Feature / Raising the bar

Although full e-procurement has been talked about in the NHS for years, it has not been widely implemented. However, the Department of Health is pushing for a solution that embraces all non-pay spend from order to invoice. Seamus Ward reports

We are all familiar with bar codes. Those little black lines have revolutionised the supermarket, both in terms of customer convenience and the efficiency and quality of the supply chain for food and other goods. But while supermarket chains have embraced the technology, on the whole the NHS, with its own huge supply needs, has not.

It has been long acknowledged that NHS procurement could become more efficient if standard national bar codes were adopted, but implementation has been patchy. However, that is about to change.

Standardised bar codes are pivotal to the Department of Health e-procurement strategy. The strategy, published last month, was promised in last August’s overarching procurement strategy, Better procurement, better value, better care. Overall, the Department aims to save between £1.5bn and £2bn in procurement spending by the end of 2015/16 and e-procurement will be central to this.

But what is e-procurement? The NHS e-procurement strategy defines it simply as the use of technology to automate the exchange of procurement information in the supply chain. Therein lies a problem – does the use of a fax machine or email to place orders constitute e-procurement? Certainly, it is harnessing technology but it is not using available technology to the fullest extent.

With its latest strategy, the Department is clearly expecting much more – which some trusts are well on their way to providing.

E-procurement now means an end-to-end system, where there is minimal human intervention in the process from order to payment. There will be a price benchmarking service to make sure all the potential benefits of the procurement data can be harnessed.

But to create such a system, standards are needed to ensure NHS organisations and suppliers are talking about the same product, while a national messaging system is required to ensure orders, invoices and price data can be swapped.

The GS1 codes take care of the first requirement, while the second is covered by the introduction of the PEPPOL (Pan European Public Procurement On Line) messaging standards. GS1 enables product and location coding and data synchronisation. PEPPOL is used for purchase order, advice note and invoice messaging, allowing purchasers and providers to talk to each other regardless of their purchasing and finance systems.

The GS1 and PEPPOL standards have been mandated through an amendment to the NHS standard contract, which requires compliance with the new e-procurement strategy. To comply with the strategy, NHS acute trusts (foundation and non-foundation) are required to develop and begin implementation of a trust board-approved GS1 and PEPPOL adoption plan during the course of the 2014/15 financial year. The Department will develop a certification scheme for NHS providers and their suppliers to demonstrate progress. PEPPOL adoption will be monitored through transaction volumes exchanged using the standards.

The NHS standard contract has also been amended to require suppliers to add their product information to a central data pool. Essentially this will create a single NHS supplies catalogue, which procurement professionals will be able to access via an online portal. Trusts that do not have a local electronic catalogue should implement one as part of GS1 introduction, the strategy adds. Existing e-catalogues should be extended to cover all goods and services, except medicines, where catalogue management is well established.

National support

The national infrastructure needed to support the strategy will be centrally funded and procured. This will be interoperable with existing and future e-procurement systems, giving providers flexibility to choose their system supplier. The Department says its strategy is not a revolution and that existing e-procurement technology will not be abandoned.

The national systems will also include a national spend analysis and price benchmarking service, enabling trusts to identify opportunities to improve their procurement performance.

Department of Health national director of NHS procurement Rob Knott says the standard codes are a fundamental element of the strategy. ‘We are recognising the importance

of this. This is not something we are saying would be nice to have; we are not asking providers to adopt it; but we feel the breadth and depth of the efficiencies and other benefits are such that every organisation must be mandated to use them.’

While some trusts have systems covering the whole purchase to pay process, with three-way matching, others are still faxing purchase orders. ‘We are aware that some organisations are still raising purchase orders on paper. In 2014 it is almost unthinkable that an organisation in the public sector is raising on paper and faxing it to suppliers,’ he says.

The strategy says full implementation can yield significant, recurrent efficiency savings. Reworking figures from a McKinsey report, it forecasts an average NHS provider would save between £5,000 and £8,000 per bed from applying GS1 to its procurement activity.

Realising these benefits requires significant investment, which will be offset over time by one-off inventory reductions, the strategy says. For a 600-bed trust, this could mean a one-off saving of £1.6m (high range savings). However, lower inventory savings could lead to a one-off cost of about £124,000.

In addition to the financial benefits of GS1, the strategy adds that further benefits will accrue to NHS providers. By linking the use of goods to the patient record by scanning the product barcode and barcoded patient identity bracelet, patient-level and clinician-level costing can become more accurate, generating financial, patient safety and quality benefits.

Mr Knott says that the initiative is not just about efficiency – saving on prices and clinical time – but also patient safety.

‘Every NHS organisations should be benefiting from being able to track and trace a product from the factory gate to potentially the patient,’ he says. ‘It’s important from a patient risk perspective.’

David Rabjohns, e-commerce enterprise architect at NHS Supply Chain, says the e-procurement strategy will reduce duplication and produce high-quality information.

‘There will be better financial visibility and understanding from having the core data. It’s difficult to get at the data for price comparison at the moment because it’s fragmented and people can call one product 10 different names depending on who’s coding it,’ he says.

