Whole Systems Update HCSA Summer Conference Alan Wain

Whole Systems Update HCSA Summer Conference Alan Wain, Chief Operating Officer Jim Craig, Programme Director Chris Holmes, Supply Chain Director Stephen Foulser, Customer Director Focus on the management function of the new NHS Supply Chain

Agenda The Programme 2 HCSA Summer Conference

Department of Health & Social Care Response Lord Carter’s report reviewed operational efficiencies in NHS providers and recommended improvements in the way the NHS chooses, uses and purchases clinical supplies. Report identified: • Improvements in procurement efficiency • Over 600, 000 products lines • Up to 35% variation in product prices • Adoption of a Procurement Transformation Programme Cash releasing saving: • £ 2. 4 bn in five years • Investment back into frontline services NHS buying power: • The NHS has the potential, through greater collaboration, to leverage it’s purchasing power on a national scale and deliver value for money for NHS Trusts and the taxpayer • Clinical assurance built into the new operating model will help increase patient outcomes 3 HCSA Summer Conference

NHS Procurement Landscape - Starting Position The NHS currently spends £ 5. 7 bn on everyday hospital consumables, common goods, high value healthcare consumables and capital medical equipment with only c. 40% going through NHS Supply Chain. Main issues • NHS unable to leverage its buying power • Fragmented supply chain • Variable pricing of products • Variable clinical evaluation and assurance 20% 40% Locally procured contracts Hubs NHS Supply Chain • Complex procurement and supplier landscape • Competition for resources There were 7 Hubs, 5 of these have merged to create CPP and join the New NHS Supply Chain, bringing with them their market share and expertise. 4 NHS Procurement Review & Update

Current contract expires in Spring 2019 with the ability to remove some, or all, of the procurement services prior to that date. 5 HCSA Summer Conference No. E CPC Foodbuy CSS Akeso DHL HST CPP DHL New NHS Supply Chain Operating Model

Programme Update All procurements completed New Management Office of the NHS Supply Chain live ICT Prime transition complete IT & Logistic contracts awarded Transactional services live as single finance team NHS Supply Chain customer engagement team TUPE’d 2018 DEC JAN FEB MAR APR MAY JUN JUL AUG SEP Non-Medical & Capital Category Towers live All Category Towers contracted and in transition Medical Category Towers live Benefits projections remain at, or above PBC levels 6 OCT NOV DEC JAN FEB MAR 2019 2017 HCSA Summer Conference Supplier awareness, understanding and support increasing Logistics transition complete Trust feedback and support continuing to increase APR

New NHS Supply Chain - Operational Timeline Category Tower Service Providers 1 October 2017 8 May 2018 5 July 2018 Capital Tower 9 Medical Towers 1, 2, 3, 4, 5 & 6 Capital & Non Medical Towers 7, 8, 10 & 11 Enabling Services February 2019 Logistics Provider to be announced June 2018 Supporting Technology Provider to be announced June 2018 March 2019 Transactional Services Staff to TUPE to SCCL as a single finance team 7

SCCL Executive Team CEO Jin Sahota COO FINANCE HUMAN RESOURCES STRATEGY & COR. COMMS GOV. ASSURANCE & LEGAL CIO & BUS. TRANSFORM. Michael Parr Lorraine Nicholls Gerard Mc. Geary Paul Webster Howard Blackith Alan Wain 8 CUSTOMER SUPPLY CHAIN Ca. PA COMMERCIAL Stephen Foulser Chris Holmes Jo Gander Ann Mc. Chesney

Agenda Finance - VAT 9 HCSA Summer Conference

VAT Now & Beyond April 2019 Scenario 1: NOW Products delivered to NHS Trusts NHS Divisional VAT registration Suppliers of goods NHS Trusts SCCL/BSA Goods for NHS use £ 3. 36 bn no VAT invoice Plus margin without VAT Goods for NHS use + VAT £ 2. 8 bn + £ 560 m Result: Excluding the margin, NHS pays the same for the goods as NHS Supply Chain 10 HCSA Summer Conference

