It costs the health service up to £65 to process just one invoice, but the electronic solutions in the pipeline will mean significant savings, says Seamus Ward

In the endless stream of e-commerce ventures marketing every conceivable consumer product, there is, as yet, an untapped area of Internet shopping that could help the NHS make significant savings - the online purchase of supplies.

The systems available include Supply Stream, an e-procurement system developed specifically for the NHS by IBM and NHS Supplies, now the NHS Purchasing and Supply Agency.

In 1998 a Cabinet Office review of NHS procurement recommended that all trusts be able to deliver the benefits of Supply Stream through the system or an appropriate electronic equivalent, by the end of 2000. But there are doubts over whether the health service can meet this deadline.

The NHS spends around£7bn a year on goods and services, yet much of this is purchased using paper, from the raising of requisitions, to their consolidation into orders, notification for entry into financial ledgers and the processing of invoices.

The Audit Commission reckons it costs£30 to process one invoice. Other estimates put the cost of processing an order at£50 and above.

In any trust this adds up to high administration costs. In a large trust such as Chelsea and Westminster, it can mean 11,000 orders a year or 29,000 pieces of paper. The trust has adopted Supply Stream, as have at least 80 others, including Warrington Hospital trust, which has been using the SureStock electronic requisitioning system since April last year.

But the Purchasing and Supply Agency admits that no trust has a full e-procurement system: 'At the moment, no NHS trust is fully reliant on e-procurement systems, but elements of e-procurement do exist in various areas, ' says Joe Walsh, its associate director of operations.

'One example is that of the services and technology solutions provided for trusts by the NHS Logistics Authority, which runs a fully integrated requisition and ordering facility with electronic links and data exchange with all trust finance systems.'

One trust information manager says trusts may not have e-procurement systems in place by the end of the year but they will have a plan.

'The end-of-year target is achievable, to the point of having a plan in place identifying a potential solution. The question is, will it be the Betamax or the VHS solution? The NHS is being careful and making sure the decisions are the right ones before driving it through at a national level. No single trust is doing these things on an individual basis - it would be foolish to do so.'

So many companies are offering eprocurement solutions to the NHS it is difficult to decide which is best. Hence the agency's cautious approach, which it believes will result in trusts having similar frameworks able to inter-communicate.

'The development of e-procurement technology is an evolutionary process - particularly in its application to the public sector. The agency is researching the etechnology marketplace to establish standards for e-procurement systems, ' Mr Walsh says.

Addenbrooke's Hospital trust is working closely with the Purchasing and Supply Agency in its research. The trust is evaluating the Smartmission system, which claims to be the first live Internet-based system in the UK offering products from a range of suppliers. It has eight pilot sites in British hospitals, the first of which, at Addenbrooke's, was due to begin live trading in early October.

Helena Fuller, Addenbrooke's head of procurement, supports e-procurement but says:

'One of the key things for us is that we don't want to have to replace our current systems.

Smartmission is website-based, and can be integrated into our current system without needing new software. Ultimately, being able to have all our procurement going through the financial system will make management reporting easier and the whole process slicker.'

The upshot of this e-trading should be a more cost-effective procurement process, Mr Walsh says. 'E-procurement will contribute to cost reduction in the supply chain through a reduction in process costs. In addition, the potential for price reduction, through aggregation of demand, has to some extent already been achieved through the contracting activity of both the agency and trusts, ' he adds.

Patrick Finnemore, Smartmission's sales and marketing director, says the company is reducing transaction costs by taking paper and repetition out of the system.

'Using our system, an authorised user could go to a terminal on a ward, for example, and raise a requisition from an approved catalogue of products. This would then be checked and approved by an appropriate person and sent to the supplies function where it would be consolidated with other orders raised for that supplier. The electronic order would then be sent to the supplier. With consolidated ordering you do not have as many invoices.'

Catering supplies is one area where trusts have seen benefits. Damian Bell, managing director of Supply Direct, the online foodstuff provider, says his company offers 'a one-stop shop that is tailor-made to each individual hospital and each department within the hospital.'

He adds: 'We take the information they give us and give them a fixed price per patient per menu so all they have to do is order each dish for the number of patients they have.'

Supply Direct is currently moving all 12 hospital sites that use its services away from a Unix-based dial-up system to an Internetbased system.

'The potential for e-procurement is enormous. We are able to make money through providing cheaper administration - we take all the admin out of the system they currently have. It costs the NHS between£50-£65 to process an order, from raising an order to paying the invoice, and it does that for every delivery.

Our system cuts down the invoices from maybe 50 to one, so it's a big saving.'

Since the Cabinet Office review, trusts have been asked to make a 3 per cent annual saving in the cost of goods and services, and Mr Bell believes e-procurement will contribute greatly to meeting this.

Mr Finnemore says the level of savings for trusts and suppliers depends on usage. 'If it is used piecemeal they will save a bit. If they have e-requisitioning in place, trusts will make significant savings in administration. Using the Smartmission marketplace to aggregate orders across a number of sites, trusts will create further savings, as will e-tendering.'

Though there may be different nuances in the way they are organised, many of the e-traders offer similar services. However, the costs to the NHS can vary.

Mr Finnemore says that the Smartmission system is 'free at the point of use' for the NHS.

There is no need for hospitals to buy or install software onto their server, he adds. The company can do this by charging suppliers for reducing their transaction costs.

'We see ourselves as an e-procurement management business, driving transaction costs out of the supply chain for suppliers and purchasers. By creating value for suppliers we are effectively delivering the solution free to the NHS.'

There are costs, of course. As with other systems, Internet-ready PCs are required, but they will be needed anyway to support initiatives such as electronic patient records and booked admissions.

'Some trusts say they need to equip themselves with proper PCs throughout their hospitals. It is something that is happening anyway, ' he adds.

Last year, IBM said it would charge trusts between£12,000-£35,000 depending on the number of users, in return for support, training and access to the host server over five years.

SureStock, a collaboration between Unipart and the government procurement unit, the Buying Agency, does not take an upfront fee. It underwrites a minimum level of savings and any further economies are shared with its partner trust. SureStock has an incentive to reduce costs in order to make a profit.

There are real benefits to be gained from eprocurement though it is unlikely they will be reaped widely in the NHS by the start of 2001, as envisaged by the Cabinet Office review team.

But the health service is enthusiastic about eprocurement's potential and, mindful of its history of IT blunders, under the direction of the new Purchasing and Supply Agency, is determined to take its time and get it right.

A taste of the future Faced with spiralling bills and a need to save£4,000 a month in catering costs, the managers at Oxford Mental Healthcare trust turned to the Internet. Catering is notoriously difficult to rationalise, as trusts have been known to use up to 30 suppliers because of the variety of foodstuffs needed. This can generate substantial paperwork and administration costs, so last year the trust held a trial of the Supply Direct system.

Catering manager John Poole says the web-based food distributor cut the number of suppliers the trust deals with from 14 to one. The company gets orders over the Internet, guarantees costs over a 12-month period and minimum standards of quality and hygiene.

'The process enabled us to cut back on costs, and the quality of the menus was extremely impressive, ' says Mr Poole.'We did have one or two teething difficulties, as would be expected in a large project like this, but overall our problems of quality and cost were solved.'

With the system being rolled out across the trust, he is confident the catering department will reach its savings target, and he adds that an Audit Commission value-for-money study has praised the scheme.

'The commission was very impressed, particularly at the high levels of quality and the ease with which the trust could monitor costs, ' he adds.