NHS PASA Supply Chain Analysis Project Report Summary of Report Confidential

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NHS PASA Supply Chain Analysis Project Report
Summary of ReportConfidential
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FOREWORD
In recent times, the NHS has enjoyed year on year
increase in funding to enable the delivery of
world class patient care. The results can be
seen in our hospitals and our communities. We
now need to deliver even greater patient care by
driving out waste and poor processes. So far,
supply chain optimisation has played a minor role
in the delivery of efficiencies and an improved
patient experience. This report was
commissioned by supply chain practioners within
the NHS, supported by PASA, to provide an insight
into the potential benefit to the NHS if we were
to apply modern supply chain concepts and
techniques. The authors relied upon case studies
from individual Trusts own work to reach a view
of the full potential across the whole of the
English NHS. The findings of the Report point to
significant cash flow and efficiency gains with
the need to establish benchmarks of good
performance and KPIs to enable activity to be
tracked. The commissioners of this Report hope
its findings make clear the potential benefit
from applying a supply chain approach to support
the delivery of healthcare and encourage the
adoption of the Reports recommendations by the
healthcare community. Colin Rothwell Andrew
Rudd Chair Co-Chair NHS Supply Chain
Group NHS Supply Chain Group
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Contents and Page Index

• Introduction Page 4
• Executive Summary Pages 5-6
• Recommendations Page 7
• Theatres and Wards Pages 8-14
• Internal Supply Chain
• Inbound Supply Chain
• Stocks
• Opportunities
• Pharmacy Pages 14-18
• Internal Supply Chain
• Inbound Supply Chain
• Stocks
• Opportunities
• Sterile Services Page 19
• Pathology Page 20
• Community Equipment Pages 21-22
• Best Practice Pages 23-24
• Maturity Score Ranking Pages 25-26
• Bench Marking Page 27

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Contents and Page Index Appendices

• Appendix 1 2004-05 NHS Spend by Category (excl
  Drugs)
• Appendix 2a Hampshire, IOW Order Process 2001/02
  
• Appendix 2b Hampshire, IOW EDC Mat man v Paper
  Other Suppliers 2001/2
• Appendix 2c Hampshire, IOW Comparison Summaries
  2003
• Appendix 3 South East Coast Strategic Health
  Authority
• Appendix 4(a) Ward Stock Southampton University
  Hospital
• Appendix 4(b) Theatre Stock
• Appendix 5(a) Hospital Supply Chain Cost Elapse
  Time
• Appendix 5b Hospital Supply Chain Process Cost
  Comparison
• Appendix 6 Analysis of Pharmacy Supply Chain
• Appendix 7 - Hospital Supply Chain Pharmacy
  Processes
• Appendix 8 - Summary of 3 Trusts Pharmacy Supply
  Chain Best Practice Reports Pilot Study 2005
• Appendix 9 - Wards and Theatres Throughputs
  Volumes and Values
• Appendix 10 - Wards Theatres Supplier Channel
  Option Costing
• Appendix 11 - Wards Theatres Supplier Channel
  Option Costing
• Appendix 12 -Pharmacy Throughputs, Volumes and
  Values
• Appendix 13 Pharmacy Supplier Channel Option
  Costing
• Appendix 14 Trust Supply Chain Savings
• Appendix 14 Trust Supply Chain Savings

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Introduction

• This report aims to clarify the key issues and
  formulate a series of practical improvement
  steps, based upon Best Practice, that can be
  successfully adopted by links within the NHS
  supply chain.
• As early as 2002 PASA raised the issue and
  opportunities with Trust Chief Executives (Chief
  Executive Bulletin 113) Modernising Supply in
  the NHS.
• At the 2003 Ministerial Conference the following
  areas of opportunity were recognised
• Removing inefficient supply chain processes
• Removing duplicated inventory
• Improved utilisation of infrastructures
• Automating supply chain processes
• Sharing experience and information
• Performance management and benchmarking
• The findings in the report are based upon desk
  top research undertaken by SGAC using a wide
  range of data sources. Despite this, limitations
  were found with the data and so assumptions and
  extrapolation of data has been required to be
  able to describe a national picture.
• The definition of supply chain used for this
  Report is Processes, methodologies and metrics
  that enable an organisation to manage and monitor
  the results and effectiveness of its operational
  support activities.

