Five steps to getting more for less

Even the most efficient organization could buy better – and achieve major cost savings. Roger West, who put the NHS on track to delivering £1bn in savings by better procurement, explains how

Effective procurement is important for any organization, often accounting for 50-70% of revenues for many businesses. Procurement can and should make a significant impact on the bottom line, and many companies are beginning to question how they can deliver a step change in performance.

The public sector is no different and the coalition government made headlines in 2010 when it asked its major suppliers to renegotiate contracts to achieve quick savings of €934m. With procurement covering €276bn – more than a third of total government expenditure – they will also need radical thinking and deep structural change. Without it, front-line services will struggle to be protected with further escalation of tax.

NHS Supply Chain is a DHL business that understands these issues – and its success is driven by the effectiveness of its procurement function. Roger West joined NHS Supply Chain at the start of its contract and spent three years as Procurement Director, setting the strategy and driving the change that has now delivered nearly €350m of savings to the NHS and put it on track for £1bn of savings by 2016.

Now head of DHL Procurement Outsourcing, West believes organizations of all sizes can benefit from fresh thinking in how and what they buy. Here are his reflections on how the NHS Supply Chain experience might help other organizations improve.

1. Commercial focus “It doesn’t matter which sector you operate in: you need to align with the goals and needs of the organization. If they’re not clear, then find them out! You need people who have a keen nose for value and the creativity to find it. When NHS Supply Chain was created, we wanted to increase the commercial capability and drive of the inherited civil servant team. We restructured the work environment to encourage collaboration – we removed the offices, and the organizational structure was changed to align to the functions of the customer, not to what we do. We have incentivized and given people the freedom to run their contracts as small businesses, and with a team of over 200 pulling together, the results speak for themselves.”
2. Build relationships that work for you. “Appropriate supplier relationships can be valuable, but they don’t just materialize and they require considerable and constant effort to maintain. We had to invest time, effort and a few tears. We now have much stronger relationships than before. Much of this has come from dealing with challenging topics in an open and honest way, and being clear about our value proposition to them – there has to be something in the trade for both parties. We have extended our framework contract coverage from under €1.2bn in 2006 to over €4.7bn in 2010, so we have met lots of new suppliers. We need them to help us achieve our goals. For many, having a single organization to trade through to access the NHS is important. There are significant costs, particularly for SMEs, in dealing with big, complex organizations and we’ve made that much easier.”
3. Simplify processes. “If buyers are spending more time thinking about the process than what they are buying, then the process needs to change. We have sought to ‘automate’ tendering as much as possible. It means we’re not slaves to a process and we have more time to think through how we can be creative to achieve our goals. It is all too easy to let the process be the driver.”
4. Be prepared to centralize when seeking transformation. “Creating a centralized service for procurement and supply chain in the NHS has multiple benefits, including better decision-making and lower costs. It is crucial to have a single organizational entity for suppliers and customers when going through a program of change. The recent National Audit Office report affirms this. Buying centrally allows you to create and sustain a high level of competence that can serve all customers. It also creates leverage in the supply market which delivers improved savings. Many fear centralization will stifle innovation, but this needn’t be the case. Even for large suppliers, accessing the NHS market is a challenge: with NHSSC operating centrally, we can promote innovative products from suppliers of all sizes across the entire NHS in one go.”
5. How could you do more, faster? “Resourcing levels are under pressure in many organizations and holding on to talented staff is key. Procurement outsourcing can provide a welcome boost to internal resources, making it possible to get more done or create a catalyst to do things differently. In the NHS, we have not only introduced an own-brand, “Choice for Health”, but we are now sourcing these products Direct from Manufacturer (DFM) in Europe and as far afield as China. This cuts out the middleman and helps us deliver even more savings.”

“Procurement can do much to improve an organization’s performance,” concludes West. “Doing what we have always done will get us what we have always got. Let’s not evolve – let’s transform…”