‘There are barriers on the supplier side, particularly with the adoption of GS1. Most of the core suppliers need to shift to GS1. I think it will take a few years to truly take off.’

Compliance progress

As a supplier itself, NHS Supply Chain is looking to comply with the e-procurement strategy. Mr Rabjohns says there are three main areas – e-sourcing, integration using PEPPOL access points and GS1 standards.

He says: ‘We are pretty much 100% aligned with e-procurement in ethos – we trade pretty much 100% electronically. Our systems have been doing this for some time. I don't think PEPPOL will mean a great deal of change for us. With every trading partner using a single PEPPOL data point it will make life easier for everybody.

 ‘GS1 will probably be the most complex part for us to implement, involving some end-to-end system changes in order to fully integrate all touch points in the supply chain. We have started to increase the number of GS1 codes in our catalogue. We are trying to improve our product data and have GS1 use throughout our supply chain.’

Health Care Supply Association (HCSA) chairman Simon Walsh says much of what his association has been pushing for over a number of years is embodied in the strategy. The HCSA was involved in the development of the strategy, which he describes as practical and pragmatic. And although he accepts that implementation will not be without challenges, he believes it points the way forward for trusts.

‘All the ingredients are there, including the link between GS1 and the NHS. It’s now up to local trust executives and procurement professionals to bring it forward. After this, I don't think there’s any excuse for a trust not to have its own e-procurement strategy,’ says Mr Walsh, head of procurement and e-commerce at Central Manchester University Hospitals NHS Foundation Trust.

E-procurement should include all non-pay spending, the strategy says. It insists the full benefits of e-procurement are not realised currently because in acute trusts many procurement processes are fragmented across functions, including pharmacy, pathology, sterile services and agency staff. To maximise the benefits, it calls on providers to bring these together in a single purchase order system – with messaging between purchasers and suppliers based on the PEPPOL system – with the exception of pharmacy, which already has well-developed systems.

The Central Manchester Trust has implemented a system covering all non-pay expenditure. ‘We have set a standard that if it moves or is consumed we have a three-way matching process in our e-procurement system – you raise the requisition, that generates the purchase order and it’s matched with the invoice,’ Mr Walsh says.

‘That means we are collecting rich, granular data. This will be a challenge for some trusts that have smaller resources, but procurement professionals should have the ambition to capture all non-pay spending, including agency and other staff payments wherever possible via e-procurement. We are going further and include payments for services between us and the university and other NHS organisations.’

There is some suggestion that all-singing, all-dancing e-procurement systems that span non-pay expenditure can only deliver value in large acute trusts, but Mr Walsh rejects this. ‘We have strong e-procurement at this trust and we are adopting GS1. I accept some people might say it’s fine for him and for other large acute trusts, but a lot of smaller trusts are doing a good job on this.’

Mr Knott adds that there should be no presumption that small trusts are less able to secure the benefits of e-procurement. The new Centre of Procurement Efficiency (CPE), to be set up this financial year, will spread best practice on strategies and contract pricing methodologies – for example, from trusts that are forging ahead. He adds that a small hospital with few or no e-procurement systems could outsource e-procurement to a larger hospital.

The CPE will also provide an online portal for procurement practitioners, which will provide market data such as financial profiles of suppliers and access to comparative price information gathered by the Department price benchmarking service.

At first, the benchmarking service will be based on a basket of 25 products or categories of products with the highest volumes. While the contents of the initial basket are still being discussed, the portal is to be launched this month. Mr Knott says once this and analysis of the initial basket of goods is running, the Department will add products and categories.

Mr Walsh says: ‘It will happen but it will take time. There is a cultural inhibitor as we are all steeped in commercial confidentiality, not just NHS procurement staff, but also suppliers.

‘The Department of Health service is set to begin with a basket of 25 items, but it will grow over time to build up information on what is spent nationally.’

The strategy throws some doubt over the future of NHS eClass, the health service-owned classification system that groups similar items (except medicines) together for spend analysis and aggregation. It says NHS eClass will be reviewed as it is not used consistently across the NHS and it is not resourced and maintained to the level of an international standard.

While it accepts the review may recommend maintaining the status quo, the strategy says it is likely the outcome will be different classification standards for different categories.

NHS Shared Business Services offers procurement services and administers eClass on behalf of the NHS. Peter Akid?, its director of procurement, says: ‘It is too early to say what impact the e-procurement strategy will have on eClass – the GS1 codes will be product specific and in order to compare products or review spend at a higher level there will need to be a classification system. We’re aware that a working group is looking at this aspect.’

He adds: ‘On the whole, the strategy’s principles are positive, but ultimately the level of efficiency savings that could be achieved will depend on the uptake by NHS organisations and suppliers. To that end we’re working closely with the Department, our clients and system providers to ensure we can support the implementation.’

Mr Knott says the strategy will help patients and procurement and finance teams. ‘It’s got to improve cost management at trust level by providing visibility, transparency and

accountability down to the patient level,’ he says. ‘It has got to help the finance community deliver better performance in the way it supports clinical time and clinical outcomes. It takes Lean thinking into Lean delivery.’

Delivery is critical – the NHS has talked about e-procurement for years. But now, the Department believes, is time for action.