VAT Now & Beyond April 2019 Scenario 1: After April 2019 - Products delivered to NHS Trusts NHS Divisional VAT registration Suppliers of goods NHS Trusts SCCL Goods for NHS use £ 2. 8 bn + £ 560 m No margin Goods for NHS use + VAT £ 2. 8 bn + £ 560 m Output VAT on supplies £ 560 m Input VAT on supplies £ 560 m HMRC Result: Excluding the margin, NHS pays the same for the goods as NHS Supply Chain but has visibility of VAT invoice 11 HCSA Summer Conference

VAT Now & Beyond April 2019 Scenario 2: NOW Products delivered to be used for external services Welsh Boards, Scottish Boards, other public consumers NHS Divisional VAT registration Suppliers of goods NHS Trusts SCCL/BSA Goods for other use £ 240 m no VAT invoice Plus margin without VAT Goods for other use + VAT £ 200 m + £ 40 m Supply + VAT £ 200 m + £ 40 m Output VAT on goods sold on £ 40 m Input VAT identified on goods used (50%) £ 20 m HMRC Result: Due to no VAT invoice from NHS Supply Chain, NHS misses out on £ 20 m of recoverable VAT 12 HCSA Summer Conference

VAT Now & Beyond April 2019 Scenario 2: After April 2019 - Products delivered to be used for external services NHS Divisional VAT registration Suppliers of goods NHS Trusts SCCL Goods for other use £ 200 m + £ 40 m No margin Goods for other use + VAT £ 200 m + £ 40 m Welsh Boards, Scottish Boards, other public consumers Supply + VAT £ 200 m + £ 40 m Input VAT on gods bought £ 40 m Output VAT on goods sold on £ 40 m HMRC Input VAT identified on goods used (90%) £ 36 m HMRC Result: Due to VAT invoice from NHS Supply Chain, NHS recovers full amount of VAT and is £ 16 m better off than today 13 HCSA Summer Conference

Agenda Finance - Savings Target 14 HCSA Summer Conference

Savings Target To Be Achieved PBC target savings to date £ 200 £ 175 £ 183 m £m's £ 150 £ 68. 04 £ 125 £ 100 £ 68. 04 £ 75 £ 50 £ 25 £- £ 46. 6 2016/17 2017/18 2018/19 Against the Programme Business Case that drove the new NHS Supply Chain model, we have two targets to achieve this financial year: 1. £ 183 m savings against the programme baseline spend for FY 15/16 2. £ 68 m incremental saving vs last year’s target SCCL expects to beat both of these targets. In fact, the DHSC published an incremental £ 90 m in its single departmental plan for FY 18/19, which we expect to achieve 15

Agenda Clinical & Product Assurance (Ca. PA) and Innovation 16 HCSA Summer Conference

Clinical & Product Assurance (Ca. PA) Purpose & Vision To assure product evaluations undertaken by Category Tower Service Providers (CTSPs) are effective and inform product usage in the NHS to promote the use of safe, high quality products in the NHS How What Now? Ca. PA has an assurance framework that covers product evaluations with a focus on quality Build understanding & confidence Quality Assurance Tool will provide measurement and benchmark of quality Enables Ca. PA to systematically review the quality of product evaluations Establishes clear quality governance arrangements, consistent quality management and monitoring 17 HCSA Summer Conference Disseminate the Quality assurance Framework & tool to the CTSP’s & the NHS Support IT on the build for Quality Assurance tool Operational with CTSP’s as they go live

Innovation ü Innovative products (via the Accelerated Access Programme & innovation tariff) The Accelerated Access Programme has been formed following the report published by Sir Hugh Taylor in October 2016. It will establish a consistent way of identifying the most valuable innovations (products of critical importance), provide a single source of information for horizon scanning (Med. Tech. Scan database), promote the most critical products using an array of resources and use the Academic Health Science Networks (AHSNs) to evaluate other innovations to promote on a national, regional or local scale. Supply Chain Coordination Limited (SCCL) is working with the Office for Life Sciences (OLS), NICE, NHS England AHSNs to establish a process whereby Category Tower Service Providers (CTSPs) can develop the category strategies to provide a ‘commercial wrapper’, our Clinical and Product Assurance (Ca. PA) function can review the clinical evidence and our Customer Engagement teams can assist in the promotion of the chosen innovative products. Neither SCCL or the CTSPs will choose which innovative products to prioritise but both will take the outputs to create appropriate strategies and inform NHS Trusts of the system and product savings that can be achieved. 18 HCSA Summer Conference

