NHS Supply Chain Supplier Board

Transcription

1 NHS Supply Chain Supplier Board Transparency Statement The Master Services Agreement and Structure of NHS Supply Chain 12 December 2012 The NHS Supply Chain Business NHS Supply Chain Business was created in 2006 when the Department of Health outsourced the NHS Logistics operations and parts of the PASA organisation covering NHS Consumables Procurement to Exel (subsequently acquired by DHL) into one new combined organisation. A ten-year Master Services Agreement (MSA) with Exel was signed in the name of NHSBSA on 4 September 2006, although the Department of Health managed the negotiations. The new organisation NHS SC was a private organisation totally owned and operated by Exel. The Supply Chain Management Division (SCMD) of NHSBSA was created as a new organisation and remained in the public sector and is defined as the Retained Organisation within the MSA. In terms of transferring people, the process was instantaneous; nearly 1,650 procurement and logistics staff were moved to the private sector in September NHS SC provides a dedicated supply chain to the English NHS operating a logistics infrastructure including 7 large distribution centres (6 of which were transferred from NHSLA). The commercial operating model of NHS SC is to provide healthcare products and supply chain services to the NHS, enabling the healthcare organisations to focus on patient care. NHS SC provides end-to-end supply chain services for the in-scope product categories (see Appendix 1) incorporating procurement, logistics, e-commerce, and customer and supplier support. Procurement responsibilities include putting tenders onto the marketplace, evaluating suppliers, negotiating and managing the contracts and managing the NHS on-line catalogue. The MSA covers the procurement and logistics services to be provided for the in-scope product categories for a term of 10 years and also sets out an option for a 5 year extension. The service performance targets in the agreement include: delivery on time of 98.75% (and for 5 hour emergency response service 99.5%); delivery in full of 98.20% (and for 5 hour emergency response service 99.5%); creditor/debtor days of 38 day rolling three month average. The MSA does not cover either sales targets, or savings in excess of 1bn to be delivered over the 10 year period to the NHS. 1

2 Business Structure Roles and Responsibilities The MSA defines certain structures required in terms of the NHS SC business around the interface with the Department of Health and NHSBSA. This includes the requirements for a Joint Board its membership criteria and its objectives. The Joint Board is chaired by a representative from the Department of Health and provides a forum for consultation on business strategy as well as joint reviews of the overall performance of the agreement. In addition, the MSA sets out a structure of Joint Teams involving representatives from NHS SC and NHS BSA to cover the key operational and functional areas in the business. The NHS SC business is headed by a CEO who holds full responsibility for all operational matters in the business. The CEO reports into a Senior DHL Executive. The management of the NHS SC business is also led by a CFO who maintains an independent reporting line to the CEO and can thus bring challenge and governance to the NHS SC business. The CFO leads the Finance and Compliance Teams in the business - all other functions and operations report to the CEO. The structure of the business can be understood through the direct reports to the CEO: MD Procurement responsibility for all procurement matters, processes, supplier relationships etc. MD Customer Engagement responsibility for customer relationships, sale performance etc. MD Capital and Business Solutions responsible for the Capital business as well as new opportunities and strategy MD Supply Chain and Service Transformation responsible for all logistics operations for the business and includes IT and Customer Service operations Commercial Director HR Director Also sitting on the NHS SC Board is a Finance Director responsible for financial processing of transactions and business performance reporting and a Compliance Director who heads up an audit and a quality function. Reporting Mechanisms The NHS SC business follows a number of robust reporting mechanisms. Externally through to the Joint Board and Joint Teams reports are submitted and discussed regularly detailing all aspects of the business. Separate Joint Teams (NHS Supply Chain and NHSBSA meet regularly focusing on specific business functions, e.g. Procurement, Finance Logistics etc. Internal mechanisms to DHL require monthly financial reports and forecasting as well as longer terms budgeting and strategic planning. Within the NHS SC business reporting processes are in place to show daily performance in operational financial and customer service areas. At all levels results are monitored against budgets and forecasts. The business follows a detailed planning process each year including a financial plan based around procurement contracts and categories and supported by an operational cost base 2

