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Pharmaceutical supply chain project: key outputs

November 2004

1 Contents

Page 1. Background 3 2. Status 3 3. Focus of phase two 3 4. Best practice outputs 4 5. Performance measurement outputs 7 6. Automated dispensing outputs 11 7. Recommendations 11 8. Implementation 17 9. Strategic options for the future 17 10. Conclusion 17

Appendices

A Project Steering Group terms of reference 18 B Phase one outputs : tactical and strategic 20 options

C Piloting the outputs (guidance for 21 prospective pilots)

Acknowledgements

The author would like to thank members of the steering group, members of the sub- groups and all those who have contributed in some way to this project.

2 1. Background

Medicines play a critical role in delivering effective and efficient health care for patients. Pharmaceuticals procurement is a key component of medicines management, with the supply chain providing the critical link between the manufacturer and the patient. It is integrated with medicines management and needs to be designed to ensure the right medicines are available for patients at the right time.

Typically, other developments in hospital pharmacy have assumed higher priority than the supply chain, and unsatisfactory performance has been reported in some parts of the country. However, no standard and objective measures were in existence to verify the reports and establish the root cause of the problems.

It was against this background that the pharmaceutical supply chain project was established in 2001. This has, for the first time since the 1980s, focused national attention on this supply chain, raising its profile amongst all key stakeholders.

The terms of reference can be found at Annex A.

2. Status

The project has been conducted in three phases:

 Phase one: information gathering from key stakeholders, assessment of issues, generation of options for consideration (2002)

 Phase two: establishment of workstreams to focus on key aspects and develop recommendations (2003/4)

 Phase three: implementation (2005)

This paper summarises the key outputs of phase two. (An executive summary of the outputs of phase one is available at http://www.pasa.nhs.uk/pharma/pharma_supplychain.stm.)

3. Focus of phase two

Phase two has taken the tactical options for improvement (see Annex B) put forward in phase one as its starting point. In particular, three areas were identified for further work:

 Development of guidance on trust-based best practice in the pharmaceutical supply chain  Development of standard key performance indicators  Guidance on the introduction and impact of automated dispensing.

The outputs from these areas are described in the following three sections.

3 4. Best practice outputs

This workstream was founded on the premise that trusts must be as prepared as any other supply chain parties to examine their own systems and practices, identify any shortcomings and make improvements. For example, outdated practices at any point in the purchase to pay cycle, slow uptake of electronic trading or low priority given to supply chain activities within pharmacy can all contribute to poor supplier performance.

In this context, we have defined ‘best practice’ as systems or processes that enable tasks to be performed at the right time, in the most cost-effective way and without duplication or failure. This can be encapsulated as: ‘right first time every time.’

A broad approach was taken to this work: whilst recognising that there was no ‘one size fits all’ solution, a number of principles could be established as a standard framework for local implementation. This work was supported and complemented by a small-scale but in-depth study undertaken at four trusts and their corresponding (AAH) depots. See XX below for more detail.

The Best Practice sub-group set out to answer the following questions:

a) Is there a best practice for each of the processes that make up the order cycle? b) Is there an optimum relationship between re-order levels, re-order quantities, order frequency, stock holding and efficiency? c) How can suppliers meet the current needs of hospital pharmacies and what can we (hospital pharmacy) do to help? d) What role can third parties such as PASA, NHS Logistics, pharmacy computer system suppliers and trust finance and audit staff play in improving supply chain efficiency? e) Which practices in the pharmaceutical supply chain are redundant?

The diagram overleaf represents a generic process map, indicating the stages at which best practice can be brought in. Fundamental to this work was the understanding that every order placed – whether electronically or not – has a consequence further down the line in terms of time, effort and resource, and therefore an appropriate balance needed to be struck.

The output of this work is a comprehensive report, the contents of which form the basis for a small number of pilots designed to test the recommendations in a variety of local settings. The report describes best practice in issues of logistics, communications and financial processes that affect efficiency in both the internal and external supply chain for medicines held as stock in hospital pharmacies. Very broad recommendations for each group of stakeholders (pharmacy managers, pharmacy procurement managers, finance and audit departments, suppliers and wholesalers, PASA and NHS Logistics, and pharmacy system suppliers) are set out below.

 Procurement systems for medicines should be designed to ensure tasks can be completed efficiently, at the first attempt and without duplication or failure.

