The vaccine purchasing strategy

Today's Times carries a fascinating claim from a potential provider to the NHS that "The NHS would save £100m per year" if vaccines used elsewhere in the world and also in UK private clinics were also used by the NHS.  The potential provider is in a position to be listened to as they currently provide half the worlds vaccines by volume. The example is provided that the potential seller would sell measles vaccines at 12p per dose while the same vaccine in the UK costs £10.  Of course it doesn't necessarily follow that all the providers various vaccines are required in the UK but the claim does justify further investigation.
  
There appear to be two barriers was to why the UK can't access the £100m per year saving.  The first is that although the vaccines are approved by WHO, Unicef and 130 governments, they are not licensed in the USA, UK or any other EU country.  The second is that existing providers' pricing strategies are based on "according to the countries' income and ability to pay, as well as by the volumes of vaccine purchased" - apparently a pricing strategy adopted in the 1980s and applied ever since!

In defence the UK DH spokesman said the UK observed stringent rules on purchasing vaccines "the UK buys vaccines through open competition, ... vaccines must be licensed through either the European Medicines Agency or the Medicines and Healthcare products Regulatory Agency.  There is nothing stopping any company bidding for any of our contracts as long as their products meet our requirements."

Well there something very obviously stopping companies bidding; a clear barrier to entry stopping the potential £100m saving - it's 'the NHS standard'!

Last week we heard so much rhetoric on revolutionising public purchasing, a shift to commissioning (which wrongly defined commissioning as solely) speaking to the market pre-procurement, and even a crusade by the Cabinet Office Minister to the EU to sort out all our procurement woes.  (see previous blog).    

It strikes me there is comparatively low hanging fruit here which should be explored quickly.

So what should happen?

1. The focus on outcomes in procurement should be extended to outcomes and risk management in pharmaceutical accreditation. 
2. Category management in pharmaceutical purchasing, particularly market shaping, needs to be critiqued.
3. Steps should be taken to proactively identify barriers to entry into the pharmaceutical supply chain and a strategy put in place to accelerate the accreditation process, especially when WHO and Unicef approvals have already been gained. 
4. The NAO should investigate the claims and report on the VfM of the existing purchasing strategy to the PAC.
5. Assuming that when the Cabinet Office say they are in dialogue with the UK's largest suppliers they are in discussion with the pharmaceutical companies concerned, they should ask for and critically appraise a comprehensive breakdown of the pricing structure and a comparison of prices charged in other countries.
6. The OFT should investigate the claims that existing suppliers are adopting a differential pricing strategy which disadvantages the UK NHS.

Source: Pagnamenta, R. (2011) 'NHS 'wasting millions' in deals with drug giants', The TImes (Business), 28 November, p.35. 

A speech in time: Maude's revisionist revolution in public procurement

On the 20 November 2011 the UK Cabinet Office heralded a speech to be made by Francis Maude MP (Minister for the Cabinet Office and Paymaster General) as “… a package of measures that will revolutionise how government buys from the private sector.”  (2011a).  Given the anticipated impact, closer examination of the speech is justified to establish the validity of such a claim.   A review of the speech (Cabinet Office, 2011b) does not reveal any such revolutionary in initiatives but, on the contrary: a failure to demonstrate appropriate use of evidence based research; a failure to have consistency in definition of key terms; a failure to understand existing policy; and a failure to collect and learn from lessons from the past.

This paper critiques the speech providing evidence of these failures prior to setting out conclusions.

Failure to demonstrate appropriate use of evidence based research

As a result if comparing the value of UK (3%), Germany (1.9%) and France (1.5%) awards to foreign businesses, Maude says UK public procurement has a bias against British suppliers.  He also asserts that France and Germany don’t break any of the public procurement rules. 

The logic that 97% of the value of UK public procurement is with the domestic market indicates a bias against the domestic market appears a weak foundation for policy.  Especially since it is not evidenced that the imported 3% could be supplied domestically.  The claim that France and Germany “do not break any rules” only has relevance if supported by relevant and useful case studies.

A question also arises over the evidence that aiming to build long-term strategic relationships is compatible with assisting SMEs and the Third Sector.  At face value such strategic relationships would be expected to create an additional entry barrier for SMEs and the Third Sector. Is there any evidence that such a shift will help overcome the so called “anti-UK bias in the way our public sector does its shopping”.  

One of the initiatives that has already started has been to provide the largest suppliers with a single point of contact to engage across Whitehall.  No evidence has been provided as to the benefits this has achieved or that it has not adversely affected those who do no have that access.

