NHS Procurement and Supply Chain: Extracting value from Shared Services

A long history

“Unwarranted variation” has been a repeating mantra for NHS commercial, procurement and supply chain (collectively referred to as the ‘value chain’ functions) leaders for nearly a decade. One of the key methods for its elimination is intelligent integration across organisational boundaries to identify, aggregate and standardise what is commissioned, sourced, purchased, warehoused, distributed, and used. The most evolved form of that integration is the establishment of centralised shared services. Applying this thinking in anger across the NHS value chain isn’t new. In fact, the importance of aggregated oversight and delivery across these functional areas has informed policy and delivery since 1966 and its evolution continues to this day, as per Figure 1 below.

A complex current

There have been many successes, but no single persuasive model has fully captured the scale of the problem to be solved – one that adequately addresses and sufficiently interconnects the full end-to-end ‘policy to patient’ value-chain divide. Today, it’s Integrated Care Boards that are driving renewed interest in shared services, where the corporate functions within individual ICB providers aspire to mirror the scaled-up footprints of their new parents to enhance productivity and value for money. But whatever the model or scale, the journey hasn’t been, and isn’t currently, easy. Legacy organisational, operational, legal, financial, and behavioural challenges add complexity in design and implementation and can add friction to scaled adoption.

Some of the fundamental challenges and tensions involved in implementing value-chain shared services across the NHS can be articulated by looking at the different geographic scales through which they are currently conceived (as per Figure 2 below).

An optimistic future

There are two core reasons to be cheerful. The first is an internal catalyst. Value is visibly being left on the table (there are hundreds of NHS organisations, whose collective non-pay spend adds up to over £60 billion each year): the future healthcare system cannot permit that scale of lost value in perpetuity – figures quoted are often in the billions¹. Past models, failures and successes, and the skills forged through their implementation and ongoing delivery, can support a shift to more intelligently integrated value-chain shared services that are aligned across the end-to-end. There are significant cashable and impactful qualitative benefits from doing it properly. The second is external. The benefits of scaling-up are continually recognised and realised across industry. Outside of public healthcare, supply chain and procurement functions represent the single largest value creator in post-merger M&A integration deals²  – often up to 60% of total cost synergies from bringing whole organisations together.

The starting point for the NHS, like these organisations – many of whom have grown through acquisition or whose corporate centre’s span multiple fragmented entities operating across several end-user markets – is posing and objectively answering several provoking questions:

1. Strategy: When did we last strategically re-consider our collective operating model and shared ecosystem of supplier partners, to ensure we’re all pointing in the same direction without duplication, divergence, or competition?
2. People: Are we competing with ourselves for access to the job market for scarce procurement and supply chain professionals, without the scale and range required to make the roles we all need attractive?
3. Process: Do we accept manual processing and highly administrative tasks as just ‘business as usual’, alongside the job dissatisfaction and limited career pathways that come with a role delivering those activities?
4. Technology: Are we spending money on localised legacy technologies and systems that could easily be re-platformed onto a common instance to enable interoperability, reduce technical debt and improve end-user experience of engaging with their value-chain services?
5. Data: Does our master data align and speak the same language, and do we utilise it to build insight that we can trust and collectively act on?
6. Cost: Is there opportunity for improved material cost reduction through aggregation of value-chain contracts at-scale e.g., supplier contract renegotiations, consolidation of strategic sourcing for common goods/ services, external carrier/ 3PL consolidation and inventory & working capital efficiencies?
7. Markets: can we create a less complex, more cost-effective way for suppliers to engage with us, and service our collective needs? And can we manage contract performance intelligence better where we share the same suppliers?
8. Investment: Can we secure sufficient investment for functional improvement as-is, or would an expanded value-chain vision prove a greater ROI, particularly considering future shifts in how and where care will be delivered?
9. Leadership: Do we have the clear leadership and strategic bandwidth to help us navigate ‘as-one’ several significant value-chain shifts where our suppliers are already in the driving seat, e.g.,

a. Catalysing the benefits whist reducing the risks presented by the Procurement Act 2023.