4  Pharmacy managers should review current practices and take action, where necessary, to improve timeliness and reduce the impact of inefficient processes on the supply chain.  Hospital finance managers should ensure that the system for financial processing and invoice payment supports best practice.  Hospital managers should recognize the need for balance between inventory value and the costs and risks involved in reducing it.  Suppliers of medicines to hospitals should review and design their systems to ensure ‘right first time, every time’.  Suppliers of IT systems for hospital pharmacy, finance systems and for electronic trading should ensure that their systems support a high level of automation and control.  PaSA should take steps to establish a joint hospital – industry forum to ensure progress is made on implementing optimum supply chain systems for suppliers and trusts

More detailed recommendations for each stakeholder are given in the following areas:

 Supplier base management  Inventory management  Order. receipt and invoice processing  Financial processing and payment  Waste and error management  Audit and benchmarking.

To complement and inform the ‘best practice’ work outlined above, to bring depth as opposed to breadth, and to provide specific evidence to support its recommendations, some detailed work was carried out by independent consultants appointed by PASA and NHS Logistics. The objective was to scrutinise every aspect of the trading relationship between selected trusts and their main wholesaler depot (in this case, AAH) in order to identify reasons for success or failure by either or both party.

Four trusts were selected to participate, reflecting opposite ends of the spectrum in terms of the perceived quality and performance of the relationship with AAH:

 Bradford Royal Infirmary + Leeds depot  Central Manchester + Warrington depot  Royal Free Hampstead + Ruislip depot  Whittington Hospital Trust + Ruislip depot

The outputs of this work have been fed into the Best Practice workstream, and the key findings are reflected in the overall recommendations.

5 The Order Cycle

Key Best Practice Points Key Best Practice Points

Inventory management  Validated computer system  Managed supplier base  Stock profiles up to date  Monitored stock and performance  Audit trails

 Electronic process, Order Initiation and  minimal manual intervention validation  Electronic records

 Electronic link from PMS to transmission  Electronic audit trail Order Transmission

 Transparency wrt stock Supplier Processes  Exception reporting  Price validation  Right first time

 Consolidated deliveries  Invoice with goods or Delivery  electronic

 Bar coded receipt Goods Received and expiry dating. Processing  Instant notification of discrepancies.

 Electronic process  Complete within 2 days Invoice clearance

 Electronic transfer from pharmacy system Financial Ledger &  Prompt payment Payment

PMS – Pharmacy Management System

6 5. Performance measurement outputs

The need for objective and consistent measurement of supplier performance has been a common strand running through this project, and is considered fundamental to future management of the supply chain. The starting point for this work was what should be measured, rather than what could be measured within the functionality of the current systems. The output is a set of KPIs, categorised into ‘key’, ‘diagnostic’ and ‘practice’ indicators. These have been subject to:

 consultation with a range of stakeholders  an initial assessment of data requirements against the current functionality of two major pharmacy systems: JAC and Ascribe.

Once a full assessment of functionality has been made and detailed discussions with the system suppliers have taken place, the list of KPIs may need to be revisited and trade-offs made between the importance of an indicator and effort/ resource required to upgrade systems and/or collect the data.

A general principle underpinning this work is that data collection should be, as far as possible, a by-product of good supply chain practice and not a ‘separate industry.’

The table overleaf shows the draft KPIs, together with definitions, an initial assessment of data requirements and proposed formulae. This information is also available at: http://www.pasa.nhs.uk/pharma/pharma_supplychain.stm

7 Key Performance Indicators Key: High-level Indicators, which are measure of whole supply chain performance. Diagnostic: Specific Indicators which identify areas of weakness when performance is unsatisfactory. Practice Level: Indicators of practice that either effects Key Indicator performance or indicates level of uptake of Best Practice.