The Minister states the average cost of each French public sector procurement is  £19,000 while in the UK it is £46,000, and that typically UK bidder costs are four times as much.  Set alongside this is the example of it costing one charity £800,000 preparing to bid for a local government contract.  It would have been useful if the evidence on how these costs were made up so that steps could be taken to taken to apply a targeted approach to reduction.  Logically this should be a higher priority than reducing purchasing timescales.

The proposal is to set a presumption against the use of competitive dialogue.  This appears a bizarre statement given that the Regulations already have a presumption against competitive dialogue in that the procedure is only available for complex procurements; effectively when there is no other alternative.

Failure to have consistency in definition of key terms

There has been an on-going discussion on the differences between purchasing, procurement and commissioning for some time.  Drawing a variety of sources including evidence given by a former Cabinet Office Minister of the Office of the Third Sector to the Public Administration Select Committee, and the Cabinet Office Third Sector Action Plan (2006, p.5), Murray (2009) sought to corral UK central government interpretations and provide a definition of commissioning.  The Cabinet Office have separately published ‘Eight Principle of Good Commissioning’ (Murray, 2011).  Yet Maude says “Before procurement should come commissioning” implying that commissioning is merely having early dialogue with the market – this only represents the second of the Cabinet Offices own Eight Principles and is much narrower than that presented by a previous Cabinet Office Minister and Murray’s 2009 research.   Later in the speech Maude adds to the confusion by implying that commissioning is synonymous with purchasing.

Then Maude refers to “New lean sourcing”.  Lean supply was developed as part of the Toyota Production System and reported as long ago as 1993 (Lamming) and case study evidence of its application in the public sector reported in 1998 (Erridge and Murray, 1998).   The principles of lean supply appear to replicate those Maude espouses – why therefore use a new term or indeed imply that lean supply is new?

Consistent us of terms becomes particularly important when it is proposed there will be a new training initiative, the Commissioning Academy, otherwise there is likely to be significant confusion which itself will act as a barrier to business.  Equally the use of a new term when an existing is in place will reduce the body of knowledge which can be drawn upon.

Failure to understand existing policy commitments

It would have been assumed that prior to announcing “measures that will revolutionise how government buys” there would have been a comprehensive scan of how government currently buys and existing procurement policy.  It is therefore surprising that the Minister’s speech implies a lack of awareness of recent Cabinet Office initiatives concerned with buying, specifically, the Third Sector Action Plan, which included the Eight Principles of Good Commissioning and the National Programme for Third Sector Commissioning (Cabinet Office, 2006a), and the Social Enterprise Action Plan (2006b).  These set along side the policy commitments of the Compact, Small Business Concordat (Murray, 2011) and the recommendations of the Kelly Report (2003), to cite only a few of many, address most, if  not all, of the speech’s attempts to ‘revolutionise’.  This lack of awareness is not only a terrible indictment but also begs the question how policy is actually developed.  Far from a ‘package to revolutionise’ this is a recycled package.

This is not to suggest that progress on current initiatives has not been made but, if it has, that is ground gained from a previous revolution.  But what is to happen when organisations are asked  to effectively replicate what has gone before.

Failure to collect and learn lessons of the past

Given that the attempt to revolutionise represents nothing new, the biggest failure of the whole speech is its failure to say what will be make the proposed changes work.  One would have hoped these lessons learnt would have been stated and the confidence given to the audience that this time implementation will take place.  Murray (2011) addressed the failure of a number of the earlier initiatives to cascade from policy to embedding in procurement strategy, procedures and performance management.  The speech lacked an explanation of how the ‘revolutionary initiatives’ will be monitored.  Without that performance management it is difficult to believe that the required progress will be made.

Conclusion and discussion

This paper is not concerned with subjecting the ideas set out in the Minister’s speech to critique with the aim of defeating it.  On the contrary the author supports many of the ideas.

However, the ideas will not revolutionise how government buys because most of initiatives are far from new but recycled.  That is not to say that some of the initiatives should not be re-emphasised at a time when procurement at a time when procurement focus appears to have drifted to a focus on price.  Yet policy makers need to understand there is an enormous chasm between saying something will or should happen and it actually happening – the revolution would need to be embedded in procurement strategy, procedures and performance management.  In the absence of a robust approach to performance the revolution, recycled or not, can only be expected to remain a pipedream.  A failure to implement procurement policy should be a concern as it weakens the whole foundation of the austerity strategy (Muarry, et al, Forthcoming). 

