CSCMP's Supply Chain Quarterly
July 23, 2019

The U.K. health-care supply chain: Moving toward a world-class operation

Supply chain management across the United Kingdom's health-care sector is evolving in response to a growing need for greater efficiency, lower costs, and enhanced patient safety. Better inventory management holds the key to achieving those objectives.

The United Kingdom's National Health Service (NHS) was founded nearly 70 years ago, in 1948, to ensure that good, free health care was available to everyone at the point of need, regardless of wealth. Since then, the NHS has grown to become the world's largest publicly funded health service. Development and expansion have been rapid, and with the U.K. population forecast to rise to slightly above 67 million by 2020, this pace of growth is expected to continue.

To support this increasing—and increasingly aging—population, the NHS currently employs around 1.6 million people across England, Scotland, Wales, and Northern Ireland. To give this some perspective, Phoenix, the fifth-largest city in the United States, also has a population of 1.6 million. This places the NHS in the top five of the world's largest workforces, alongside the U.S. Department of Defense, McDonald's, Wal-Mart Stores, and the Chinese People's Liberation Army. The agency manages a budget of £136.7 billion—funding that comes principally from taxation, and which is under intense scrutiny as the government seeks to reduce its levels of expenditure.

Under pressure from such factors as increasing demands on and expectations of services, innovative medical and technological breakthroughs, changes in care delivery, and reorganization, the NHS has undergone immense change in recent years. Despite confronting unprecedented challenges, especially financial ones, it has been incredibly successful in finding new and better ways to respond to the needs of today's patients. In fact, in comparison with the health-care systems in 10 other countries (Australia, Canada, France, Germany, Netherlands, New Zealand, Norway, Sweden, Switzerland, and the United States), the NHS in 2014 was rated best in terms of efficiency, effective care, safe care, coordinated care, patient care, and addressing cost-related problems by the U.S.-based organization the Commonwealth Fund. It was also the most cost-effective system of the 11 countries, and it saved more lives per pound spent than any other country in the study except Ireland.

Nevertheless, the need to identify opportunities to attack costs and improve patient care has not diminished; accordingly, there has never been a better time to understand exactly what, where, when, and how the NHS is buying, and where (and on whom) those products are being used. This information was never available in the past, leading over the years to various health-care scares across the country. For instance, contaminated surgical implants affected thousands of patients across the U.K., yet recalling them was difficult, as nobody was sure where the implants were, who had them, and whether patients were in imminent danger—a failing that had a serious effect on public safety and provided a valuable lesson.

Such breakdowns in processes stressed the urgent need for track-and-trace capabilities for all medical supplies and devices. Improving supply chain operations and implementing inventory management solutions are playing a leading role in helping the NHS to reach this goal.

Procurement problems
Despite the NHS's world-class status, it has historically run on an inefficient and broken supply chain. Processes that worked years ago, though appropriate at the time, have largely remained in use, unchallenged. Over time, supply chain operations have therefore become inadequate, inefficient, and costly, with many hospitals at different levels of supply chain maturity. In the U.K., this has also resulted in the health-care sector falling significantly behind its commercial counterparts, which have achieved major improvements in their procurement and supply chain management practices. Those problems have become more noticeable as the NHS has been subject to enormous growth. From medical-device suppliers and distributors to individual hospitals, expansion has created a more complex and extended supply chain than at any other point in time.

To address incidents like the product recall described above and avoid future failings, supply chain professionals in the health-care sector need quick access to the right, accurate information. This is also critical, of course, for managing costs. Yet, as noted above, they lack complete information about product purchases and their subsequent whereabouts. This is a result of a number of problems within the NHS's procurement system. A brief overview of this complex topic includes such challenges as:

