and market trends monitoring monitoring the e-commerce marketplace and conducting due diligence assessments of providers information using web technology for sharing information on suppliers, products and added value services strategy the Agency will establish a long term, ‘big picture’ and inclusive e-commerce strategy for the NHS