Route To Market For Innovation Via CTSPs 19 NHS Procurement Transformation Programme

C FB C Future OB As Is EU Innovation The procurement landscape is highly fragmented, so suppliers of innovative products don’t have a channel with critical mass. Procurement landscape is rationalised with 80% of volume passing through the new operating model. Suppliers of innovative products now have a more efficient single channel with critical mass. Rewards NHS Supply Chain are incentivised to deliver product price savings through price reductions and switching to less costly but equally viable alternatives. Category Tower Service Providers will be incentivised to deliver product price savings and lower total system cost, which could be via innovation. Has only recently been introduced and efforts are focused on product price reduction only. Operating model has a more holistic view of category management and requires CTSPs to set future strategies, incorporating forward product plans (including innovation). Category Management Clinical Evaluation Team is newly formed, not embedded in category management, hosted separately and providing the processes for evidence-based procurement. Customer Led by Private Sector (NHS Supply Chain) and focused on achieving Development the profit objectives of DHL. Governance 20 Links between GIRFT, University hospitals and other health service organisations promoting innovation are in early development stages via e. g. Trusted Customer programme. HCSA Summer Conference OJ Supply Channels Clinical evaluation is embedded within CTSPs, so the right experts focus on the right products, including innovative products, and make recommendations based on evidence. Customer development will be operated within the management function (Public Sector), so will have no profit motive and will be working for the NHS interests. Clinical & Product Assurance in the management function with clinical evaluation in Category Towers, so clearer bridges between strategic initiatives (e. g. GIRFT, AAR) and category strategy development.

Agenda Supply Chain 21 HCSA Summer Conference

Role Of The Supply Chain Function Supply Chain Category Tower Management Logistics Supplier Relationship Management (SRM) Purpose: § Responsible for contract and performance management of the CTSP’s § Responsible for contract and performance management of SRM elements of CTSP’s § Responsible for contract and performance management of the Logistics Service Provider § Manage the CTSP's and work with them to develop and implement category and sourcing strategies § Develop and implement the SRM strategy for SCCL, ensuring alignment across the whole model § Manage the Logistics provider to develop an implement supply routes that meet customer requirements § Work in partnership with the SRM, Logistics and wider SCCL teams to develop and deliver propositions that support savings delivery § Work in partnership with the Category Tower, SRM and wider SCCL teams to develop and deliver propositions that support savings delivery 22 HCSA Summer Conference

Category & Sourcing Strategy Development Category Management Approach § All CTSP’s will operate a category management approach and develop Category Strategies at product category level § CTSP's will produce Sourcing Strategies detailing the go to market approach at product level § CTSP's engage customer’s, supplier’s and each function of SCCL when developing Category and Sourcing strategies Category Council § Cross-functional SCCL approach to Category and Sourcing Strategy development § Each SCCL function reviews the elements of the strategies related to their subject matter expertise § All Strategies have to be approved by the Category Council 23 HCSA Summer Conference

Category Tower Composition (HST) 24 HCSA Summer Conference

NHS & Supply Chain Spend By Category Tower CPP DHL CPP Foodbuy DHL HST Akeso No. E CPC CCS 25 HCSA Summer Conference

Benefits For Suppliers Lowering costs Lower sales and marketing costs by reducing interactions with Trusts as NHS Supply Chain will act as a single point of contact Reduced point of sales A single route to the national market, instead of having to knock on 240 trust doors Whole system costs, not unit costs Through increasing market share there can be a re-focus on delivering value rather than lowering unit prices Proper category management More mature procurement conversations with a longer term focus, discussing what the market looks like in 6 months, 1 year, 2 years time etc. Commitment Where applicable and relevant genuine take or pay commitment deals providing suppliers with certainty and a predictable cash flow 1 NHS A joined up approach across the NHS Innovation A clear route for innovative products, working alongside AHSNs and AAR 26 HCSA Summer Conference

