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Table of Contents
1. Introduction............................................................................................................2
1.1 The National HealthService (NHS)...........................................................................................2
1.2 NHS Supplies..........................................................................................................................................2
1.3 The Importance of SupplyChain Management.................................................................3
2. Push Vs Pull Supply Chains..................................................................................4
2.1 NHS PushSupply Chain Failure..................................................................................................5
2.2 Potential Pull Supply Chain Success........................................................................................6
2.3 Just-in-time.............................................................................................................................................6
3. The Global Supply Chain of the NHS...................................................................8
3.1 An International Supply Chain for the NHS.........................................................................9
3.2 Supply Chain Relationships.........................................................................................................12
4. The role of IT in the NHS.................................................................................... 13
4.1 An IT based KanbanApproach to Surgical Equipment..............................................13
4.2 How anEPOS system could benefit the NHS....................................................................14
5. Conclusion............................................................................................................ 15
5.1 Recommendations..........................................................................................................................15
5.2 Potential Problems for Recommendations......................................................................15
6. References ............................................................................................................ 16
7. Appendices........................................................................................................... 18
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1. Introduction
1.1 The National Health Service (NHS)
The NHS is the largest public sector, government funded organisation within
the United Kingdom. It is in the top five largest organisations in the world and
has a budget for 2015/16 of £115.4 billion (NHS official website 2015). The
Office of National Statistics evidences that the UK healthcare budget has
decreased from an average annual growth of 8% between 1997 and 2009 to
an annual average growth of just 1.6% since 2009 (appendix 1: Healthcare
Spending in the UK, 2012) caused by government funding restrictions which
is adding strain to the oragnisation’s performance capabilities. This data also
shows that the healthcare spending per capita has increased every year since
1997. The increased cost of the service provided by the NHS is leading to the
NHS searching for ways to conduct continuous improvement to increase the
efficiency of the organisation to maintain or enhance performance within
tightly confined, dwindling budgets.
1.2 NHS Supplies
NHS Supplies was formed as a Special Health Authority working within the
NHS in 1991. Its purpose was to bring consistency to performance through
management of purchasing and supply chains to the NHS. It is a contract for
procurement and logistics tasked with supplying the NHS with a large variety
of products from surgical equipment to canteen furniture. NHS Supplies acts
as an orchestrator; (Dhanaraj and Parkhe 2006) define an orchestrator as the
supply chain coordinator without any hierarchical authority. NHS Supplies
does not manufacture any products; it outsources all orders to other external
companies and facilitates the supply chain all the way through to the NHS as
a customer, however all order requirements and demands come from the
NHS. The NHS has little visibility of the overall supply chain and expects the
organisation to provide the best value for money on the goods and services
they need to deliver health care.
NHS Supplies aims to create sustainable development within its operations so
that it can provide continuous improvement for the NHS both now and in the
future to increase the efficiency of the organisation. NHS Supplies
documented five areas for improvement using the 'Five Theme Approach'.
Figure 1: The Five-Theme Approach to Sustainable Development
Source: NHS Supplies –
supply for the NHS document
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1.3 The Importance of Supply Chain Management
(Slack, Chambers and Johnston 2001) suggest that supply chain
management is concerned with managing the flow of materials and
information between the operations, which form the strands or ‘chains’ of a
supply network. (Krajewski 2009), professor emeritus at the Ohio State
University, defines supply chain management as the synchronization of a
firm’s processes with those of its suppliers and customers to match the flow of
materials, services and information with customer demand. (Figure 2) depicts
from (Slack, Chambers and Johnston 2001)’s model to demonstrate the
function of supply chain management:
Figure 2.
“Supply chain management includes all stages in the total flow of materials
and information; it must eventually include consideration of the final customer”
(Slack 2001 p.413). Supply chain management facilitates the transfer of
resources and information from one function to another, through each tier of
supplier and customer from the raw materials of the product all the way
through to the product/ service being provided to the ultimate consumer.