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Executive Summary (1)

• Three explicit supply chains were reviewed in
  detail (theatre, ward and pharmacy) using data
  from field visits and NHS internal and external
  reports. Due to data availability, three other
  supply chains (community equipment, sterile
  services and pathology), could only be reviewed
  at a high level.
• An assessment was made on the maturity of each
  supply chain and a score in the range 1-5 was
  given to each (1 being low). No supply chain
  scored above 4, the highest performing being
  pharmacy (4) with three supply chains scoring 2
  or less.
• Opportunities to reduce inbound and internal
  costs were identified across theatre, ward and
  pharmacy supply chains. This was calculated to be
  360m of which, 289m was from stock reduction
  (giving a one off cash benefit) and the rest from
  efficiency gains.
• Across theatre, ward and pharmacy it was found
  there exist a high concentration of suppliers,
  suggesting implementation of supply side changes
  could be implemented relatively quickly.
• Very little Best Practice data is gathered by the
  NHS in the area of supply chain. A process of
  establishing and defining Best Practice is set
  out starting with the P2P and stock management
  processes.

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Executive Summary (2)

• Bench Marking NHS performance with other
  industries was attempted but with limited
  success. It was felt the complexity and unique
  nature of the NHS made comparison difficult.
• There are no standard Key Performance Indicators
  adopted which record supply chain performance. A
  wide range of KPIs could be used but it was
  found that focusing on just a few would provide
  immediate benefit with others to follow once the
  processes were established.
• Factory gate pricing could deliver a 6 reduction
  in selected material costs if suitable logistics
  partners could be found. (Based on the study
  Factory Gate Pricing Within Tesco Andrew Potter
  Cardiff University.) NHS Supply Chain could be
  the ideal partner but the situation would need to
  be assessed using local input coordinated
  through, for example, a Procurement Hub or
  Confederation.
• Alternative channels to market were identified as
  a potential opportunity to reduce costs.
  Developing a consolidator model using a hub and
  spoke concept delivered by an existing supplier
  to the NHS, could use spare capacity in the
  system and reduce the number of vehicle movements
  to hospitals. The pharmacy market was identified
  as being a supply chain that offered high
  potential.

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Recommendations

• Establish a national body to set the SC agenda.
• Establish a Programme to exploit the potential of
  eCommerce/Stock reduction/physical process
  improvements, (This should link with the
  eEnablement strategy).
• Create viable and credible data sources covering
  site, Trust and specific channels for
• Intra Trust comparison
• Intra SC link comparison
• Initially develop a limited number of KPIs in
  accordance with suggested categories, and then
  move on to more detailed monitoring.
• Consider standard data definitions (to support
  data comparison on an inter Trust SC level.)
• Use existing Process Mapping Tools to determine
  Activity Costs
• Support CPH/CPC development and exploit the
  possible opportunities
• Consider the appointment of a SC champion to
  lead, drive and co-ordinate the appropriate Best
  Practice.
• Investigate Alternative SC link options through
  the use of unused capacity within supply
  channels.

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Internal Supply Chain Wards and Theatres

• The NHS total spend on materials excluding drugs
  (based on 2005 TFR3 data) was 3.9bn (Appendix 1).
  
• There are 2 replenishment channels NHS Supply
  Chain , Direct Supply
• NHS SC
• order process cost (a 2-4 step process )
  represents 30 of channel costs
• receipt and delivery of goods (a 7 step process)
  represents 55-65 of channel costs
• payment of goods ( a 10-22 step process)
  representing 1-4 of channel costs.
• Direct Supply
• order process costs (a 13-19 step process )
  represent 30-40 of channel costs
• receipt and delivery (an 7-11 step process)
  represents 35-45 of channel costs
• payment of goods ( a 8-24 step process)
  representing 22-27 of channel costs.
• Order velocity (i.e. requisition to order issue)
  is dependent upon the replenishment channel
  applied (assuming all other factors e.g. physical
  processes remain the same)
• NHS SC electronic 1-3 days
• Trust P2P electronic 2-4 days
• Trust P2P paper based 2-7 days
• Supplier lead times (from order issue to
  delivery) 2-10 days

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Inbound Supply Chain Wards and Theatres (1)

• NHS Supply Chain
• Based on TFR3 2005/6 data, NHS SC supply 20 of
  in scope spend of this Report (this can be higher
  or lower within product groups).
• Very little financial/operation information has
  been made available but key facts
• Turnover 800m
• Stock turn 16
• 70 of deliveries ex warehouse 28 cross docked
• Operating costs 9 of T/O- all fully recovered

