A new twist on Make/Buy for the NHS - how to avoid the latest drugs rip-off?

I was very late getting to today's Times but when I did get round to reading it I was fascinated to find a procurement story dominating the news: "'Extortionate' prices add £260m to the NHS drug bill". I won't try to explain the whole story but in a nutshell it appears there's a loophole in the NHS purchasing policy which has created a 'get rich quick' opening for a few entrepreneurs.  The opportunity is linked with the selling of patents which are bought from the big pharmaceuticals by comparatively small, clever,  opportunistic entrepreneurs, who are then able to harvest excessive profits from the NHS, etc.  For example, here's one price trend provided by The Times:

For more than five years the NHS in England paid pharmacists £3.77 for a 28-pack 25mg tablets and £5.71 for a packet of 50mg tablets. In July 2014, under [one of the firms using the strategy], the price suddenly increased to £24 and £48 a packet respectively. Eight months later both prices doubled. Eight months after that, last November, they almost doubled again, this time rising to £97 fro a 25mg pack and £154 for a 50mg packet.

The Times suggest that this, perfectly legal practice, is costing the NHS an extra £262m a year for over 50 drugs! When NHS budgets have been unsustainable for a few years it seems odd that the Times uncovered this as opposed to the NHS - what's been happening there with benchmarking prices, procurement strategy and category management?

Now, it would be easy to throw stones at the NHS but I wondered what I would recommend if I was involved in NHS procurement. Of course I have no inside knowledge of what is actually going on but I think I would start with:

1. Exploring why such price increases have been justified and accepted?
2. Clarifying why the market isn't working effectively?
3. Ensuring prescribers only name the drugs in question when absolutely no other alternative is available - pharmacists will have a part to play here? 
4. Exploring the feasibility of a new model of patenting, and agreement to purchase, with the major pharmaceuticals which ensured that the NHS had first refusal on a transfer of some patents?
5. Establishing why the NHS, WHO or even the EU couldn't intervene and take on role which the entrepreneurs have - clearly the business case evidence is there?

It does strike me this is another variation of the make/buy decision.  Yes, I appreciate that what I'm suggesting may well be contrary to the prevailing political philosophy but when the money is running out of the NHS 'piggy-bank' surely all options need to be explored.

Sourcing Portfolio Analysis: Book review

This is not bedside reading material though it is a book every procurement professional should read.

Set aside any preciousness you have for Krajlic, Porter's 5 Forces, and Category Management, be prepared to be challenged, and read this with an open mind. Here you have a hefty academic critique of existing ways of procurement thinking. It is a logical discussion which leads you to a better way.

I'm not sure how much rigour Kraljic put into setting out his model which is at the core of so many procurement strategies but Cox doesn't spare any punches in highlighting its weaknesses. To me, Kraljic works best as a simplistic approach to differential procurement management and is useful for engaging senior stakeholders. Procurement managers need to recognise that it is part of a toolkit as opposed to the only tool. I think Cox assumes that procurement professionals have actually taken the time to read and digest Kraljic's original paper - to me that is an unjustified assumption. So, for many, Cox's actual explanation of the Model may well be new. Disappointingly, at times Cox's critique looks very like 'cut and paste' and becomes a bit tedious - a little more focus on the narrative would have avoided what sometimes has the appearance of lazy writing.

Having said that, Cox appears 100% correct. He reiterates and expands on many of his previous discussions on Power and the need to recognise that an understanding of relative power is fundamental to effective procurement strategy - I agree with him. Sadly I rarely find practitioners demonstrating a thought process which considers power.  He sets out a matrix of strategies which flow from relative power positioning - this isn't the traditional 2x2 but 4x4 - that's a lot of positioning. I think I understand what Cox is saying but then ask myself how robust and objective the user's mapping can be anyway. Is it not true that although his method is robust and scientific, if the basic information which feeds it is lacking then there is no sound foundation.

I found the detailed setting out of his sourcing strategies exceptionally thorough and can't find any fault with what he says. Cox acknowledges the difficulties which practitioners face and sets out a good justification for pursuing his decision rules. Having said, that I would like to see some evidence that applying the approaches outlined deliver real tangible benefits beyond the existing rule of thumb approach used by many which is at the heart of his critique.

Where I really struggle is with the application of the detailed approach within a regulated public procurement environment. If I am correct, Cox is arguing that the relative power of all those the buying organisation considers to be 'the market' be established. Therefore multiple suppliers and the development of discrete strategies for each of them.  But within a regulated procurement, would that mean each of the potential bidders is subjected to relative power positioning, which then shapes the 'tender approach' within the competitive requirements of legislation? Perhaps, a way round that is better understanding of the relative power of the market per se, then developing an overall approach, then, for those who successfully navigate the competition, post-award discrete strategies tailored to the relative power? I could of course be wrong. Nevertheless, even if the detailed application isn't easily transferable to a public procurement environment, the need for understanding the relative power positioning is and managing suppliers conscious of that positioning and aspired to positioning is too.