Without supply chain management customers could not receive the product/
service, suppliers would not receive demand and buyers would not receive
goods or materials and so there would be no business. (Slack 2001) Identifies
two key objectives of supply chain management as:
1. Effectively satisfying customers: (Harari 2008) states that customers
are the most important stakeholders to an organisation. NHS Supplies
must provide the NHS with a reliable, responsive and forward-looking
service that guarantees the best value for money on the goods and
services to deliver health care (NHS Supplies mission statement). The
NHS could dissolve NHS Supplies should they feel the service
provided is not adequate
2. Managing the chain efficiently: an emphasised area for sustainable
development NHS Supplies is to reduce waste. (Womack & Jones
2003) suggest that waste is a symptom of other problems and simply to
eliminate is to treat the symptoms, not the causes. To increase
Supply of
products and
services
The operation’s
resources
Demand for
products and
services
The operation’s
customers
Supply chain management
Coordination of flow of
materials and
information between
operations in the supply
chain
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efficiency NHS Supplies must eliminate the cause of waste within its
supply chains not just take action to the visible defects of them such as
faulty surgical equipment.
2. PushVs Pull Supply Chains
A ‘pull’ concept starts at the end of a pipeline and pulls products towards the
market rather than a business forcing a ‘push’ of products/ services towards
the customer (Christopher 1998).
Figure 3. Push and Pull Supply Chains
Push-Based Model
Pull-Based Model
Based on the model by: http://2.bp.blogspot.com/-ttt-ZqQ2f-
s/Tw qZ9PNutTI/AAAAAAAAAFI/Zod1lSaOzsg/s1600/PP+SCM.png last assessed 13th
February 2015
Supplier Manufacturer Distributor Retailer Customer
CustomerRetailerDistributorManufacturerSupplier
Supply to
forecast
Production
based on
forecasts
Inventory
based on
forecasts
Stock
based on
forecasts
Purchase
what is on
shelves
Supply to
order
Produce to
order
Automatically
replenish
warehouse
Automatically
replenish
stock
Customer
orders
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2.1 NHS Push Supply Chain Failure
Figure 4a. Push Supply Chains
The NHS currently use materials requirement planning (MRP) to order
equipment such as surgical gloves, equipment and ambulances. These
commodities are then kept in storage as inventory until demand emerges for
usage. Ambulances are ordered either at the start of the financial year when
budgets become available or at the end when budgets are being squeezed
out to ensure enough are available for service throughout the year based on
estimated demand.
“MRP relies on production plans to propose a timetable for when materials
orders are required. Consequently the resulting stocks of materials depend
directly on known demand.” (Capon 2009, P.29) A problem for the NHS is that
demand is not known and can be difficult to predict. For example a pandemic
could arrive in the UK such as an Ebola pandemic to which the (NHS website
2015) states is unlikely but not impossible. An Ebola pandemic would
drastically increase the demand for ambulances, which could leave the NHS
short of capacity to provide for demand with no budget left to purchase the
additional, needed ambulances. On the other side, surgical gloves may be
made of obsolescent materials and contain an anti-contamination expiry date
of use. If too many are ordered on estimated demand they may never be used
and become perishable and unfit for use, rendering them waste products
which have cost the NHS money without adding value to the service provided.
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2.2 Potential Pull Supply Chain Success
“One of the chief principles of lean management is to organize the factors of
production from traditional ‘push’ methods to incorporate the ‘pull’ principles.”
(Womack and Jones 1996) indicating that to reduce waste as one of the five
themes for improvement the NHS should move towards pull techniques which
(Womack and Jones 2003) state that once achieved, lean management will
provide defect free products, on-time delivery, reduced inventory and
increased capacity allowing a foundation for sustained development.
Figure 4b. Pull Supply Chain
https://people.hofstra.edu/geotrans/eng/ch5en/conc5en/img/pushtopulllogistics.png last visited January 29th 2015
(Womack and Jones 2003) describe Pull as in the simplest terms means that
no upstream should produce a good or service until the customer asks for it.