KPI name and (type) Definition Data Required Data Source Formulae New concepts/Enhancements 1. % Lines delivered The percentage of a) Delivery Date Trust IT No of Incomplete a) Defining Agreed or in full (Key) order lines that were b) Expected Systems delivery lines at contracted lead times for delivered on both the Delivery Date expected Delivery Supplier/Item. correct day and had c) No of Order lines Date as a b) Systems record Delivery 100% order fill. by supplier percentage of Total Date d) No of incomplete number of Order c) Enhanced GRN Process delivery lines lines for Supplier 2. % Invoices The percentage of a) No of lines which Trust IT No of lines, which a) Enhanced Invoicing matched first time lines which can be are not invoiced Systems are invoice matched functionality to include (Key/Diagnostic) invoice matched at matched first time first time as a reasons for non-matching. first attempt with reasons percentage of total b) Total number of number of Invoice Invoice lines lines. A subset of KPIs will then exist for reason codes for invoice matching failure. 3. Documentation (a) Accurate GRNs a) No of lines for Currently No of lines for which a) Enhanced GRN present and delivered with goods. which data is Manual data is missing or functionality to record complete, (b) missing or incorrect Systems. incorrect as a documentation errors accuracy with reasons Develop percentage of Total (Key) b) Total number of functionality in no. of lines received. lines received Trust IT A subset of KPIs will Systems then exist for reason codes; These could be presented using same formula. 4. Stock turn Value of Moving 12 a) Stock Valuation Trust IT Stock Valuation at Stock valuation and Value (Key/Practice) month throughput at cost. Systems cost divided by of purchases may be divided by value of b) Value of Value of purchases inconsistent between stock @cost purchases for for previous 12 systems. previous 12 month month period period

8 5. Timeliness of Value of unpaid a) Value of unpaid Currently a) Value of unpaid a) Need to develop payment (based on Invoices at 30,60 invoices and age of individual invoices at 30+, 60+ integrated functionality of CBI code, 30 days and 90 days as debt supplier and 90+ days as a Trust IT Systems to from either receipt of percentage of annual b) Moving Annual systems. Need percentage of provide in a common goods or valid invoice, spend value of spend by to develop moving annual value format for all suppliers. whichever is the later) supplier integrated of spend by supplier This includes date of plus outstanding at 60 functionality of receipt of invoice. and 90+ days Trust IT (Key) Systems. 6. Incorrect items The percentage of a) No of incorrect Currently No of lines where a) Needs to be developed received order lines where the lines received dependent on incorrect item is as part of GRN process on (Diagnostic) item received did not b) No of Order lines manual received as a Pharmacy Systems match the item on by supplier records. percentage of total Product either kept as the original purchase Develop number of lines stock and added in as order. functionality in Ordered separate order or returned Trust IT to suppliers via returns Systems process. 7. Incorrect The percentage of a) No of lines where Trust IT No of lines with a) Enhanced GRN function quantities received order lines where the there is over or Systems Quantity errors as a to identify orders created to (Diagnostic) quantity received under delivery. percentage of total receive over deliveries and and/or shown on the b) No of Order lines number of lines differentiation between advice note did not by supplier Ordered agreed reduced quantities, match the quantity split delivery and errors. on the original purchase order.

8. % Lines returned The percentage of a) Number of lines Currently No of order lines a) Enhanced GRN function (drilling down via lines returned in total where a return Manual where a return has to include Returns records. Reason Codes e.g. and by individual (available by reason Systems. taken place as a damaged / order error reason codes code) has taken Develop percentage of total / pick error / late place. functionality in number of lines delivery / Trust IT ordered. unauthorised b) Total number of Systems A subset of KPIs will substitution) lines received then exist for reason (Diagnostic) codes; these could be presented using same formula. An alternative method would be to calculate reasons as 9 percentage of total returns 9. Variation from Variation in delivery a) Actual Delivery Trust IT Total no of days a) Defining Agreed or contracted lead time date from agreed Date Systems divergence as a contracted lead times for (Practice/Diagnostic) lead times (i.e. late b) Expected delivery percentage of total Supplier/Item. or early receipt by date based on number of lines b) Systems record Delivery trust, based on agreed lead times ordered Date elapsed time from placing order to goods arriving) 10. Timeliness of The percentage of a) Agreed/Contract Trust IT No of order lines a) Defining Agreed or order placement lines where lead times Systems and where requested contracted lead times for (measure of whether requested delivery b) Expected Supplier IT delivery date is Supplier/Item. trust is giving date is less than (requested) delivery systems earlier than b) Specifying Required or suppliers the contracted lead time dates contracted lead time Expected delivery date on contracted lead time as a percentage of order lines, this would when ordering) total lines ordered default to agreed lead time (Practice/Diagnostic) unless amended by buyer. 11. % of order (lines) Percentage of orders a) No of order lines Trust IT Number of orders a) Current systems record transmitted (lines) sent sent electronically Systems (lines) transmitted orders sent to e trading electronically electronically from b) Total no of order via either EDI or partners this needs to be (Practice) Pharmacy Order lines internet as a enhanced to identify lines systems direct to percentage of Total sent. supplier systems or number of orders e portals. (The (lines). orders are integrated automatically into the suppliers IT systems) 12 % of invoices Percentage of a) No of invoice Trust IT X=Number of a) Systems need to identify (lines) reconciled invoices (lines), lines received Systems invoices matched Invoice details received electronically. which are, received electronically electronically in time electronically (Practice) electronically into b) Total no of T. (Includes those Pharmacy Order invoice lines that fail) systems direct from Y= Total number of supplier systems or invoices matched in e portals. time T KPI= (X/Y) x100

