Five lessons from global procurement best practice

Currently it is estimated that there is an average 10 per cent difference in prices for the same item sourced by hospitals across the UK, and in many cases the difference is far higher. With an estimated 90,000 suppliers, there is huge opportunity to rationalise the supply base and use the scale as an advantage, not a barrier.

‘Many other industries face similar procurement challenges where greater progress has been made’

The situation is made worse by the complexity of healthcare procurement. Clinical categories can be highly specific and technically complex, and within the NHS procurement and clinical teams typically lack the mechanisms for constructive challenge seen in high performing non-NHS organisations.

While healthcare is undoubtedly a challenging environment for procurement, there are examples in other countries, and even within the NHS, where best practices have been applied to achieve breakthroughs in performance. There are also many other industries that face similar challenges where greater progress has been made, such as the automotive and engineering sectors.

In 2012, AT Kearney undertook a review of procurement best practices as used by leading organisations around the world. The study used a procurement best practice framework with the firm’s database of 600 global companies to propose five “high impact areas” to improve procurement in the NHS.

Review findings

Securing lowest possible price, at what price?

We found that the emphasis within most of the NHS today is largely limited to securing lowest price, with little focus on total value. For example, the additional value of improved clinical outcomes, reduced length of stay and reduced infection is particularly relevant for the NHS in categories such as orthopaedic implants and drugs. This approach is known as value based procurement.

Clinically led procurement decisions with inadequate commercial support

Clinicians are major stakeholders in procurement who rightly wish to consider the impact of new products on patient care and outcomes. Decisions are generally taken locally, with decisions highly influenced by individual specialists. For these complex clinical categories, procurement staff require deep technical knowledge to develop robust sourcing strategies and commercial arrangements to effectively support clinicians. This requires strong governance and formal constructs to facilitate joint working and effective decision making, which was not frequently observed in our study.

Increasing awareness of need to strengthen procurement discipline

Although many trusts have a head of procurement or even a procurement director role responsible for strategic decisions on outsourcing and partnering with other providers, still, only a small proportion of external spending is procured at regional or national levels, leading to a lack of scale and higher prices.

Prevalence of low value transactional relationships with suppliers

Buyer-supplier relationships in the past have been purely transactional and limited. In clinical areas strategic relationships are more common, but these tend to be in the domain of clinicians; procurement staff are rarely involved. Suppliers often have insight into how organisations can extract most value from their relationship. Therefore engaging the most important suppliers is an opportunity to realise benefits of new technologies and processes.

Varying quality of procurement data and pricing visibility

Trusts have not been able to exploit their bargaining power by challenging pricing or practices because of poor information, exacerbated by a lack of consistent coding. Improving the visibility of how money is spent across the NHS should be a priority to enable procurement to become more strategic. Comparisons across the NHS will require common coding structures.

Challenges in developing the relevant management and technical skills

The NHS has struggled to develop strong procurement talent. Trusts have not been wholly successful in recruiting staff with the relevant management and technical skills. Many procurement roles are for generalists required to perform many different aspects of the job. This prevents specialisation in particular areas. Consequently, procurement professionals are unable to build deep expertise, which also acts as a constraint in recruiting and retaining top talent.

A proposal for change

Using our procurement best practice framework and experiences of delivering change in the NHS and commercial organisations, we formulated five “high impact areas for the NHS” for procurement.

1. Improve collaboration

Given the magnitude of procurement spend, the NHS could gain significant purchasing leverage, make best use of scarce resources and share market insights and supplier knowledge with more systematic collaboration across trusts and regions. One option is for trusts to aggregate around major foundation trusts. For this to be effective, procurement decisions need to be fully delegated with effective governance.

2. Develop capability of procurement professionals

NHS procurement needs executive expertise − its professionals need business acumen, influencing skills, deep technical knowledge and advanced procurement skills. The NHS must develop a talent management approach to recruit, train, develop and retain staff with this capability, perhaps through a national centre of excellence. An NHS chief procurement officer reporting to the chief financial officer is needed to drive these changes.

3. Engage clinicians in procurement process

Clinical engagement should not be voluntary, but mandatory. In complex clinical categories, joint working between clinicians and procurement professionals is essential to make appropriate decisions that deliver quality patient care at the best value.

Clinical value teams should be widely adopted across the NHS (with an operating model defined by National Institute for Health and Care Excellence) with appropriate representation and authority to make decisions and challenge non-compliance. A medical director of supply chain will strengthen the link between supply and clinical medicine.

4. Deploy value based procurement strategies

NHS procurement decisions should become more broad based, identifying and − where possible − quantifying the total value over the product’s lifetime.

This is particularly important for clinical categories that will again require close working between procurement and clinicians. Over time, this approach should lead to clinical pathway based supply strategies.

Area 5: Adopt technology to enhance process and information management

There has been limited investment in technology and integrated information management to support effective procurement. As a result, the NHS has little transparency of spend and subsequently low levels of control. Inventory management and fulfilment processes are often manual and inefficient.

Mandatory common coding will provide the NHS with this transparency on a national level, enabling price and use comparisons; trusts will be able to exploit their bargaining power by challenging pricing and practices. This is the first step to achieving any kind of success with collaborative buying.

Lee Feander and Imran Dassu are managers at AT Kearney