  • Procurement is predominantly carried out at the local level through trusts—the public-sector organizations that serve a geographic area or provide a particular health-care service. There is no single, national product database with consistently described data, thus purchasers generally are blind to the prices that other trusts are achieving.
  • Purchases are made by both the procurement function and clinicians. The former typically focus on price, while the latter focus on product quality and outcome. This in itself reduces the opportunities for rationalization and standardization of the product portfolio. In addition, clinical purchasers often are unaware of procurement policies and legal contract requirements.
  • To date, the NHS's key performance indicators (KPIs) for procurement have focused on such concerns as reducing unit price and increasing catalogue coverage. That has encouraged greater variety of available items, bulk purchases, and wastage, as procurement teams are only driven to look at the unit price rather than whether the product has been used up.
  • Trusts often are unable to verify who owns what stock on the shelf—themselves or the supplier. Moreover, the coding and naming structures used in procurement are not known or understood by the clinical user. Not only is this lack of a common "language" to identify products an inhibitor to product traceability, it also is a potential clinical risk.
  • Inventory valuations on balance sheets in many trusts are inaccurate and vary widely as to what is counted and how. Despite most trust accounts declaring first-in, first-out (FIFO) stock valuation, there is no practical way they can achieve this, as they have no systems that can track when they bought a product and how much they paid for it.
  • There is often no centralized function to which product shortages and delivery delays can be reported, and for the information to then be communicated to the clinical teams. This means that clinical staff must spend time chasing orders and deliveries and searching for suitable alternatives with other suppliers. Often this results in clinicians just placing another order. Complicating matters is the fact that the NHS's knowledge is not systematized, but rather resides in those who manage a people-reliant management solution.
  • The historically fragmented and silo-based approach created a number of inefficiencies, such as a lack of inventory visibility, poor-quality data, product wastage, fluctuating stock levels, lack of storage, and security challenges.

Taken together, the issues cited above have created an inability for the NHS to extract useful management information it can use to make the right decisions to best manage cost and improve patient outcomes. However, because the cost of supplies forms a large part of the expenditure of every NHS trust, significantly improving the way in which health-care inventory is acquired, stored, and managed is critical to operations.

Moving toward solutions
The NHS has begun to address some of the procurement-related issues that have been detrimental to cost reduction. For example, historically, supplies replacement was done through a paper requisition process, and some hospitals had central stores for commonly required products. In an effort to create efficiencies, the NHS introduced electronic requisitioning and removed central stores in favor of a "self-serve" approach designed for doctors, nurses, and local health-care managers. Clinical personnel select items from an online catalogue of products that have been contracted by the procurement department. The requisition then goes to a budget holder for approval. An approved requisition goes straight out to the supplier with no intervention by the procurement team. Where no catalogue item exists for the item or the user cannot find it, the user enters a description in free form, which goes to the procurement teams electronically for processing.

While this process has had significant beneficial results, it also has led to a large number of clinical buyers shopping online. This has burdened the health organization with multiple small orders, multiple delivery charges, and higher order- and invoice-processing charges. Additionally, its adoption has not been universal, and some hospitals in the U.K. today still operate paper-based requisitioning.

The U.K. government recognizes that in order to understand cost drivers it needs good data. About two years ago, the government mandated that any procured service or product must be compliant with product-identification standards issued by the global organization GS1. These standards provide globally unique identification of products, patients, caregivers, locations, and assets through the use of identifiers such as bar codes. It is now mandatory for hospitals across the country to implement GS1 data standards and standards-based inventory management.

We are at the threshold of what could be transformational progress in the NHS. GS1 adoption will save millions of pounds and will have a significant impact on patient safety. Products can be identified at any point in the supply chain, so that in the event of a safety alert for medicines or medical devices, the specific item could be quickly located relative to an individual patient and recalled. Not only does this help in instances of contaminated supplies, but it also supports patient-level costing; that is, the expenditure per procedure, case, and patient. For instance, understanding what supplies are used on a patient can help us understand the longer-term outcomes. A supplier may say that its product will last 15 years, but is that product really cost-effective for the NHS? Currently there is no way to substantiate these claims, but that will change.