(Crosby 1984) suggests that maximum efficiency is getting it right first time,
every time. A pull supply chain facilitates the zero defect policy as it eradicates
the risk of buying in too much inventory for demand, resulting in inventory
becoming obsolescent and therefore waste. Eradicating waste allows
improvement towards the NHS Supplies five themes objectives. An example
of a pull approach which could be effective to increasing NHS performance is
just-in-time.
2.3 Just-in-time
(Christopher 1998) defines JIT as a lean management technique based on
the philosophy that wherever possible no activity should take place in a
system until there is a need for it. JIT consists of the concept that
synchronized delivery can be achieved so that a product/ service can be
delivered just as it is needed preventing any waste of inventory making it a
useful approach to implement continuous improvement. JIT strategies could
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assist with achieving continuous improvement and diminished waste aims,
facilitating sustained development to meet organisation objectives.
Figure 5 depicted from (Christopher 1998) provide a justification for JIT and
synchronized delivery as a suitable concept in the example of the NHS.
Figure 5. Justification for JIT and synchronous Deliver
The NHS contains as many as 500 different suppliers, each providing the
organisation with a large variety of different products including: ambulances,
pharmaceuticals and surgical equipment. This wide variety of products are
examples that can be perceived to the NHS as high value due to the fact they
must be able to proficiently complete the correct functions to avoid disastrous
damage to the patient it is used upon, making them both high value and in
high variety suggesting the approach is appropriate for the NHS.
Just-in-time aims to meet demand instantaneously, with perfect quality and no
waste (Slack 2007). To achieve JIT excellence the approach requires an
effective supply chain. (Slack, Chambers and Johnston 2001) suggest that for
a just-in-time approach to work it requires quality, speed, dependability and
flexibility from its supply chain. The current global supply chain restricts the
NHS from implementing an efficient just-in-time approach through:
Quality – surgical equipment is suffering quality issues and failing UK
safety checks (Gibney 2012)
Speed – long distances of deliveries is creating large lead-times
Dependability – very reliant on transport shipping companies
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Flexibility – long lead-times are restricting the flexibility of batch orders
This suggests a more localized supply chain may be required to implement
JIT.
3. The Global Supply Chain of the NHS
According to (Herrmann 2011), editor for the BBC “100 million surgical
instruments are made annually in Sialkot, Pakistan. One in ten is sold to the
UK.” This evidences that the NHS Currently purchases surgery equipment
from manufactures in Pakistan. The article also states that the steel used for
the manufacture of the surgical tools derives from a second tier supplier in
Germany. This indicates that the NHS is currently using a global supply chain
for its surgical equipment as more than two countries are involved with the
supply chain of its products. The figure below illustrates the current global
supply chain of surgical equipment purchased by the NHS:
Figure 6a. The Global Supply Chain of the NHS
(Images taken individually fromwww.shuttershock.comfor the construction of the above image: last visited 11th
February 2015)
An advantage to the NHS caused from using a global supply chain is that the
labor costs are lower in Pakistan than in the United Kingdom. This allows the
suppliers there to manufacture surgery equipment at lower costs meaning
they can offer lower prices to their customers including NHS Supplies, saving
the NHS money. The equipment is purchased in economic batch quantities to
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make the transport costs of the supply chain cost effective through economies
of scale. It is cheaper to buy surgical equipment in bulk as it can be shipped in
one shipment instead of a constant flow of shipment deliveries providing lower
transportation costs. However (Christopher 1998) states that managing a
global network of materials is more complex than managing purely national
logistics. He emphasises that four problem factors arise from a global supply
chain:
1. Extended lead times of supply
2. Extended and unreliable transit times
3. Multiple consolidation and break bulk options
4. Multiple freight mode and cost options
The NHS has been widely criticised for its increased waiting times evidenced
through (Collins 2013) online Daily Telegraph article which states “NHS
waiting lists are at the longest in five years”. The long lead-time caused from
the global supply chain is contributing to hospitals not being able to supply
surgery as quickly and efficiently as possible as facilities are having to wait
long times for equipment orders to be delivered. A quicker lead-time for
surgical equipment could allow the NHS to reduce surgery-waiting times and
increase customer satisfaction, therefore performance. The (Herrmann 2011)
article suggests that “the London NHS Trust reject almost 20% of tools as
unsafe for use” from these batch orders. This rejection of equipment incurs
waste and therefore cost to the NHS. The more lenient health and safety laws
in Pakistan allow the suppliers based there to construct the surgical
equipment in 'sweat shops' without the most effective manufacturing facilities
or quality check procedures available, leading to a considerable waste of NHS
resources and a tarnished reputation. (Gibney 2012) reports that children as
young as 8 years old are suggested to work for suppliers leading to reputation
issues and a loss in trust with the UK general public something the NHS have
struggled to gain for 70 years.