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Inbound Supply Chain Wards and Theatres (2)

• Direct Delivery
• Around 80 of Trust spend -3,625m of Clinical
  and General Supplies and Services, delivered from
  Suppliers own or contracted distribution networks
  which in some cases may involve consolidation
  centres.
• Based on 2005 Summary figures for the South East
  Coast Strategic Health Authority (Appendix 3)
  concentration of live suppliers was

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Stocks Wards and Theatres

• Based on Trust and CPH studies, ward stock levels
  average 5.5 weeks usage or 42m
• Similarly, theatre stock levels average at 13
  weeks usage or 335m
• Best practice examples show that stock in wards
  and theatres can be reduced to 3.5 weeks - a
  potential reduction of 144m

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Opportunities Inbound costs, Wards and Theatres

• Spend 1,151m
• Inbound Costs
• _at_ 100Supply Current
  Supply
• Case 1
  
• Supplier Direct
  105.0m 80
• Case 2
• Via Distributor/NHS SC 77.3m 20
• Case 3
• Via Consolidator 60.7m
  80
• Potential Saving (105.0m
  60.7m) x 80 35.4m

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Opportunities Transfer from Paper to EDC

• Electronic Inv Manual
• Clinical and General
• National Cost Reduction Potential
  6.8m 13.4m
• Pharmacy
• National Cost Reduction Potential
  2.8m

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Pharmacy - Internal Supply Chain

• Trust spend on Drugs including Gases for 2005 was
  2.0bn, of which, Secondary Trusts accounts for
  1.6bn
• There is a concentration of suppliers such that 7
  suppliers account for 50 of spend and 20
  suppliers account for 75 of spend.
• Wholesales account for 36 of value but 75 of
  transactions
• Drugs are ordered via a 3 step process steps
  which accounts for 92 of channel costs
• Orders are received in half day slots with an on
  time, in full score of 92
• Drugs are receipted via a 2 step process
  accounting for 8 of channel costs
• Payment of invoice is highly automated with at
  negligible marginal cost.
• Direct supply accounts for 25 of transactions
  but 64 of value.
• Drugs are ordered via a 5 step process steps
  which accounts for 14 of channel costs
• Orders are received on average in 6 days of
  order, but there is considerable variation
• Drugs are receipted via a 3 step process steps
  accounting for 28 of this channels costs
• Payment of invoice is a 10 step process covering
  accounting for 58 of this channels costs

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Pharmacy - Inbound Supply Chain

• Wholesalers
• There are 4 main Wholesalers who provide daily/2
  daily delivery services to the Trusts
• Goods are supplied in returnable sealed crates
  for each requisition point (some palletised
  deliveries are made for bulk items)
• Potential to downloaded directly from requisition
  (bar code) direct to Wholesaler e ordering
• Good management information is available
• e services ordering and invoicing from their
  specialist Systems (e.g. AAH Medecator)
• Direct
• There are approximately 800 suppliers in this
  category with some 56 suppliers accounting for
  90 of the direct spend
• Presenting the trusts with longer lead times
  (average for Mid Staffs sample 7 days by
  supplier) with resulting increased stock levels
• Unless booked, deliveries are uncontrolled and
  can cause imbalance in the workload of the
  Pharmacy
• Variation in ordering procedures (unless
  electronic)

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Opportunities Inbound costs, Pharmacy

• Spend 998m Inbound Costs
• _at_100 Supply Current
  Supply
• Case 1
  
• Supplier Direct
  24.5m 63.58
• Case 2
• Via Wholesaler 18.0m 36.42
• Case 3
• Via Consolidator 15.9m
  63.58
• Case 4
• Via Wholesaler 10.1m
  63.58
• With Supplier X Dock
• Potential Saving (24.5m 10.1m ) x
  63.58 9.2m

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Pharmacy - Stocks

• Stock is located centrally at main hospitals
  dispensaries and at dispersed location to wards
  and satellite dispensaries.
• Stock coverage ranges from 2.5 weeks to 8 weeks
  with an estimated average 6 weeks.