The ultimate goal is procurement linked to patient outcomes and a longer-term understanding of the patient cost to the NHS, rather than simply the price today. This will also allow the NHS to measure the benefit to the patient, as well as the cost of maintaining that patient's health throughout his or her lifetime. Additionally, there is discussion around enabling patients to access their own medical records, including what products were used on them, and potentially to manage their own health-care budget.

In addition to the improvements discussed above, the effort to modernize inventory management in the NHS will produce many benefits. These include:

  • Improved productivity and operational efficiency
  • Improved standardization and rationalization
  • Reduced wastage and risk of out-of-date stock
  • Space savings
  • Reduced clinical time spent on stock management
  • Improved data transparency
  • Reduced inventory holding

All of these goals can only be achieved by improving the systems that collect and manage supply chain data. In addition to standardizing data and systems, we will need to "connect the dots" for such functions as supplies procurement, inventory management, and patient-care systems, and then align core data-collection activity using more efficient and effective processes as well as enabling technologies. The opportunity to improve both the quality of patient care and the ability to properly manage the costs of delivering is an exciting prospect for the U.K. health-care sector.

Innovative technologies: A turning point
As hospitals begin to ensure they comply with mandatory requirements, the sector is reaching a long-overdue turning point in supply chain management. Innovative technologies, mainly inventory management solutions developed specifically for the NHS, are being used to drive efficiency and to transfer best practices from the commercial sector to the health-care market. For example, GS1-certified inventory management solutions that incorporate tried and tested methods from the commercial sector are already proving a catalyst for significant change and benefits realization.

A growing number of trusts within the NHS today have improved inventory management using such technology. For example, Lancashire Teaching Hospitals NHS Foundation Trust, located in the northwest of England, and Portsmouth Hospitals NHS Trust in the south, along with others, are now working toward electronically tracking items to a specific patient. They now use bar codes to manage supplies—everything from bandages and tissues to high-value medical implants—and are on course to easily access the data that records who, when, and where supplies were used.

Often projects begin in one of the highest-spend areas: operating theatres. North Cumbria University Hospitals NHS Trust and Portsmouth Hospitals NHS Trust have already derived proven and audited positive outcomes as well as early cost savings reaching into the millions of pounds. One of the sector's benchmarks for inventory management best practice in the health-care sector is Portsmouth Hospitals NHS Trust, a leading force in supply chain excellence and an early adopter of best-practice inventory management solutions. It also implemented the first trust-wide rollout of an inventory management solution in the NHS. Today the Portsmouth trust supports others in their evaluation of solutions and shares best practices through its work with the U.K. Department of Health and GS1. (See the sidebar for more about the Portsmouth Hospitals NHS Trust's achievements.)

These are showcase examples and illustrate how efficient and effective solutions can in practice improve outcomes. This is something that few have successfully accomplished to date, but in reality it is achievable for any hospital.

The next challenge will be to make sure that early success is maintained as well as transferred to those hospitals yet to begin their projects. With pressure mounting to reduce costs, and in light of the U.K. government's target of efficiency savings in the NHS of £10 billion a year by 2020, inventory management is emerging as the most powerful and realistic method to help trusts achieve those objectives.

As the financial noose tightens in the NHS, we see a trend toward managed services evolving, with many product vendors moving into service provision for inventory management. While this area currently is often managed by the hospitals, a move to managed services is likely to create greater efficiencies, operationally and financially.

The state of NHS procurement and supply chain activity has regularly come under fire, but what's important to remember here is that old habits are gradually being diminished to make way for improved practices. The adoption of GS1 standards is a catalyst for driving change throughout the supply chain, and the investment in innovative technologies today has a positive impact not only on the NHS now, but also in the future. The U.K. health-care supply chain can be a world-class operation, and it is showing clear signs that it is on its way to becoming so thanks to the application of new technologies. Once we have the basic data standards in place, the next step will be to integrate and make the best use of the huge volumes of data that will be generated.

Nicola Hall is managing director at Ingenica Solutions, a provider of GS1-certified inventory management solutions for health care.

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