(Waller 2003) suggests that a main reason for waste and inventory issues is
that suppliers are late delivering, the current global supply chain and distance
materials have to travel incurs the risk of suppliers delivering late. To
accommodate improvement and solution to these issues a more localised
supply chain may be encouraged.
3.1 An International Supply Chain for the NHS
An international supply chain concludes between just two different countries.
The NHS supply chain could be transformed into an international supply chain
where the steel is supplied from Germany however surgical tools are provided
by a local supplier based within the UK instead of the current supplier in
Pakistan. Two options for supply chain localisation are:
1. The current supplier in Pakistan could agree to open focus factories in
the UK with the soul purpose of supplying surgery tools to NHS
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Supplies, the NHS owns 10% of their entire demand according to the
(Hermann 2011) article and so negotiations may be possible
2. Switch supplier to alternative suppliers already based within the UK
NHS Supplies could then decrease the lead-time of surgical equipment to the
NHS by not having to wait for equipment to be manufactured and delivered
from Pakistan.
Changing to a localized supply chain from a global supply chain would
improve performance across the highlighted ‘five themes’ of sustainable
development through:
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If the NHS could relocate the surgical equipment manufacturing facilities to be
very close to the current NHS Supplies distribution centres it could then
facilitate quicker delivery to its hospitals, dramatically reducing product lead-
time and facilitating reduced waiting times for surgery, increasing a
highlighted performance issue for the NHS. This is what the new localised
supply chain would look like:
Figure 6b. Proposed International Supply Chain of the NHS
Strong supplier relationships would be necessary for them to either consider
opening focus factories for the NHS.
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3.2 Supply Chain Relationships
According to Stephanie Gibney (2012), ethical and sustainability manager for
the NHS Supply Chain, “In 2012 NHS Supply Chain contractually obliged 80
suppliers to engage in a program of constant improvement to save money.”
By contractually obliging suppliers to engage the NHS is constructing a
relationship with them. A relationship between a buyer and supplier could
allow the NHS to negotiate more cost efficient purchase orders between the
two organisations and allow a supplier to be willing to open a focus factory for
the NHS demand. (Lancaster 2009) states that negotiation to achieve
customer and supplier satisfaction is essential for strong performance.
Figure 7. Four Relationship Profiles Model
http://dspace.ou.nl/bitstream/1820/3545/1/MWBHMJFleurenmei2011.pdf Last assessed January 29th 2015
The relationship between the NHS and its suppliers can currently be
categorised into the ‘market exchange’ segment of the (Bensaou, 1999) ‘Four
Relationship Profiles’ model due to the stable demand and many capable
suppliers of the rarely customised surgery equipment products allowing either
the NHS or the supplier to easily shift to another partner at low cost and
minimal damage if necessary. The NHS could switch to a UK based supplier
and heavily increase the suppliers demand it could then aim to construct a
‘strategic partnership’ which could provide the NHS with more buyer power
and capacity to negotiate economies of scale due to the new supplier being
dependent on the NHS demand, providing inventory cost savings to the NHS.