10 6. Automated dispensing outputs

Robot dispensing was one of the tactical options put forward during phase one of the project, and was considered by the steering group to require some dedicated work. In the longer term, the potential to use robotics to innovate in the supply chain (for example, by exploring alternative supply relationships, vendor managed inventory etc) was seen as a major opportunity and an area that had not yet been fully explored, either by individual trusts or on a national basis.

However, because of the fast-increasing interest in automated dispensing and the gathering pace of installations around the country, there were a number of immediate issues that needed to be addressed to assist trusts in the short term with:

a. decision-making b. benefits assessment and business case preparation c. tendering and contracting.

To support the process, the sub-group has produced the following outputs:

 an ‘automation Q & A’ for trusts, designed to capture experience and views from existing users – see http://www.pasa.nhs.uk/pharma/docs/tech_robotics_automation_q&a_v3.doc

 template documentation for preparing a business plan – see http://www.pasa.nhs.uk/pharma/docs/tech_robotics_bus_case_considerations_jun e2004.doc

 a database of trusts with robot installations (to allow trusts to identify others to learn from) – see http://www.pasa.nhs.uk/pharma/docs/tech_robotics_hospitals_robots.xls

A key need was to capture the learning from the ‘early adopters’, for the benefit of other trusts. In order to provide a forum for capturing and sharing best practice, not only around initial selection, procurement and installation issues but particularly around maximising benefits in–use, it is proposed that a user group be established.

7. Recommendations

This section summarises the key recommendations for each party in the supply chain, based on the outputs of all of the workstreams. The table overleaf also cross- references, where appropriate, recommendations to the proposed KPIs and to the standards presented in the audit tool already adopted by purchasing groups.

It is recognised that the recommendations are, in their current form, necessarily broad and will not apply to all trusts or other parties in the same way. The intention is, having established a consistent framework, to work with stakeholders to implement the key proposals in a way that both fits with local circumstances and priorities and is likely to produce the greatest benefit.

11 Key supply chain recommendations

Recommendation - Action By whom Related KPI Cross-ref to Source of audit tool1 recommendation Management policy Ensure hospital procurement systems are designed to Pharmacy managers 2.2 IT & e- BP report minimise manual intervention, duplication and the commerce chance of failure. Implement interactive electronic trading systems that Pharmacy 11 – order (lines) 2.2 IT & e- BP report support order transmission, acknowledgement, and managers, hospital transmitted commerce invoicing. finance and audit electronically depts 12 – invoices (lines) reconciled electronically Introduce bar coded receipt and recording of expiry Pharmacy managers 2.2 IT & e- BP report, SGAC dates2 as soon as possible. (For ‘quick win’, low level commerce study/mtg with stand-alone technology is available now) trusts/PASA/AAH Consider introducing separate procedure for Pharmacy managers SGAC study/mtg infrequently ordered items with trusts/ PASA/AAH Agree and implement standard reason codes across Pharmacy managers, 8 – lines returned 6.1 Operating SGAC study (action NHS and industry for both returns and invoice queries wholesalers, procedures agreed by trusts, manufacturers & PASA & AAH) PASA Ensure that a range of procurement performance Pharmacy managers Indicators 1-12 8.3 Performance BP report indicators are used regularly within the procurement. management Finance – operational procedures Avoid duplication of effort involved in processing Hospital finance & BP report invoices – invoices should be passed by Pharmacy audit depts 6.3 – 6.10 Finance Ensure that invoices for pharmaceuticals are paid at Hospital finance & 5 – timeliness of systems BP report frequent intervals and on time. audit depts payment Ensure responsibility for each stage of invoice Pharmacy BP report processing is clearly defined together with standards managers, hospital for timeliness. finance & audit depts