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Opportunities Stocks

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Sterile Services

• There is little evidence of focused work directed
  towards SC activities in this service. The
  national spend is in the range 60-64m on
  consumable products, including single use
  instruments.
• The shape and function of the service has yet to
  be delivered and so it is difficult to determine
  through desk top research, the potential for SC
  improvement. (The National Decontamination
  Program is currently rolling out across the
  country)
• What is to be hoped is that when designing and
  evaluating new resources, attention will be given
  to Lean Processes and the need to consider how
  best SC activities can support the service.
• SC should reflect the needs of the service and
  enable present needs and future plans not only to
  be achieved, but where appropriate, lead the
  drive towards new possibilities. The use of IT
  and e based processes have enabled
  organisations to improve their effectiveness and
  efficiency.
• All the Best Practice benefits that are available
  to mainstream supply chains and described
  elsewhere in this document, can be exploited and
  enjoyed by Sterile Services. Reference should be
  made to the recently published Outline Paper
  for the Procurement of Products Associated with
  Sterilisation Service Departments V1

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Pathology Services

• In terms of its Supply Chain evolution, Pathology
  is in a not dissimilar situation to Sterile
  Services.
• The Carter Report and initiatives such as Path
  Links primarily focus on the organisation
  structure and technical process functions.
  Progressive procurement disciplines are now being
  applied to equipment and infrastructure
  purchasing, but the use of eCommerce is in its
  early stages and there is little apparent
  evidence of its deployment in SC activities.
• Across a number of pilot sites service
  improvement initiatives are being undertaken with
  good results. Logistics flows for sample
  transportation could be a high potential area for
  optimisation. Removing non-value added steps and
  stock control/inventory management is receiving
  attention. (This is being developed using the
  pathology networks).
• All the Best Practice benefits that are available
  to mainstream supply chains and described
  elsewhere in this document, can be exploited and
  enjoyed in their appropriate context by Pathology
  Services

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Community Equipment (1)

• In scope is the administration, delivery,
  collection, refurbishment and servicing of
  medical equipment, ranging from walking aids to
  beds for the NHS Social Services and PCTs.
  Typically a service centre will supply a range of
  200-300 specified items.
• Limited data, coupled with a relatively wide
  range of internal and external customers and
  the unusual feature of a comprehensive reverse
  logistics process, makes it difficult to describe
  a generic process or to specify Best Practice.
  Anecdotal information appears to indicate that
  the degree of management sophistication varies
  considerably in this area.
• Case Study - Gloucestershire Hospitals NHS
  Foundation Trust - GIS Healthcare
  (Gloucestershire Industrial Services).
• 4.5m stock holding supports a 20-step process,
  which includes the recovery and refurbishment of
  equipment. Approximately 1400 items are delivered
  each week and around 700 collections are
  achieved.
• Orders are received via the district
  nurses/occupational therapists when an order is
  entered into the system the customer receives
  acknowledgement of the equipment they require
  stating whether the goods are in stock or not.
  This acknowledgement is via email and is
  therefore dependent on the customers email
  address being registered with GIS.
• Coupled with the delivery of equipment, GIS
  provides a collection service from homes and
  hospitals. In order to achieve a greater number
  of returns GIS has provided a cage at their
  depots for the public to drop off unwanted
  equipment instead of waiting for a collection.
• Returned items are sanitised, booked onto the
  system, inspected by hand, repaired/refurbished
  if required or scrapped if unsuitable. Most of
  the equipment that is scrapped is sent out to
  third world countries.
• Equipment is bar coded to aid stock control and.
  when dispatched, colour coded by delivery area.

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Community Equipment (2)

• Future Challenges
• Examination of the recovery/sanitisation/refurbis
  hment/replacement process in order to understand
  how much effort should be expended on each type
  of item before the cost exceeds the benefit.
  Recyclable Items could then be clearly marked and
  tracked, enabling recovery to be targeted.
• Identify the total cost of their processes- not
  just the cost of goods
• Decide how to gain most benefit from eCommerce
• What equipment can be economically recycled.
• How IT can be used to optimise equipment recovery

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Best Practice - Introduction

• The goal is that Best Practice can produce
  combined SC cost benefits of between 15 and 30 -
  evidenced by studies undertaken by CPHs and NHS
  Logistic Authority (see Appendix 17a/b).
• Best Practice is defined as systems or
  processes that enable tasks to be performed at
  the right time, in the most cost-effective way
  and without duplication or failure
• The journey towards achieving Best Practice is
  sequential and progressive, there are no magic
  fixes. Missing out key stages or trying to
  shortcut the essential actions will lead to
  failure, but it is recognised sometimes that at
  step rather than incremental change will be
  needed.
• Very little data is collected with SC activities
  in mind and so cannot be used to compare
  different channels, locations or activities.
  Anecdotal evidence indicates that as much as 40
  of Non Pay spend cannot be classified correctly
  (NHS YHCPC Business case).
• Before any useful work can be undertaken clean,
  stable, coherent and relevant data-bases need to
  be established. Without this critical foundation
  any other work done will be wasted.

