Table of Contents

Supply Chain Management Coursework Assignment

Moving from a ‘Push’ Global to a ‘Pull’ International Supply Chain to Implement Sustained Development for the NHS

Steven MolloyB1010815

Business and Operations Management

Steven Molloy21010815Business and Operations Management

1. Introduction................................................................................................................... 21.1 The National Health Service (NHS)................................................................................21.2 NHS Supplies..........................................................................................................................21.3 The Importance of Supply Chain Management..........................................................3

2. Push Vs Pull Supply Chains........................................................................................ 42.1 NHS Push Supply Chain Failure.......................................................................................52.2 Potential Pull Supply Chain Success..............................................................................62.3 Just-in-time............................................................................................................................ 6

3. The Global Supply Chain of the NHS.......................................................................83.1 An International Supply Chain for the NHS.................................................................93.2 Supply Chain Relationships.............................................................................................12

4. The role of IT in the NHS..........................................................................................134.1 An IT based Kanban Approach to Surgical Equipment.........................................134.2 How an EPOS system could benefit the NHS.............................................................14

5. Conclusion.................................................................................................................... 155.1 Recommendations............................................................................................................155.2 Potential Problems for Recommendations..............................................................15

6. References.................................................................................................................... 16

7. Appendices................................................................................................................... 18

1. Introduction

1.1 The National Health Service (NHS)

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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

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

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Source: NHS Supplies – supply for the NHS document

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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 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.

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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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2. Push Vs 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/TwqZ9PNutTI/AAAAAAAAAFI/Zod1lSaOzsg/s1600/PP+SCM.png last assessed 13th February 2015

2.1 NHS Push Supply Chain Failure

Figure 4a. Push Supply Chains

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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

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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.

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.”

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(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 assist with achieving continuous improvement and diminished waste aims, facilitating sustained development to meet organisation objectives.

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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 Flexibility – long lead-times are restricting the flexibility of batch orders

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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 from www.shuttershock.com for 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 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

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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 Supplies, the NHS owns 10% of their entire demand according to the (Hermann 2011) article and so negotiations may be possible

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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:

If the

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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

Womack, James. P. & Jones, Daniel. T. (1996) “Beyond Toyota: How to 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

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