1 Standards for NHS Pharmaceutical Procurement Services – an Audit Tool 2 It is recognised that EAN13 does not support batch and expiry data, although EAN128 will 12 Recommendation - Action By whom Related KPI Cross-ref to Source of audit tool recommendation Work with finance managers to review urgently the Pharmacy BP report invoice generation system in those pharmacies that act managers, hospital as suppliers to other hospitals. finance & audit depts Enable electronic archiving of orders placed Hospital finance & BP report electronically. Paper copies should not routinely be audit depts produced for archive or internal audit purposes. Supply management Review the supplier base in order to reduce direct Pharmacy BP report trading where this method produces little or no procurement financial advantage. managers Review the range of products managed through Pharmacy BP report pharmacy systems and remove products for which no procurement value is added by pharmacy procurement. managers Review short line stores trading arrangements. Pharmacy BP report procurement managers Understand computer re-order calculations Pharmacy 2.2 IT & e-comm BP report methodology. procurement 8.3 Perf mgt managers Implement effective inventory management tools such Pharmacy 2.2 IT & e-comm BP report as the Pareto 80/20 rule. procurement managers Profile stocks of medicines held in all hospital locations Pharmacy 4 – stock turn 6.1 Op procedures BP report periodically and take steps to reduce excess stock. procurement 8.3 Perf mgt managers Set order quantities for medium to high turnover items Pharmacy BP report as multiples of outers. procurement managers Establish the most efficient re-order parameters for Pharmacy BP report stock, recognising the total cost of order placement. procurement managers Establish the most efficient re-order times for Pharmacy BP report wholesalers and other suppliers procurement managers Establish electronic systems to ensure correct order Pharmacy BP report price procurement managers 13 Recommendation - Action By whom Related KPI Cross-ref to Source of audit tool recommendation Establish systems to monitor and manage outstanding Pharmacy BP report orders. procurement managers Understand their local marginal costs of placing Pharmacy BP report orders. procurement managers Ensure that pre-notified contract price changes are Pharmacy BP report acted on before orders are placed. procurement managers Ensure invoices are cleared within 2 working days of Pharmacy 2 – invoices matched 6.1 Operating BP report receipt of invoice. procurement first time procedures managers, host finance & audit depts Ensure staff processing invoices are fully aware of the Pharmacy BP report impact of process delays. procurement managers, hosp finance & audit depts Establish a control system to ensure outstanding Pharmacy BP report invoices are routinely identified and followed up. procurement managers Review current systems against the supplier Pharmacy BP report preferences and implement systems for optimum procurement efficiency. managers Benchmark inventory with comparable trusts. Pharmacy BP report procurement managers Not print electronically processed orders simply to Pharmacy BP report provide an audit trail. procurement managers Third parties Design supply systems to ensure order fulfilment at the Suppliers and BP report first attempt, including bar code technology for manual wholesalers picks Process orders electronically using means that will Suppliers and BP report notify purchasers of exceptions to order requirements, wholesalers eg quantity, price and delays.

14 Recommendation - Action By whom Related KPI Cross-ref to Source of audit tool recommendation Develop the facility to receive orders electronically. Suppliers and 11 – order (lines) BP report wholesalers transmitted electronically Issue invoices with goods or transmit them on Suppliers and BP report despatch. wholesalers Both suppliers and trusts should implement electronic Suppliers and trusts 12 – invoices BP report invoicing facilities. reconciled electronically Establish inventory management systems that ensure Suppliers and BP report a high level of order completion at the first attempt. wholesalers Manufacturers should notify wholesalers promptly of Manufacturers BP report new contract awards and prices. Wholesalers should provide regular performance data Wholesalers 1,2,3,6,7 and 9 BP report to customers. Identify with pharmacy procurement managers the Suppliers and BP report most economical order frequency for both parties. wholesalers Review systems for handling invoices and other Suppliers and BP report queries to ensure prompt resolution. wholesalers Wholesalers and trusts should take swift action to Wholesalers and SGAC report resolve any long-standing invoice/payment disputes trusts Implement, without delay, developments required to Pharmacy software BP report improve inventory and supply chain management. suppliers Electronic systems should be established to ensure Pharmacy software BP report correct order price or correct price at the time of suppliers receipt. Pharmacy IT system providers should develop their Pharmacy software BP report systems to allow goods receipt and expiry date logging suppliers from bar code scanning. Computer systems should identify the correct storage Pharmacy software BP report location for goods received. suppliers Pharmacy IT systems should enable invoices to be Pharmacy software BP report matched electronically. suppliers