3 where efficiencies and cost reductions are continually sought. A robust quarterly forecast is then built three times a year based on an assessment of performance to date and expectation and actions for the future. Actual performance across a wide range of metrics is monitored across a number of comparatives, including targets and historical performance. Senior management present once a month to the DHL organisation on performance and in addition, on a quarterly basis to the DHL Main Board Director on performance and expectations. Business Risk Risks for the business are identified and evaluated through a number of mechanisms. A formal meeting structure includes Board Meetings, review meetings each month, commercial assessment meetings and a formal Project Review Board process for new investments. The NHS SC business documents and assesses all known risks and reviews them regularly in formal board meetings, risks are regularly reported into the NHSBSA and to DHL. The DHL organisation applies a robust Risk Assessment and monitoring process to follow its own Corporate Governance requirements. The NHS SC business also operates a Governance and Risk Committee to assess independently of the management team risks in the business and to ensure robust governance is applied. The Committee is led by the CFO and Compliance Director and members include senior DHL Compliance and HR representatives as well as one independent non executive member. The NHS BSA also attends these meetings represented by the Finance Director of the NHSBSA. This Committee is able to direct an audit team towards areas of concern and then identify areas of change should they be required. An audit schedule is developed under the guidance of this Committee and aligned with the NHSBSA, as are the results and outputs from the audits undertaken. In addition, the NHS SC business receives regular audits from the DHL internal Audit function across a number of areas as well as the formal external audits. The NHS SC and NHSBSA jointly instruct an external audit team to perform reviews of financial controls and procedures, the outputs from which are made available more widely, through a formal ISAE3402 report. NHS Supply Chain is also overseen on an operational basis by NHS Business Services Authority. NHS SC acts as an Agent for the NHS Business Services Authority who retains access to all data and systems. The Financial aspects The MSA defines a Profit Cap mechanism for the NHS SC business under a clause Anti Embarrassment Cap. This limits the amount of profit that DHL can achieve in any one year - it is defined as a fixed amount each year (i.e. not a % of sales or any other calculated amount). Any profit earned by DHL through the NHS SC business that exceeds this cap would be passed back to the NHS. For each of the six years of the agreement so far the Profit Caps for each year have not been reached to date. NHS Supply Chain has foregone c 80m of profit, this being the difference between profits achieved and the caps over 6 years. NHS Supply Chains profit (defined as Earnings before Interest and Tax) averages between 2% and 3% as a % of sales over 2011/12 - this represents the Gross Profit on product sales less all business 3

4 expenses such as logistics and procurement costs, but before financing costs. The difference between the product buy and sell price is defined as transactional Gross Profit and over the same period 2011/12 averaged between 10% and 11% this represents the amount added onto the supplier price before the product is sold to the NHS. A model is used to assess the Cost to Serve for each product line meaning the costs associated with the logistics of storage and delivery to the customer and the outputs of this feed into the application of mark up to the buy price to ensure all cost are covered. NHS Supply Chain pays the VAT element on a product to the suppliers as input VAT, however for onward sale to the NHS - NHS Supply Chain do not charge as a separate line item VAT on products as they are part of the same VAT Group as the NHS Trusts. Nor do they separately identify a delivery charge to the Trust, the input VAT and the cost of delivery are all included in the price to the customer, The NHS SC business has worked hard over a sustained period to ensure it remains compliant in all aspects of procurement law through its processes of applying any mark up to the buy price of products in that fairness and equality is applied to all suppliers. As an example, the business will ensure that the ranking of suppliers in terms of their prices to NHS SC is maintained in respect of the final sell prices to the customer base, at the same time taking into account all other costs required to get the product to the customer.. NHS SC is targeted with delivering savings in excess of 1bn over the 10 year period. To measure performance against this target systems have been developed to capture buy price and sell price data at product level and calculate savings against agreed baselines. In addition, savings are captured where transactions do not go through the NHS SC accounts (e.g. capital procurements which often go direct between a supplier and the NHS customer) to produce a complete view of savings performance for the NHS SC business, NHSBSA and the NHS customer base. NHS Supply Chain believes that this represents one of the largest and most robust benefit capturing mechanisms utilised within the NHS. In addition NHS Supply Chain in collaboration with the NHSBSA has been developing a mechanism to capture and report year on year savings under a number of savings buckets that are directly relevant to the NHS Trust customer to see the performance of NHS Supply Chain and the benefits they bring (termed Project Libra). The plans are that these two savings mechanisms will become aligned and produce one consistent view of savings performance. For the 6 years to date, NHS SC has reported savings in excess of 500m. Working capital and investments are funded by DHL which ensures very strong diligence around day to day business activities and investment decisions. At the end of December 2011 the working capital injection by DHL was in excess of 60m. This investment has been required to fund a growing business over the 6 years, whereby stock holding levels have had to increase and the differences in timing of cash collection from customers and payment to suppliers has meant that the working capital requirements have gone up. NHS Supply Chain absorbs the pressure of slow paying trusts in order to comply with its payment obligations to suppliers. For the year to date in 2012 the average payment time to suppliers has been 33 days across the business, compared to the average time to receive payments from customers of 35 days. 4

5 In 2012 NHS SC entered into an additional arrangement with the Department of Health who made available funds to allow NHS SC to arrange bulk deals in the capital arena with suppliers with an objective to generate substantive savings for the NHS Trusts. This scheme has developed with many suppliers recognising the benefits of offering volumes of equipment and take up in the NHS is now starting to develop in response to the better process offered. MSA The full un-redacted MSA document can be found on the DH website by following this link; OIreleases/DH_ Appendix 1 The Product Categories are defined in the Master Services Agreement with the relevant Trust Finance Return 3 Code, as in scope; Category TFR3 Code Medical supplies 305 Food & kitchen 321, 322 (part) Print & stationery 331 Laundry & cleaning 322 (part), 325 Bedding & linen 328 Dressings 304 Uniforms & clothing 324 Patient appliances 310 Lab equipment 312 Other equipment 307, 308, 314 Furniture/office & computer 359 equipment Capital Equipment 5