b. Embedding Generative AI in the procurement process.

c. Designing and negotiating Cloud Computing and multi-party Software Licence agreements.

d. Sourcing deals for innovative MedTech e.g., “as-as-service” and preventative diagnostics devices.

e. Buying for personalised care including precision medicine and ‘combination products’ 

f. Implementing new strategies for integrated home delivery services, stock management and back-haulage to front up to the Government shift from hospital to community.

g. Re-defining complex care commissioning (across both Health and Social Care) in the face of supply constraints, market fragility, increasing demand, and the evolving nature of care home ownership models.

Catalysing value

The scale at which you conceive and implement shared services impacts complexity, but there are common outputs that will catalyse value creation, regardless of whether you’re working on a national roll-out or an ICB model:

• Learn extensively from what has gone before. Make sure investments in one geography act as the new foundation to build from. If not, everyone pays (in time and money) just to make the same mistakes.
• Agree core design principles. Engage widely to document what matters most to delivering the value potential. Keep these principles short, factual, and specific. They will anchor the work as more difficult decisions start to raise their heads.
• Get the data. Being able to evidence the financial case for change (and for stakeholders to trust the numbers) is fundamental. Consolidating data sets and generating one version of the truth early pays dividends.
• Articulate the case. The business case must tell a strong story. Articulate the lost opportunity of doing nothing – for people, process, and technology. Be clear on the benefits, how they will be realised on the balance sheet, and who will get what, for what level of investment. And rapidly agree the ‘vehicle’ or host organisation to avoid a cyclical debate.
• Sign-up executive advocates. Leadership from the executive level must be powerful, and enduring. A journey like this always will require a leap of faith, regardless of the evidence base. The importance of advocates who can pull organisations together and help orchestrate the jump cannot be underestimated.
• Demonstrate some wins. To quieten the naysayers and bust the myths. This can be done in transition or as targeted project pilots in advance of the full change.
• Design with customer centricity in mind. Face the ‘business partner’ conversation head on. Be clear on the customer value proposition, and how it will be improved not eroded. Consider the root causes of the user issues you’re trying to solve for, and explicitly link the solutions to the future design. See our previous article on Outcome Focused Design in Shared Services | Deloitte UK.
• Know how it will get done in practice. Have calm certainty in your roll-out plan (i.e., phased vs. big bang) and be able to talk through the risks and mitigations. Never shortcut change management. These transformations are hairy and need constant engagement and adaptation to land well.
• Think digital. Focus the design on where your limited people add most value and then automate the rest.

Conclusion

This article focussed on the value-chain functions accountable for sourcing, buying, and supplying the critical inputs needed to deliver our NHS services safely. If NHS reform is required, this feels like a good place to keep pushing for more sustainable solutions. The lessons learned are well-known, the case for change has been articulated for decades, precedents across industry are clear, and the technologies and tools needed for transformation are readily available.

Delivery clearly isn’t easy. But it is possible. It requires bold leadership, capabilities that focus on collaboration and creativity and cultural and organisational norms to be re-set by objective analysis of what the future holds. Start by asking the provoking questions. Then work on overcoming barriers through thoughtful design (see our previous article on Defining an NHS Shared Service Operating Model) and early delivery of the outputs that will catalyse value creation.

At Deloitte, we understand the challenges and complexities faced by the NHS across its value chain functions. With our expertise in procurement and supply chain operating model design and implementation, we are well-positioned to support the journey implementing and improving shared services at scale. To sign up to be notified of Healthcare Shared Services publications from Deloitte, please sign up here: Healthcare Shared Services - Community sign-up | Deloitte UK.

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References:

¹ UK Parliament, Public Accounts Committee, March 2024, NHS missing out on tens of millions in procurement savings, PAC report warns - Committees - UK Parliament

² Deloitte, “Supply chain’s role in M&A, Achieving value creation through supply chain” - us-ma-supply-chains-role-in-m-and-a-achieving-value-creation-through-supply-chain.pdf (deloitte.com)