15 Recommendation - Action By whom Related KPI Cross-ref to Source of audit tool recommendation National/once-only action Encourage major stakeholders in the pharmaceutical PASA & NHS BP report supply chain to work together more closely to Logistics improve efficiencies and release value from the supply chain. Increased transparency and improved information flow throughout the supply chain, by utilising e-procurement concepts, will aid this. Formation of a group representing all major stakeholders may facilitate this process. Work with pharmacy system providers to interface PASA BP report PHATE database for automatic usage information and contract updates. Encourage more pharmaceuticals suppliers to PASA BP report introduce electronic trading or to trade through agencies with that facility. Review the system for notification of new contract PASA BP report awards and contract price amendments as well as product descriptions. Encourage more companies with moderate hospital PASA BP report trading values or product portfolios to trade through agencies to enable order consolidation. Help trusts to raise profile of pharmacy with trust SGAC study/mtg executive/board PASA with - skills trusts/PASA/AAH - ownership of supply chain process - lack of resources and expertise for distribution/supply chain Consider different pricing structures to secure quality PASA, trusts and SGAC study/mtg service (eg premium price for some ‘added value’ wholesalers with services). Build into framework agreements and trusts/PASA/AAH reflect in KPIs? Provide/facilitate additional training in pharmacy PASA 4.6 HR systems Establish and support pilots to implement best practice PASA & NHS Logistics

16 8. Implementation

To derive maximum from the work, it is important that implementation is locally owned and driven according to local circumstances. A key first step is to test the recommendations in a variety of settings. A small pilot programme is therefore being established to take this forward. Trusts meeting the minimum criteria were invited to bid for pilot status, with the objectives being twofold:

 to effect real supply chain efficiency and performance improvements for the pilot trusts  to extract the learning for roll-out to other trusts.

Pilots will begin in January 2005, each supported by a Supply Chain Development Manager from NHS Logistics. A copy of the guidance sent to trusts with the invitation to put forward to bid is at Annex C.

This local approach will be supported by dialogue, at national level, with key groups of stakeholders, with the aim of implementing those recommendations that are outside a trust’s direct control.

9. Strategic options for the future

Most of the work to date has concentrated on tactical improvements to the existing arrangements, rather than major strategic change. This was for two key reasons:

 there was considered to be significant performance gains available from making tactical improvements  addressing these operational issues would both inform the longer-term strategy and build confidence in the trust/wholesaler relationship (a pre-requisite for long-term commitment to change).

Once implementation of tactical improvements is underway, the necessary foundations will be in place to re-visit the strategic options for the future. In particular, close co-operation with wholesalers over the KPIs and changes in working practices by all parties will help to create the right climate for pursuing the partnership option. To this end, the ‘DIY’ option for an ‘NHS-owned’ distribution service has been put on ice for the foreseeable future.

10. Conclusion

This paper summarises a significant body of work and sets out the key outputs, which were presented to the National Pharmaceutical Supplies Group in September 2004. In undertaking this work, the pharmaceutical supply chain has come under renewed scrutiny and, as a consequence, has risen up the agenda, both nationally and locally. A new kind of dialogue with stakeholders has emerged, which should help to form the basis of new and more collaborative working relationships going forward.

The Supply Chain Project Steering commends this work to all parties to the supply chain.

Samantha Forrest Head of Research and Development, NHS PASA (on behalf of the Supply Chain Project Steering Group) 17 Annex A

Project steering group terms of reference

Membership

Core membership of the group is as follows:

Sam Forrest PASA Howard Stokoe PASA Tony White (replaced by NHS Logistics Frank Hill from April 2004) Steve Athey Yorkshire Roger Miles North west Peter Sharott London David Samways South west Andrew Davies West Midlands Judie Finesilver PASA

Other stakeholders who may contribute and attend meetings from time to time include Neil Argyle and John Warrington of PASA. The group will have a pool of other contributors on which to draw, as necessary, and others may be co-opted from time to time as needed.

Purpose of group

The project group is convened at the request of NPSG to take forward phase two of the pharmaceutical supply chain project, following a presentation of the outputs of phase one to NPSG on 15 October. The group brings together representatives from PASA, NHS Logistics and pharmacy purchasing groups who are involved and actively interested in supply chain issues. Its overall purpose is to build on the work undertaken in phase one and take responsibility for planning and implementing all activity necessary to be able to make solid recommendations for improving the supply chain back to NPSG.

Scope of project

The project encompasses all processes and practices impacting on the logistical arrangements for pharmaceuticals in secondary care in England, focusing in particular on the interface between trusts and wholesalers. IV fluids were not excluded from this phase but any thinking on this will link with the separate work already underway. The project does not include the dispensing process in itself, but may consider issues arising from this as they impact on the supply chain. All work will be undertaken within the context of wider national/government initiatives for the NHS.