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Best Practice Recommended Steps

• Define and introduce standardised electronic
  order and payment processes (P2P) across all
  requisition points. (eCommerce). - Process cost
  reduction of 54-90 (NHS SC/HFMA), NHS Purchase
  Order process is typically 22 of SC cost
• Introduce effective and utilisation based stock
  control. Potential stock holding reductions of
  between 15-30. Cost of Inventory is typically
  15 of SC cost. The key factor is inventory
  control. Consideration should be given to the
  creation of a three dimensional Classification
  structure
• ABC of throughput usage
• ABC of product, by value
• ABC of product by shelf life
• ABC of product by clinical criticality
• ABC pf product by supplier reliability/On Time In
  Full (OTIF)
• The objective is to identify the lowest stock
  level compatible with availability, ordering
  complexity/cost (reduced both for Trust and
  supplier) and the supplier service channel
  offerings.
• Reduce the number of suppliers. Over the 177
  secondary Trusts the annual Pharmacy spend was
  998m from 796 direct suppliers, In a 47 Trust
  sample Med/Surg for a spend of 95m had
  approximately 5,500 suppliers. Supplier
  Management is typically 14 of SC cost.
• Centralise physical SC distribution functions.
  (Remove hands off the process). Process cost
  reduction 10 NHS Receiving Distribution
  activity plus Stores Management is typically
  23.5 of SC cost. (Based upon modelling of
  Southampton University Hospital)

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Supply Chain Maturity Score (1)
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Supply Chain Maturity Score (2)
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Benchmarking

• A recent survey conducted by ProLogis found that
  companies that undertake formal benchmarking
  initiatives often realise a substantial return on
  their investment within the first year and
  benchmarking data can often be procured free of
  charge from the likes of industry, trade and
  professional associations.
• Ideally, all the constituent members of the NHS
  would have a common and uniform database,
  utilising common suppliers/ product
  names/descriptions/codes. This does not exist and
  in the foreseeable future, is unlikely to be
  created. If the SC Group Benchmark their
  activities against each other they have to adopt
  a set of common definitions, process
  descriptions, and a rigorous discipline in order
  to keep their data integrity and ensure that any
  comparisons made are valid. It might be possible
  to replicate the Logmark experience or - perhaps
  join another Benchmarking club such as The
  Health Care Procurement and Benchmarking
  Association (http//www.abhc.org/hcpscba.html) in
  the USA. (A member of the Association for
  Benchmarking Health Care - ABHC).
• Cranfield University show that the European
  manufacturer to customer cost link comprises -
  Transport 42, Warehousing 24, Inventory 13.
  (The comparable figures for the USA are 45, 22
  and 24).
• The wide range of SC maturity (SCMS) coupled with
  the lack of adequate data, currently makes it
  very difficult if not impossible to usefully
  Benchmark NHS Supply Chain activities with
  external organisations

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Key Performance Indicators

• As with Bench Marks, KPIs are dependant upon a
  clean, current and credible database. It is
  critical that the KPIs themselves are clearly
  defined and do not change over time. Once the
  initial KPIs are installed, understood and
  providing the useful and consistent information
  that was originally specified, then, and only
  then, the organisation may seek to expand the
  range of measures.
• Too many KPIs, especially in the early stages of
  their introduction, will be counter productive
  and could threaten the whole SC improvement
  initiative. Also, the means of producing the
  supporting information should be pragmatic and
  feasible.
• The table set out below illustrates the range and
  type of KPIs which might be used in a SC
  environment. Although they have been divided into
  categories, Financial, Outcomes, Throughput and
  Volumes and Capacity there are no rules governing
  the KPIs which are chosen.
• A barrier to progressing the development of KPIs
  has been the availability of data Trust may
  well need to invest in systems to overcome this
  obstacle.