Nevertheless, the book is a bit of a slog demanding a lot of thought but worthwhile. The book shouldn't sit on a shelf looking good but be used as a route map constantly referred to. I would like to see the paradigm shift which Cox calls for as the profession needs this sort of smart thinking.  Having said that, my experience is that many are still struggling with what to do after the completion of a spend analysis and Kraljic is only grasped at a high-level. We need the rigour of thinking which Cox applies and we need to apply his approach.  If power positioning and the associated strategies were applied I honestly believe better outcomes would be achieved and the profession would reach a new level.

While the book is remarkably cheap at £20 and certainly worth a buy, if you would prefer a taster have a look at Cox's white paper available at: http://www.iiaps.org/pdf/WP-PowerPositionSPA.pdf

NB I am grateful for receiving a complimentary copy of the book on which this review is based. 

CYOD - an opportunity for procurement

It comes as little surprise to me that one of the key strands of Digital Procurement Strategy, BYOD (Bring Your Own Device), has seen a loss in popularity and a shift to CYOD (Choose Your Own Device).

At a personal level, I never quite understood why anyone would expect me to buy my own device for work, and along with the loss of storage amongst others drawbacks, also find myself open to intrusions while on holiday, etc..  Of course on the plus side it meant reduced hardware having to be carried with me and avoiding some of the clunking kit which cost-focused employers seem to prefer.

CYOD appears to offer a reasonable compromise as it means employers will offer a range of options and employees will choose their preference.

Tip #3 of Lee Naik's CYOD post on LinkedIn however does give me cause for concern though:

Assemble the right team. Mobile projects should include members from IT, legal, HR, security operations and the business. 

No prizes for guessing why Tip #3 raises a 'red light' for me. What's going on that Naik's Mobile Projects Team excludes Procurement?  

To me there needs to be a policy encompassing CYOD and that needs to include constraints on the range of options, who is eligible, and approach to exception and alternatives. There needs to be a sourcing strategy. There needs to be a clear definition of the need. There needs to be a framework arrangement linked to a robust procurement process including the thorough commercial evaluation of the various offers. There needs to be a compliance and contract management approach supported by appropriate T&Cs. There also needs to be an exit strategy.

So it is disappointing that Naik didn't immediately think Procurement should have a 'seat at the table'. My suggestion is that if your organisation is developing a Mobile or Digital strategy, make sure your potential to add value is recognised at Day 1 otherwise it could be another opportunity missed.

Is the Tesco storm indicative of a governance & policy failure?

Today's news that allegedly three more Tesco staff, who have links with procurement, have been suspended continues to rub salt in the wound and negatively impact on reputation.

While I have discussed Tesco's procurement many times, I now find myself asking: "is the weakness in the governance and policy as opposed to the people?"

If the press are correct, those suspended now include: the commercial director, the food commercial director, three category directors (group wine director, director of convenience foods, and director of impulse purchases) and someone responsible for sourcing.

It seems impossible to believe all those suspended are mavericks or indeed that they were pursuing a strategy concealed from those with strategic oversight. If that is possible, then how many other areas of Tesco's governance lacked scrutiny?

Nevertheless, it may be a good time to gain insights into the procurement governance and policy of Tesco. If that was a fault, you can hardly blame the staff. Even if Tesco replace the staff, in the absence of addressing governance and policy failures, the corrections will only be cosmetic.

It may also be a good time for those charged with procurement governance and policy to ask, "could Tesco's woes be replicated here?".

NHS Procurement Tsar meets the Fat Controllers.

The NHS' new procurement tsar looks as if they may have an interesting first challenge - working out
a procurement strategy for 'fat clubs'. The National Institute of Health and Care Excellence (NICE) has endorsed three providers who can deliver, what appears to be, NHS funded places at 'fat clubs'.

The challenge now is how the Tsar will approach the procurement of 'fat clubs' to maximise the purchasing power of the NHS.

With only three providers operating through a network of local clubs we should see some interesting procurement questions answered.

1. Are the local providers endorsed by NICE?
2. Who would be the contracting bodies - the national or local providers?
3. Will payment by results be used?
4. Will the providers collude and carve delivery?
5. How will alternative providers respond to potentially be excluded from delivering the service as they don't have NICE endorsement?
6. How will the EU procurement rule be complied with?
7. Somewhat tongue in cheek, will we see a lean approach pursued?
8. What evaluation weighting will be used?
9. Will the Tsar be able to shape up?