Objectives

 To critically evaluate the strategic options identified

 To develop a coherent strategy for future supply chain arrangements, based on the strategic option selected, including an agreed methodology for measuring performance

 To investigate further and trial tactical options, as appropriate, to determine which ones fit with overall strategy and are best suited to particular circumstances/geographical locations 18  To develop the optimum business model for future supply arrangements, focusing on the type and nature of contractual relationships between the players.

Project structure NPSG

Steering group

Sub group Sub group

Other contributors/ co-optees

Modus operandi

Much of the work will need to be undertaken by members and a range of other co-optees outside of group meetings. There will be a number of key workstreams ‘sponsored’ by a member of the group, supported by others as appropriate. At project group meetings, members will report on progress, discuss key issues or problems arising from the work, and agree further action as necessary.

Outputs

The key output will be the development of a draft strategy, with a set of recommendations for NPSG – evidence-based, wherever possible. This will need to recognise the need for agreement and coherence in some areas (eg performance measurement), whilst allowing for variations in circumstance in trusts across the country.

Specific deliverables from the workstreams will include:

 a set of recommended core KPIs  a standard tool for capturing data and monitoring performance  recommendations for improving trust and Agency activities impacting on the supply chain

Timescales

The group will exist for the lifetime of the project only. Timescales within the project will be developed as part of the project planning process, but the aim is to give an interim report to NPSG in 2003 and be in a position to put forward more detailed recommendations at a date to be agreed.

Accountability

The project steering group is managed by the Agency and accountable to NPSG.

SF/October 2002 19 Annex B

Phase one: Strategic and tactical options

Phase one culminated in the presentation of a number of strategic and tactical options for improving supply chain arrangements in both the shorter and longer term.

Strategic options

 Fostering wholesalers as partners  Increasing participation in e-marketplaces  ‘Do-it-yourself’

Tactical options

 Ward box assembly by wholesalers (or others)  Incentivised contracts/penalty clauses  Vendor rating tool  Electronic ordering and invoicing  Bar code use for receipt and ward stock re-ordering  Contracts instead of ‘contracts’ (ie framework agreements)  Supply chain co-ordinator  Robot dispensing  Night-time delivery  Payment on account

20 Annex C Pharmaceutical Supply Chain project: piloting the outputs

Background

The national Pharmaceutical Supply Chain project commenced in 2001 against a background of increasing dissatisfaction with the service provided by the main wholesalers. The first phase of the work identified a number of strategic and tactical options to effect improvements in performance. Several workstreams were then established to develop recommendations in specific areas. The project has represented a collaboration between NHS PASA, NHS Logistics and the NHS, with recommendations being developed and owned by hospital pharmacists.

A key premise for much of this work was that no one party to the supply chain was solely to blame for poor performance: each party should be prepared to examine its own systems and practices, with a view to smoothing the operation of the supply chain as a whole. This included not only trust pharmacy but also trust finance and audit departments that have the ability to influence transactional activity and performance.

The outputs of the project were endorsed in principle by NPSG in September 2004, subject to triialling. We are therefore establishing a pilot programme to implement the recommendations and report back on the experience. The programme is described in more detail below.

The pilot programme

Pilots will commence in January 2005 and, in order to maintain focus and momentum and minimise ongoing disruption, are conceived as being short and intensive (three months).

Trusts able to meet the minimum requirements (see overleaf) will be selected following a bid process as outlined below. The objectives of the pilots are as follows:

 to effect real improvements in the efficiency and performance of local supply chain arrangements, particularly in the interface between the trust and wholesalers  to learn lessons from the process that will be of benefit both to the pilot trust and to others  to inform a wider programme of implementation, including enhancements to pharmacy systems and additional training where appropriate.

A Supply Chain Development Manager from NHS Logistics will be assigned to each pilot site to support the process and bring specialist knowledge and expertise (see below).

The methodology employed at each pilot site will be agreed with the trust, with roles, responsibilities, resources and other inputs being clearly defined and agreed. While the core process will be similar across the pilots, some variations will be necessary to take account of the baseline, the pharmacy system and other local circumstances.

It is envisaged that there will be two to three pilot sites; however, the final number will be determined during the selection process.