Agenda Customer Engagement 27 HCSA Summer Conference

Trust Level Customer Engagement Overseen by Director of Customer Engagement Customer Insight Category Tower Service Providers 28 • Category Interface Leads • Customer Insight Team HCSA Summer Conference Customer Offer • Customer Engagement & Events • Customer Experience • Customer Proposition Account Management • Regional Leads • Account Managers • Partnership/Account Support Managers • Clinical Nurse Advisors Trusts Acute, Specialist, Community, Mental Health, Ambulance

Savings Road Map & Working With Account Management Teams Account Managers compare NHS Trust procurement timetable with known CTSP sourcing strategies NHS Trusts share procurement timetables with account managers 29 HCSA Summer Conference Follow up meeting held to clarify opportunities and agree CIP plan Meeting to review and validate opportunity document Periodic progress meetings held Sourcing plans executed Account Manager will identify Trust opportunities as further sourcing timetables are developed. The cycle will iterate

Key Updates To The Customer Engagement Function What will remain the same • Account Management support - Trusts will continue to receive account management support when working with NHS Supply Chain • Relationships with trusts - Account Managers will be the owner of the relationship between NHS Supply Chain and their allocated trust(s) • Communications - All communication materials sent to customers will come from the NHS Supply Chain Campaign team • Regional structure - Account Management teams will continue to operate in four regions – North, Central, South and London Key changes • Increased headcount - There will be an increase to the account management headcount allowing us to provide a greater level of service to a greater number of trusts • Account Plans - Account plans will be used in a more strategic way to enable greater savings and conversion of opportunities • Board meetings - Customer boards will be more focused on delivering outputs that benefit the NHS • Campaign support - Campaigns/marketing activity will be prioritised based on the level of campaign support that is required • Campaign channels - Campaigns/marketing activity will be targeted at the most appropriate recipient via the most appropriate channels • Category Interface Leads - Category Interface Leads will be responsible for escalating all issues related to CTSPs • Data-driven approach - Customer Insight team will provide data-driven insight to identify opportunities to enhance the overall Customer Experience 30 HCSA Summer Conference

Benefits For NHS Savings channelled back to frontline services Trusts will pay less for everyday consumables and equipment releasing funds to support other areas of work Releasing more time for core clinical activities Central sourcing and evidence-based clinical evaluation reduces the need for involvement at Trust level Greater NHS clinical involvement in purchasing decisions Clinicians will influence product specifications, clinical criteria, range management and product evaluation, utilising research from GIRFT, HCTED, DWG, ODEP… More effective introduction of new products The new model will support the efficient introduction of new innovative products into catalogue through links with national research bodies and regional networks including AAR, TCO. Central Service Management Through utilisation of the national procurement organisation services such as deliveries, stock management and managing service disruption can be managed through one team rather than with individual suppliers 31 HCSA Summer Conference

Questions and Answers…

Appendices

Category Towers Contract - Key Commercial Terms • • • Open book methodology with profit linked to target savings 3 year initial term with option to extend Savings assessed on total system costs basis Item Description Contract Period Overall 3 + 1 years Automatic extension subject to defined performance criteria Transition assistance max 18 months after expiry/termination Costs Allowable costs defined in contract with annual target Measured and paid monthly on cumulative basis Guaranteed payment up to 100% target Costs > target covered 50/50 by NHS and Provider up to 10% overspend (max 105% payable by NHS) Profit Gainshare % defined in contract based upon target savings, margin and costs Paid against savings measured monthly on cumulative basis Adjusted through defined KPIs (-40% / +20%) and intangible system cost changes (-20% to 10%) Gainshare proportional to savings, upside capped at 2 x Target Margin Payment withheld if actual < 50% target Critical service failure if actual < 80% target at year end Savings Standard products: (old price - new price) x volume Total Cost of Operation (TCO) including process changes and other supply chain functions as agreed with the Management Office on a case by case basis 34 HCSA Summer Conference

Ca. PA vision Patients Commissioners Safety Carers Health & Care Professionals Responsive Trusted Providers Assurance Innovators Informed Ca. PA Patient Voice Regulators Representative Health & Care Voice Suppliers 35 HCSA Summer Conference Partners