Procurement of taxis - get me out of here

What's the best way to procure a taxi service?

I suspect the custodians of the BBC are asking that question at the present. £10m a year spent on 350,000 journeys needs some sort of strategic approach. But users of the Beeb's Gateway Booking system seem to think the centralised purchasing system isn't delivering the best price. The examples cited suggest that buying locally, 'maverick buying', is approximately 50% cheaper.

Justifications used by the procurement department include: "we have to ensure that the companies used are both legally compliant and vetted, and this is done as part of the managed service provision ... we also require a 24/7 service which ensures broadcast criticality, full transaction reporting covering all journeys, ensuring we are compliant and can report our [tax reporting] obligations".

Virtually every organisation uses taxis and there are legal requirements for any taxi provider. It would be quite difficult in almost any part of the world I have been in not to find a 24/7 taxi service. I can understand that in certain situations there will need to be special provision for vulnerable passengers but why pay over the odds for all the other journeys?

There is always a dilemma when you try to take away flexibility and freedoms from staff, for example, their ability to hail a cab as an impulse buy or just when you need it as other options just won't work, so you can expect the odd example to be cited as part of the resistance to change, but why not just use corporate credit cards, claims expenses and, if it is abused, remove the freedom or tighten the controls.

I think there also needs to be some serious benchmarking discussions taking place with the providers. Something does not look right and the profession can avoid 'amateurs buy best' perceptions.

Strategic supplier management in UK government

On Sunday I discussed Premier Foods novel approach to strategic suppliers. Yesterday, the National Audit Office published a Memorandum to Parliament on Managing Government Suppliers - an interesting publication for anyone concerned with strategic procurement approaches, regardless of the sector you work in.

Margaret Hodge, Chair of the Public Accounts Committee, is clearly not happy with what the Memorandum has highlighted, nor that of its sister report on the role of major contractors. Both would have been of particular interest had their conclusions been fed into the PASC Inquiry on public procurement so it will be interesting to see 'what happens next?'

40 contractors have been identified as 'strategic' and collectively they consume 25% of the government's total spend. The suppliers are identified as strategic on the basis of extent and profile across central government and potential added value, but not necessarily spend or risk.

There still appears to be confusion on roles, responsibilities and accountabilities between spending departments and the Cabinet Office. That strikes me as something which needs to be addressed urgently as it could lead to suppliers playing one off against the other and causing gaps in strategic supplier management. At the present spending departments are the contracting bodies, yet both the departments and suppliers are subjected to Cabinet Office interference without accountability. Of course there's nothing unique about this and it's not a problem unique to the public sector either.

But then we also have the potential for dysfunctionalism with the Cabinet Office's focus on short-term savings while departments can be expected to have a wider view.

Category management flushed out

They've delivered public service since 1852, yet Sunday, Monday, and now Tuesday publicly owned toilets have managed to feature in national newspapers - yes, I have blogged the toliets. Today it was the turn of Billericay Town Council (covered in The Times hard copy) which it has been claimed at £20k a year, is "the most expensive toilet in the country". Other Billericay numbers are 20p charge for users for a visit, a 15 year lease and a £125k contract break charge. 

Now the claim of being "the most expensive toilet in the country" would surely be very easy to verify and in the process could potentially demonstrate vfm and a collaborative approach by councils to benchmarking, collaborative negotiating, and collaborative buying.

So what I suggest is something very simple, a national audit of the nations contracts for 'superloos'. Include: the core details of the service provided, date started, length of contract, options for renewal, expiry date, break clauses and penalties for early termination, cost of consumables and charge to users. Such a simple audit would provide a really simple tool for introducing a category management approach to 'superloos'. Let some CX make a name for themselves as 'superloo procurement lead'. Let them baseline the costs and introduce a category management approach. Leading negotiations with the comparatively small number of providers shouldn't bring a flush.

Let's face it, if the LGA can't get a handle on this, are their aspirations for a new national procurement strategy with category leads really achievable?  Roll up, roll up, the cost of spending a penny could drop!

Third sector health warning for addicts

There’s a touch of irony in today’s reports that Cabinet Office enforcers will punish mandarins who opt not to implement government policy, while on the same day we learn that third sector organisations, providing specialist support to NHS patients addicted to prescription drugs, believe they are the victim of a badly designed procurement process that could force them to close.  What happened to Third Sector Commissioning and the Big Society?  This is one example of policy failing to be implemented in  the procurement practice.