A partnership would benefit all parties, as the suppliers would receive
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information and training from the NHS enabling them to meet quality
requirements more efficiently.
4. The role of IT in the NHS
IT systems currently provide the NHS with: financial forecasts/ budgets,
communication avenues, the storage of patient and staff data and supplier
contracts. With the NHS being such a large organisation information systems
are critical to the everyday management. Information systems would be
critical to the supply chain management of a pull supply chain to increase the
efficiency of the NHS.
"Information systems have always provided advantages to organizations"
(Licker 1997 P.77). IT systems can enhance an ordinary process to provide
advantage for an organisation. With a newly implemented localized supply
chain with an applied JIT approach to facilitate improved performance an IT
system can enhance the efficiency of the process.
4.1 An IT based Kanban Approach to Surgical Equipment
"In lean manufacturing the ideal situation is to have zero inventory thus
keeping waste of resources to a minimum." (Waller 2003 P. 474) Each NHS
hospital could employ a Kanban system to replenish and supply surgical tools
when they are required. Each surgery could encompass two inventory boxes
containing all the required surgical tools, once one box is emptied an order,
constructed through an IT system, would be automatically given to the
supplier allowing the time for the second box to empty as lead-time for the
delivery of a new box to replace the now empty box. This ensures that every
surgery is always sufficiently supplied and ready to provide good service
allowing the NHS to reduce waste, one of the five themes of sustainable
development as demonstrated below:
Figure 8: Kanban System for Surgical Equipment
KEY
- Inventory level
- Information flow
- Physical flow
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This system could be replicated for the supply chains of other products which
have previously encountered problems and inconsistencies including surgical
gloves. The Kanban system would provide consistency to the method of
ordering the product and facilitate a robust invoicing process avoiding
inconsistency issues encountered in the past causing supplies manager
complaints.
4.2 How an EPOS system could benefit the NHS
EPOS (Electronic Point of Sale) systems automatically check stock levels to
allow supply chain management to efficiently manage inventory levels. With a
more localized supply chain and the consequent shorter product lead-times
an EPOS system could be engaged to eliminate waste and maximise
efficiency. The EPOS system could be used by NHS Supplies for a wide
range of products which have previously encountered supply chain issues
such as ambulances, surgery gloves and catering products. An EPOS system
could enhance a pull supply chain as the EPOS will highlight when a product
is running low in inventory and highlight a need for it, which in turn, will pull a
demand for that depleting product all the way through to the supplier enabling
them to supply a new product for the customer before the product is
completely depleted.
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5. Conclusion
To maximise efficiency and to accommodate sustainable development NHS
Supplies must localize the NHS supply chains to achieve ultimate
organisational performance across each of the 'Five Themes'. To make this
happen supplier relationships must be enhanced towards a partnership
approach.
A more localized supply chain would facilitate a pull approach through Just-in-
time principles to reduce product lead-times and to minimise waste. IT
systems must be operated to supervise the management of the new supply
chain methods.
5.1 Recommendations
The following recommendations can be concluded from this report:
Replace or negotiate the relocation of current Pakistan based suppliers
for surgical equipment
Build a supplier partnership with new, more localized suppliers
Implement Just-in-time pull supply chains for multiple products
Use a Kanban approach to localized supply chains
Employ IT systems to supervise the implementation of a new pull
approach
5.2 Potential Problems for Recommendations
Finding a new supplier may be difficult/ current supplier may not be
willing to relocate
Retraining of new processes to fulfill supply chain could be costly and
time consuming for NHS staff
The implementation of IT systems could provide high costs to an
already stretched budget
Suppliers will have to prove they have operational capacity to meet
NHS demand
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6. References
Capon. Claire (2009) “Understanding the Business Environment” chapter 9
‘Operations management’ materials requirement planning P. 296. Prentice
Hall ISBN: 9780273708148
Christopher. Martin (1998) “Logistics and Supply Chain Management”
second edition, chapter 7 “Just-in-time and ‘quick response’ logistics, P.177 -
212, Prentice Hall ISBN: 027360490
Christopher. Martin (1998) “Logistics and Supply Chain Management”
second edition, chapter 5 ‘Managing the Global Pipeline’ the challenge of
global logistics, P.137 - 141, Prentice Hall ISBN: 027360490
Collins, Nick (2013), Science correspondent for the daily telegraph, “NHS
waiting lists are longest in five years” online news article URl:
http://www.telegraph.co.uk/news/health/news/10246145/NHS-waiting-lists-
are-longest-in-five-years.html last accessed 11th February 2015
Crosby. Philip (1984) “Quality without Tears: The Art of Hassle-Free
Management” A Quality Carol P. 36 – 53, McGraw – Hill ISBN: 0070145113
Dhanaraj, C and Parkhe, A. (2006) ‘‘Orchestrating Innovation Networks.’’