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Key Performance Indicators Recommendations

• The three target areas for improvement and
  benefit generation are
• 1. Increase use of eCommerce in P2P process
• Suggested KPI - of Purchase transactions
  effected by e Commerce
  
• 2. Reduce Stock Holding
• Suggested KPI - Value of Stockholding or
  Stockholding as of Spend
• 3. (i) Reduce number of suppliers
• Suggested KPI -possibly measure by category
• or
• (ii) Centralise SC physical distribution
  functions
• Suggested KPI(s)
• Distribution lines (User predestined) picked
  per paid hour.
• Stock lines (From Supplier) put away per
  paid hour.
• 4. On Time In Full

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Key Performance Indicators Advanced
Recommendations (1)

• As sophistication and the desire for more
  detailed information grows, then more detailed
  KPIs can be developed, for example
• For the in house supply chain link a record of
  key data is required
• By - Overall grouping Wards /Theatres/Pharmacy
  and/or Channel NHS SC/Wholesaler/Ex Supplier/
  Other
• Orders/Req
• Req Points
• Lines
• Packs/Units
• Order Errors
• By SC Section Separate
  records by Channel
• Activity No Time Cost
• Stock count Req
• Receiving
• Transfer to User
• Returns
• Admin

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Key Performance Indicators Advanced
Recommendations (2)

• In order to understand SC costs and make informed
  decisions as which channel might offer the
  optimum solution it is necessary to measure for
  all material types, the inbound/supply
  performance. Appropriate KPIs could be
• NHS SC/Wholesaler Direct
• Cost per Requisition Raised
• Cost or time per Order Received
• Cost or time per Line Received
• Cost or time per Delivery Received
• Cost or time per Delivery to
• Ward/Theatre/other (inc return cages
  crates etc)
• Cost or time per return
  
  
  
• Admin cost/time per order

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Factory Gate Pricing

• Definition-The use of an ex-works price for a
  product and the organisation and optimisation of
  transport by the purchaser to the point of
  delivery. (Potter et al, 2003, Cardiff
  University).
• The optimisation of the transport link can
  produce specific cost savings of as much as 18,
  which are offset to varying degrees by additional
  handling costs and potentially slower transit
  times. The likely link actual saving is in the
  range of 5-6. To get the very best results from
  FGP there needs to be in place a network of
  consolidation points and clearly defined
  processes supported by robust and transparent
  eCommerce.
• Within the NHS, apart from particular situations
  such as the Excel Hospital Logistics Solution in
  NW London, the only comprehensive SC network
  which would support FGP development is that
  uniquely provided by NHS Supply Chain. Their
  practices and development plans are outside the
  scope of this Report, but clearly they will aim
  to realise the potential synergies of cost
  reduction and enhanced product flow from the
  application of FGP principals.
• A way forward would be for Trust to jointly
  identify duplication or inefficient use of
  transport related resources and quantify
  potential savings and go out to the market place
  in order to find the optimum cost benefit
  solution. This ought to include a structured
  Gainshare provision in order to help realise
  the future opportunities which will arise as
  other supply chain components move towards Best
  Practice.

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Alternative Channels - Options

• In order to take full advantage of the potential
  benefits available from eCommerce the first
  alternative route requires the creation of an
  eCatalogue for each specific channel. There are
  however a number of barriers to building a
  catalogue and these have been highlighted by work
  done at Guys and St Thomas (GSTT). The key
  barrier to building a catalogue is that the spend
  base in hospitals is typically very fragmented.
  At Guy's and St Thomas' (GSTT) the annual
  medical/surgical consumable spend is
  approximately 55m. The supply base is spread
  across over 2,000 suppliers from the large 1-2m
  cardiac suppliers to specialist laboratory
  suppliers below 1,000. The need to create and
  maintain a catalogue for each supplier is clearly
  not a practical or viable option.
• An alternative is to reducing the number of
  suppliers and then consolidating the supply base
  through wholesalers and/or offsite
  warehousing/final delivery. (This model is not
  dissimilar the role played by NHS SC). Allocating
  a single distribution route for each clinical
  department removes the need for large numbers of
  catalogues and facilitates the rollout of
  eCommerce based processes.
• The ideal model will adopt a JIT (3-4) day stock
  level service (tailored for clinical risk),
  supported by Service Level Agreements with
  suppliers. The cost of the service is absorbed by
  the suppliers on the premise that it is more
  effective for them to deliver monthly to an
  offsite warehouse than daily or weekly to the
  hospital. It also provides a real opportunity to
  develop Gainshare opportunities, which
  encourage all parties to anticipate demand
  changes and adapt to changing circumstances.
• Development of consignment stock or Vendor
  Managed Inventory to release cash and integrate
  supply chains with suppliers.

