Andrew Castle on effective procurement

A friend of mine is a supply chain director for a large multinational company. In his role, he has an annual spend of more than.£500 million - 10 times larger than.that of the biggest trusts I have worked with. It is by any measure an enormous role.

When he assumed his role in February, the organisation was in procurement chaos. Across the UK they were running out of 270 items per month. This resulted in 270 expedited orders. By May, he had reduced this to 70, with a year-end target of zero.

You might say, well, he is in a different sector, it is less complicated, he has fewer variations in parts or items and it is simpler to manage.

However, he is.responsible for more than.30,000 line items, of which in any given month around 1,500 are considered fast and medium moving. Any part used more than once a month is considered fast moving, but a.substantial number of these parts are moving multiple times a day. Each month, all 30,000 items.are reclassified depending on whether they have moved during the month and stock levels and order quantities.are adjusted.

The cost of not having one of these items in store is that a multi-million pound piece of equipment will sit idle.

So what, you say. That is not a matter of life and death, it is.only pounds, shillings and pence.

If that is the case, why is he able to manage a procurement process where the outcomes are less important than those in the NHS with more control than most NHS organisations?

The following questions may help you determine whether you have.basic - not world-class -.financial control of purchasing:

• Can you tell me your annual spend on every single line item purchased within the last 12 months? Calling the supplier does not count and neither does.interrogating individual invoices. You should be able to.type a part number into your purchasing and financial management system and tell me the spend for each of the 10,000, 11,000 or 30,000 purchased items.
• Can you tell me the number of times in the last four weeks that you experienced a stock out, the number of times an item was borrowed from another ward, or otherwise acquired?
• Can you tell me the last week's, month's, quarter's and year's usage for each.line item that the trust/organisation orders? Usage and purchases are not the same thing. The test here is to be able to identify purchases for the same period against usages for the same period.
• Can you instantly run reports detailing spend by supplier, line item, volume and frequency?
• Do you have set inventory levels for every line item, in every location, with monthly adjusted re-order quantities?

Looking to the private sector

There are, I am sure, businesses in the private sector that cannot answer these questions with any degree of accuracy. Those businesses are not long for this world.

I am also sure that if you are unable to answer these questions you are unlikely to be.getting the best possible value for money. If you are unable to identify purchased volume by line item detail per year, there is no possible way you are receiving the best price.

I think that there are enormous opportunities to obtain easy financial wins through the simple use of best practice supply chain management. If it is difficult or impossible for you to answer the questions above, it may be worthwhile to look.at organisations outside of the NHS that manage supply chains effectively and seek to learn from them.

There are a number of current NHS suppliers that have excellent supply chain.management programmes in their own organisations, but these don't seem to extend to individual NHS organisations. Perhaps this is an opportunity for organisations to partner and not only reduce material costs but improve product delivery.

Andrew Castle is a consultant with Applied Angle.