To cut a long story short, it appears a new tender approach is underway that requires a comprehensive service in which only bidders which provide support to alcoholics and those addicted to illegal drugs, AND those addicted to legal drugs are eligible to compete.

While I am an advocate of category management, category management needs to be pragmatic.  It has to include understanding the market and how the market works.  It also has to ensure that any bidding which takes place does not stand in the way of making the market work.

However, the approach strategic commissioning is even more baffling. Government and NHS approach to commissioning is to include dialogue with both users and the market as early as possible in order to shape the service.  Third sector criticism of this tender would suggest that dialogue did not take place – can we also assume that specifying outcomes may also have been set aside?

Bizarrely the change in tender approach is being blamed on NHS cuts, yet,

Return of the iPads

I recently  referred to being asked to produce a business case for iPads. I was astounded that, without any meaningful development of a business case, a self-fulfilling conclusion seemed to have been arrived at that business could no longer be carried out efficiently without this 'must have accessory'. 

Anyway our friends at Apple seemed to have just developed the 'sale of the century'. Now all those procurement and finance people who would advocate the need for a meaningful business case have just been punched in the solar plexus - the House of Commons Administration Committee has apparently now recommended "rapid rollout of suitable mobile table hardware" to all 650 MPs.

It's not that the MPs lack technology to support them in their work; they already have three desktops and two laptops - I suspect also a Blackberry. (I hope someone has asked the question relating to how much slower they travel with all this luggage.  I also hope they have completed an H&S assessment to protect against potential injury.)
Nevertheless,

BRAZIL - observations of a ‘BRIC’ (Part 2)

I made the 45 minute flight from Rio to Belo Horizonte, in Minas Gerais. Minas Gerais has 853 municipalities! It wasn’t the recently opened new City of State Administration (four buildings which cost £250m to build and houses 15,000 staff), which impressed me most, but the hunger of the strategists I met.  This team of departmental directors briefed me on their work and 20 year strategy.

They demonstrated a real hunger to learn from the UK experience of strategic commissioning, community engagement in shaping priorities, how to move towards a focus on outcomes, pooled budgets and community budgets.  They wanted to learn from the experience of the how the UK had encouraged examples of innovative local government practice and then shared those case studies so that others could learn and speak face-to-face with the innovators. Communities of Practice and the improvement work of the former IDeA were also of great interest. This team had a real and visible hunger to learn.  They want to be the best in Brazil.  I discovered that this group, with an average age of around 25, were the outcome of a strategic approach to recruitment.  All students in secondary education had an option of sitting an exam.  Success in the exam covered not only the cost of their degree in Public Administration but a guarantee of a two year post in the Minas Gerais state administration.  The public sector was clearly reaping the benefits. Would the UK make such an investment? 

Singling out Minas Gerais is perhaps unfair.  When I delivered a similar seminar to the state of Rio, those staff wanted to learn more and more about the same subjects, namely, strategic commissioning, community engagement in shaping priorities, how to move towards a focus on outcomes, pooled budgets and community budgets, developing and sharing council good practice, and sector led improvement.  They also wanted to understand consortia and shared services approaches to procurement. Despite giving them many opportunities to close the discussion, they opted for a four-hour seminar. I doubt I did more than whet their appetite – certainly their enthusiasm at the end of four hour for asking questions had not waned.

I also met with state owned public sector organisations.  The state oil company, ‘Petrobras’, and pharmaceutical company, ‘Bio Manguinhos’ wanted a more strategic procurement.  Amongst the big questions from them were: How do we get the organisation to work better together in procurement?  How do we introduce category management and set up consortia purchasing?  How do we cope with a legal environment that is far more prescriptive than that of the European public procurement rules?  Alongside operational questions such as, how would we best buy travel and hotel services?

For someone with a public sector procurement improvement background I thrived on these seminars, discussions and questions.  But what was fascinating to me was the engagement with the academic community in supporting municipalities, state and state owned businesses.  The GPI (Groupo de Producao Intergrada) team, which invited me, were working with all these public sector organisations on problem solving and developing ‘a better way’.  Why do we not have such an integrated approach in the UK?

Behind all the questions, there was also an implied but sometime explicit question for the UK to answer, how can Brazil remove corruption from the public sector?  I explained the steps taken since the 1970s ‘Poulson Affair’, but the recurring response was ‘but what do you do in Brazil, now?’

So to me Brazil is different.  It has almost 6,000 municipalities.  Only came out of dictatorship in 1988 and is still the early steps of democracy but one thing is clear, Brazil is a country which has much to learn from the UK.  Likewise it’s important to recognise the UK has much to learn from Brazil – let’s remember it was from Brazil the idea of participatory budgeting came to the UK!