However the other failures identified in this paper, namely, demonstrate appropriate use of evidence based research, have consistency in definition of key terms, understand existing policy and commitments, and, collect and learn lessons from the past, should be of greater concern as they indicate a weakness in policy development and delivery.

Beyond that there is a weakness in the rationale, for example, does it really make sense to discriminate by providing special access to some firms while denying that access to others?  What happens when those who currently have access are deemed to be no longer strategic?

It is hoped this paper will help move forward the revolution in public procurement but the fulfillment of that vision will only be known if a baseline is established now and a subsequent outcome evaluations plan set out and realised.

References

Cabinet Office (2006a)  “Partnership in Public Services:  An action plan for third sector involvement’  http://webarchive.nationalarchives.gov.uk/+/http://www.cabinetoffice.gov.uk/media/cabinetoffice/third_sector/assets/psd_action_plan.pdf accessed 25 November 2011

Cabinet Office (2006b)’ Social Enterprise Action plan: Scaling new heights’,

www.cabinetoffice.gov.uk/media/cabinetoffice/third_sector/assets/se_action_plan_2006.pdf  accessed 25 November 2011

Cabinet Office (2011a) ‘Radical package unveiled to support business and support growth’ www.cabinetoffice.gov.uk/news/radical-package-unveiled-support-business-and-promote-growth accessed 20 November 2011.

Cabinet Office (2011b) ‘Crown and suppliers: A new way of working’  www.cabinetoffice.gov.uk/news/crown-and-suppliers-new-way-working accessed 21 November 2011.

Erridge, A.F. and Murray, J.G. (1998) ‘The Application of Lean Supply in Local Government’, European Journal of Purchasing and Supply Management, Vol.4, No.4, pp.207-221.

Kelly, C. (2003) ‘OGC Report to the Chancellor of the Exchequer:  Increasing Competition and Long Term Capacity Planning’, http://83.231.159.113/documents/IncreaseCompetitionInGovernmentMarketplaceActionPlan2003.pd access 25 November 2011

Lamming, R.C. (1993. Beyond Partnership: Strategies for Innovation and Lean Supply. Prentice Hall, Hemel Hempstead.

Murray, J.G. (2009) ‘Towards a common understanding of the differences between purchasing, procurement and commissioning in the UK public sector’, Journal of Purchasing and Supply Management, Vol.15, No.3, pp.198-202.

Murray, J.G. (2011) ‘Third sector commissioning and English local government procurement’, Public Money and Management, July, pp.279-286.      

Murray, J.G, Erridge, A.F., and Rimmer, E. (Forthcoming)  ‘International lessons on austerity strategy’ (forthcoming) International Journal of Public Sector Management.

What's the truth about the state of English local government procurement?

I'm afraid I missed this year's SOPO Conference but I picked up some of the key messages via Twitter postings.  Now I find it fascinating that two entirely different messages were presented to delegates.  Jon Hughes, Chairman of Future Purchasing, and co-author with Professor Mark Day of a recent high profile report on public procurement (which can be downloaded at www.deficit-reduction.com), was tweeted by @AngelineAlbert, to have told the local government buyers that demonstrable procurement competence is thin on the ground. Then this morning @Steve_bagshaw, editor of Supply Management tweeted that John Connell, Head of local assets and procurement at DCLG said words to the effect "Whitehall's view of local government buyers must change, because it is local and not central government purchasers who 'lead the way in best practice".

Can these two commentators versions be reconciled?  If not which is true?  If Jon Hughes' version is incorrect does it compromise the weight which should be given to his earlier assertion that public procurement has hugh potential but is under-utilised.  

Personally I have always held Jon Hughes in high regard and one of the most articulate thinkers on procurement.  But having spent many years looking at local government procurement myself I think I can safely say some of local government practice is truly exemplary, but some is lacklustre.

The real challenge to SOPO is to engage with Future Purchasing and the wider research community and provide the demonstrable evidence of exemplary practice which Connell champions.  This needs a change of culture and willingness of SOPO members to engage with researchers, something they have not been that enthusiastic about.  That engagement could help correctly position local government procurement, for better or for worse.

A central, sector led, procurement body for English local government?