Academy of Management Review 31(3) 'The Emerging Role of a Third Party
Logistics Provider as an Orchestrator':659–69
Gibney. Stephanie (2012) “Why does so much of the NHS's surgical
equipment start life in the sweatshops of Pakistan?” The Independent, Louise
Tickle, 29th
January 2015, online news article,
http://www.independent.co.uk/life-style/health-and-families/features/why-does-
so-much-of-the-nhss-surgical-equipment-start-life-in-the-sweatshops-of-
pakistan-9988885.html last accessed January 29th 2015
Harari. Oren (2008) "Customers are the Most Important Stakeholders-no Ifs,
Ands, or buts" 4th
January 2008, Pearson financial Times online article URL:
http://www.ftpress.com/articles/article.aspx?p=1153226 last accessed
February 17th
2015
Herrmann. Steve (2011) “Surgical tools used in NHS operations
'substandard'” BBC online article, 27th June 2011,
http://www.bbc.co.uk/news/uk-13894880 last assessed 29th January 2015
Krajewski. Lee J. (2009) “Operations Management” Chapter 1 Using
operations to compete, P.24, Pearson ISBN: 9780132458917
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Lancaster. Peter (2009) “Understanding and Managing Your Customers”
chapter 2 ‘customers, quality and exchange’ P.36, Pearson, ISBN:
9781847762214
Licker. S. Paul (1997) "Management Information Systems: A Strategic
Leadership Approach" Chapter 4 'Strategic Advantage' P.77 The Dryden
Press ISBN: 0155002449
NHS (2015) Official website:
http://www.nhs.uk/NHSEngland/thenhs/about/Pages/overview.aspx last
accessed 29th January 2015
NHS (2014) http://www.nhs.uk/conditions/ebola-virus/pages/ebola-virus.aspx
last accessed 9th February 2015
Slack. Nigel (2007) "Operations Management", 5th edition, Chapter 15 Just-
in-time Planning and Control, P.481, Prentice Hall ISBN:0273646575
Slack. Nigel, Chambers. Stuart, Johnston. Robert (2001) “Operations
Management”, 3rd
edition, Chapter 13 Supply chain planning and control,
P.412 - 415, Prentice Hall ISBN: 0273646575
Waller. Derek L. (2003) "Operations management: a supply chain approach"
2nd
edition, Chapter 15 'Lean production and just-in-time', P.471-477,
Thomson, ISBN: 1861528035
Womack, James. P. & Jones, Daniel. T. (2003) "Lean Thinking", banish
waste and create wealth in your organisation, Part 1: lean principles, pull,
P.67, Simon & Schuster, London, ISBN: 0743231643
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root out waste and pursue perfection” Havard business review online article,
reprint 96511, URL: http://www.pcb.org.za/upload/files/beyond-toyota.pdf last
reviewed 13th February 2015
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7. Appendices
Appendix 1: Healthcare Spending in the UK
http://www.ons.gov.uk/ons/rel/psa/expenditure-on-healthcare-in-the-uk/2012/info-healthcare-spending.html last
accessed 9th February 2015
