NHS BSA Supply Chain Management Division

1
NHS BSA Supply Chain Management Division

• December 2006

2
Agenda

• Background
• Solution
• Contract
• How does it work
• Differences for Trusts
• Retained organisation
• NHSSCMD
• Structure
• Responsibilities
• Functions - Finance, Operations, Procurement and
  Stakeholder Management

3
Background

• Government motivation
• Gershon Review 2004
• Efficiency gains across public sector
• Lower prices for resources needed for public
  services
• Improved NHS buying power to achieve VfM
• DH Arms Length Bodies 2004
• Contracting out to independent sector where a
  case for national function rests on economies of
  scale
• Price competitiveness
• Does the NHS pays too much for products?
• Range improvement
• Does the NHS get the latest products/innovations?

4
Solution

• 10 year contract awarded (5 years)
• NHS Business Services Authority (NHSBSA)
• DHL Exel Europe with Novation as sub-contactor
• known as NHS Supply Chain
• 3.7bn of 11 categories of non-pay spend
• The contractor is incentivised to-
• Grow 2-3bn of sales over 10 years
• Deliver gt1bn savings to NHS frontline over 10
  years

5
Categories in scope
6
Contract

• How does it work?
• NHSBSA keep title to stock
• DHL will act as an agent for NHSBSA to-
• Negotiate contracts under OJEU
• Provide supply chain services and working capital
  management
• DHLs remuneration will be based upon the number
  of physical transactions
• Price breaks will be offered to Trusts (volume
  based)
• No catalogue price increases except in relation
  to buy price increase

7
Contract

• How does it work?
• Minimum service supported by penalty regime
• DHL fund investment and working capital growth
• DHL take stock obsolescence risk
• NHSBSA, PASA or DH cannot OJEU on defined
  categories - defined as Exclusivity
• Profit cap in place
• New categories require NHSBSA approval
• NHSBSA has full audit rights
• Information and data remains NHS property
• At end of contract DH can
• Take back assets, re-compete contract or bring
  operation and staff back in-house

8
Transition criteria

• NHSSC must satisfy SCMD that the following
  conditions have been met (by 1st anniversary)-
• NHSSC representatives and direct reports have
  been in place for 4 accounting months
• The main KPI measures (On time, In full, Creditor
  days and Debtor days) have been met for 3
  accounting periods
• NHSSC operating expenditures are within 5 of the
  forecast budget (in the first business plan) for
  3 accounting periods
• The number of material complaints from customers
  does not significantly exceed the number received
  prior to the effective date for 4 accounting
  periods

9
Transition rights

• During transition the SCMD will-
• Approve any changes to the catalogue
• Approve changes to employees TCs
• Approval of sub-contract
• Approval of site closures
• Approval of termination of supplier contracts
• Approval of termination of Non-Trust customer
  contracts
• Post transition the SCMD will-
• Approve changes to categories
• Approval of material sub-contracts

10
Contract

• Changes for Trusts
• The operation will be known as NHS Supply Chain
• Price breaks will be offered for volume
  commitments
• At Trust level
• At CPH level
• At strategic buying level (i.e. specialist spinal
  units)
• No price increases (except where there are
  unavoidable buy price increases)
• Services are underpinned by penalty regime

11
Contract

• Same for Trusts
• No mandate to use this service
• Trusts can continue to order as they do today
• NHS brand will still be used
• Catalogue prices will still include margin
• Products will not be de-listed (during
  transition)
• No big-bang IT change
• Over recovery of margin passed back to Trusts
• Trust supply will not discontinue if in financial
  difficulty

12
NHSBSA structure
13
Contractmanagement

• Retained Organisation (RO)
• NHS Supply Chain Management Division of the
  Business Services Authority (NHSSCMD)
• To work with the Service Provider (DHL) to
  ensure that the outsource succeeds and that the
  benefits and services are delivered to all
  stakeholders in line with the contract and
  adjusted from time to time in line with DH policy
  requirements and customer needs
• Direct relationships between stakeholders and DHL
• RO is not a go between, but an escalation point
• Retain supply chain knowledge and capability in
  NHS
• Undertake special DH work and manage DH SLAs e.g.
  logistics element of flu pandemic planning

14
NHS SCMD
15
NHS SCMD

• Responsibilities
• Formal review of overall contract performance via
  joint management board
• Review of service providers business plan and
  annual budget (initially in detail)
• Benchmarking service provider
• Interface with DH
• Benefit realisation and monitoring
• Post implementation approval
• Performance bonuses/penalties
• Maintain supply chain knowledge
• Enable contractual step-in if required

16
NHS SCMD

• Contacts
• Steven Horsley Head of SCMD
• PA and all queries to Joanna Wood
  Joanna.Wood_at_nhsbsa.nhs.uk 01623 726229
• David Bird Head of Finance
• David.Bird_at_nhsbsa.nhs.uk
• 01623 726233
• Gordon Wall Head of Operations
• Gordon.Wall_at_nhsbsa.nhs.uk
• 01623 726232 or 07721 538063
• Rob Young Acting Head of Procurement
  Stakeholder Relationships
• Rob.Young_at_nhsbsa.nhs.uk
• 01623 726236 or 07796 996045

17

• Gordon Wall
• Head of Operations SCMD
• Any questions?