It has been reported that the Department of Communities and Local Government (DCLG) have floated the idea of a local government, central, but sector led, procurement body for English local government. If an appetite exists for such a body, then local government should develop a proposal and set out how it would work (Jameson, 2011, p.1).  Central government rarely just float such ideas as a conversation topic but must think, from their perspective, it is a desirable outcome.  The irony of the situation is amazing: central government, which believes in localisation, ‘floating’ an idea of a sector led approach!  Perhaps it is semaphore for DCLG saying they would be willing to provide some funding for such a service?   This paper aims to stimulate debate by providing a suggestion how that might work.

Let’s recall that collaborative purchasing was the child of local government in 1957.  It was central government who learnt from local government the benefits.  Local government consortia are well-organised, business focussed organisations who work together to deliver vast savings and efficiencies to English councils they are also experts in letting contracts although not necessarily of the type required. Equally, local government had the Regional Improvement and Efficiency Partnerships and their forerunners since the early 2000s.  Yet with access to these various ‘central’ contracts there has always remained the problem that uptake of such good deals has never been quite as good as one would have expected.  How would a new central body add value and gain the confidence of the late adopters and laggards?  To me what is required is a switch from incremental improvement to a major disruption in thinking and development of new ways.

A new model is called for, not replicating the traditional model of small cohort of experts letting contracts on behalf of the needy many.  Instead a model which represents a paradigm shift and takes the ‘central procurement body’ to a new level while embracing the existing assets of consortia.

The key requirements, to me, are strategic leadership and commitment, closing an acknowledged gap, innovative thinking, utilising excellent information and harnessing the sector know how through collaborative problem solving cross-functional teams.

Strategic leadership has to come from local government itself, unless they see the need and establish the required governance structure, the initiative will be short-lived. The leadership needs to recognise the value of the consortia and that consortia are key stakeholders and providers – consortia could provide the operational purchasing expertise that will be required.  That leadership should also agree the gap to be closed.  A mapping exercise which compares the key areas of expenditure and then agrees which areas should be targeted will be requirement as will rigorous adherence to scope to avoid mission creep.

The mapping exercise needs to be evidenced based.  While there is a requirement to publish expenditure over £500 that information is insufficient for the required strategic sourcing.  A comprehensive information system iwill be required which makes it easy for the information to be gathered and extracted yet protecting commercial sensitivity.  Despite years of investment in core financials and e-procurement there is still some way to go here nevertheless the lessons learnt from the recent transparency regime should be useful in making rapid progress.

Innovative thinking will be critical. Innovative thinking is likely to be best achieved through harnessing the sector knowledge in collaborative problem solving cross-functional teams. The central body should aim to be masters of unleashing the sectors creativity. Social media now makes this possible by utilising communities of practice.  This is not something particularly new but merely taking the existing local government resource to a higher level.

Cross-functional local government problem-solving teams should be quickly established for each of the targeted areas.  The teams should be truly cross-functional including main users and those dissatisfied with old ways – maverick thinking should be encouraged.  The teams should be considered should be task and finish with intensive short-term involvement.  They should be briefed that their remit is not to focus on introducing bigger contracts with the aspiration that all councils will use them but instead to develop a range of approaches which can be prototyped and refined. These teams should be set ambitious targets and trained in category management.  They should then be charged with developing prototypes which can be tested prior to subsequent refinement and rollout.  Rather than ‘one size fits all’ arrangements, the teams should develop a portfolio approach which reflects the diversity of council priorities. For example, when councils have a priority for cost reduction, they should be able to select that option, whereas when councils have a environmental priority they would have an alternative option.  When councils do not wish to make use of central contracts they should have access to the knowledge assets created so that they can let their own local contracts if they so chose.  Contract ‘lots’ can accommodate the diversity aspired to.

For many areas it would be advantageous to have supplier involvement on the teams, but at the very least proposed approaches should be subjected to soft market testing through web-based consultation. For major services, cognisant of strategic commissioning needs, the priorities for contracts should be set by local communities.  Communities of practice provide a channel for that too. 

So, how could the proposed sector led, central, procurement body work?  Governance structure would represent the sector. It will be critical to invest in integrated information systems.  The focus should be on innovative collaborative problem solving to develop a significantly better approaches to addressing targeted expenditure areas.  The problem solving should be facilitated by the central body making use of social media hosted cross functional teams which develop better ways and a portfolio of approaches which cater for the varying priorities of councils and their communities.  Existing consortia could handle the contracting and contract management. Marketing would be the responsibility of the strategic leadership.

References

Jameson, H. (2011) ‘’Mini Commission’ mooted’, Municipal Journal, 10 November 2011, p1.