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Alternative Channels Pharma. (1)

• Pharmaceutical sector consolidation has started,
  featuring the virtual stores concept, with the
  wholesaler AAH under their Added Value Services
  programme. Amongst these is one covering 17 Trust
  sites in Avon/Gloucester/Wiltshire.
• 50 of Pharmacy demand is satisfied by 7
  suppliers, and 20 suppliers cover 75 of direct
  supply demand. It is also interesting to note
  that the pharmaceutical supply chain structure is
  similar to that supporting med/surg demand i.e.
  Supplier delivers directly to the Trust or a
  wholesaler delivers on their behalf. (In the
  med/surg/dressings chain the role of the
  wholesaler is fulfilled by NHS SC).
• The true link cost of this part of the supply
  chain is difficult to unravel, but there does
  appear to be the potential for a win win
  opportunity if the two parallel SC transport
  activities can be integrated.
• The cost/margin structure within pharmaceuticals
  appears to be changing as the balance between
  patented and generic drug pricing alters. The
  recognised margin of 12.5 might be considered
  to be too high in relation to higher priced drugs
  and too low in respect of generics. There is a
  risk that attempts to cherry pick routes within
  a SC link could produce unwanted and undesirable
  side effects. It is not within the scope of this
  project to evaluate this situation, but it might
  be possible to add a constructive and previously
  unconsidered factor into the discussion.

36
Alternative Channels Pharma. (2)

• Two of the main pharmaceutical wholesalers/retaile
  rs AAH and Unichem have built extensive and
  physical distribution networks to supply their
  retail outlets. In many cases hospital pharmacies
  piggy back the twice-daily retail delivery
  service.
• If the capacity exists within these networks,
  both pharmacy, direct suppliers and non-pharmacy
  suppliers could deliver pre-consigned orders to
  the wholesalers depots/network. These would be
  cross-docked and be delivered on the next
  available vehicle. The Trust would receive fewer
  overall deliveries, potentially a more responsive
  fulfilment service and enjoy a simpler, lower
  cost process. It is anticipated that the
  cross-docking service would cost between 2.5-4
  of product value which should be more than
  compensated for by supplier cost savings.
  (Already pilot-proven by the GSTT experience
  outlined above).
• To be able to deliver such a step change a
  critical mass will need to be reached before
  volumes are sufficient to drive savings. For
  this reason, such an initiative may need to be
  led regionally by an SHA or nationally by the
  Commercial Directorate or PASA.

37
Appendix 1 2004-05 NHS Spend by Category (excl
Drugs)
38
Appendix 2a Hampshire, IOWOrder Process 2001/02
39
Appendix 2b Hampshire, IOW EDC Mat man v Paper
Other Suppliers 2001/2
40
Appendix 2c Hampshire, IOW Comparison Summaries
2003
41
Appendix 3 South East CoastStrategic Health
Authority
42
Appendix 4(a) Ward Stock Southampton University
Hospital
43
Appendix 4(b) Theatre Stock
44
Appendix 5(a) Hospital Supply ChainCost Elapse
Time
45
Appendix 5b Hospital Supply Chain Process Cost
Comparison
46
Appendix 6 Analysis ofPharmacy Supply Chain
47
Appendix 7 - Hospital Supply Chain Pharmacy
Processes
48
Appendix 8 - Summary of 3 Trusts Pharmacy Supply
Chain Best PracticeReports Pilot Study 2005
49
Appendix 9 - Wards and Theatres Throughputs
Volumes and Values
50
Appendix 10 - Wards TheatresSupplier Channel
Option Costing
51
Appendix 11 - Pharmacy Throughputs, Volumes and
Values
52
Appendix 12 Pharmacy SupplierChannel Option
Costing
53
Appendix 13 Trust SupplyChain Savings
54
Appendix 14 NHS SupplyChain Cost Model 2001
55
Appendix 15 Web Sources
56
Appendix 16(a) Document Sources
57
Appendix 16(b) Document Sources