21 Input from NHS Logistics Supply Chain Development Managers  Support/develop scoping of projects and terms of reference  Develop Project Initiation Document/ project plans  Project manage pilots - requires full support and authority of trust sponsor/ owner  Conduct situational analysis: replenishment processes/inventory/costs  Establish baselines and benefits tracking based on KPIs  Apply/test best practice solutions  Develop future supply chain model  Implementation planning, including plan and resource/funding/change management requirements  Handover to trust owner/champion

Potential benefits

The precise benefits to accrue from the pilot approach will depend on the starting point (baseline) and on local circumstances. However, the overall objective in implementing ‘best practice’ is to achieve ‘right first time every time’ in supply chain and transactional activity wherever possible. In this context, best practice means that systems are designed that enable tasks to be performed at the right time, in the most cost-effective way and without duplication or failure. The key areas for focus will be supplier base management, inventory management, and transactional efficiency (purchase to pay). For example, work undertaken to date has suggested that there is considerable scope for reducing costs associated with completing the order cycle (including error rectification). Whilst these may not be cash-releasing savings, they will be important both in releasing staff time and in ensuring that the right drugs are available at the right time with minimal unnecessary manual intervention. In addition, financial benefits are expected to accrue from stockholding improvements, particularly waste reduction. Specific deliverables will be agreed with each pilot trust at the outset. It is stressed that, in order to maximise the benefits available from participation, trust commitment and resources must be in place to follow through the implementation. Pharmacy resources at each stage of the supply process will need to be accessible and support the requirements for supply of data/info, planning sessions and implementation.

Bid process

Interested trusts are invited to complete the attached application form and return it to Samantha Forrest by 19 November 2004. This can be via email ([email protected]) or via the post: c/o Barbara Harrison, NHS Purchasing and Supply Agency, Premier House, Caversham Road, Reading RG1 7EB. An electronic version of the form, designed for on- screen completion is available on request from [email protected]. Successful trusts will be asked to provide further information by 15 December. This, together with data already collected, will be used for baseline measurement. A Project Initiation Document (PID) will also be drawn up for each pilot at this time.

Timetable Closing date for bids: 19 November 2004 Successful trusts notified by: End of November Data returned for baseline measurement: 15 December PID prepared and signed by sponsors: Mid December Briefing session (all pilots): 6 January 2005

22 Pilots commence: 10 January

Minimum criteria for pilot status

To qualify for pilot status, trusts must be able to demonstrate that they can meet the minimum requirements in the following areas.

Management  Full commitment from Chief Pharmacist (as sponsor) commitment  Support from Finance Director/Manager  Support of local/regional procurement/technical pharmacist  Support of finance department

Resources to support pilot  Local project owner, accountable for delivery3 (suggested minimum of 0.3 – 0.5) WTE for three months)  Availability of lead user of pharmacy system  Access to Finance/Audit staff

Availability of data  Sufficient management data to establish baseline (eg current number of replenishment orders, lines, inventory levels/turns, service levels, where available etc)

Benefits tracking  A commitment to track and report on benefits for a 12-month period following implementation, using tool(s) supplied

Resources for  Project owner to drive implementation, manage implementation change and embed outcomes  Manager/team leaders to support/ implement change  Pharmacy staff to understand reasons for change, make actual changes and operate new processes

Sharing of  Written case study capturing lessons learned outcomes/benefits  Information to inform training in and/or development of pharmacy system  Commitment to openness/sharing with other trusts (excluding any confidential or sensitive data)

Attendance at briefing  Project owner and a member of the Finance session department must be available for briefing day on 6 January 2005  Attendance of regional procurement/technical pharmacist desirable

These areas are reflected in the application form enclosed as part of this package.

3 The project owner will be the key, at trust level, to the success of the project. He/she should have good organisational and pharmacy knowledge, some relationship management skills and the ability/ position to influence other stakeholders. Some project management skills would be an advantage but not essential. 23 Q&A What’s in it for me/my trust?

For many trusts, the pharmaceutical supply chain has received little attention, apart from rectifying errors when things go wrong. This may be due to other priorities in hospital pharmacy development or to a lack of resources or expertise to devote to this area. With national attention now being focused on improving the pharmaceutical supply chain, specialist input is available to selected trusts. Participating trusts will not only be able to fulfil their own improvement objectives (for example, increased transactional efficiency, reduction in waste) but will have the opportunity to test, implement and demonstrate best practice in supply chain management.

What if my trust has already taken part in the project?

A number of trusts have already participated in one way or another, and a few have put considerable time into a particular study; such trusts may wish to consider carefully whether they are able to commit further time and resources. However, all trusts are given equal opportunity to put forward a bid, provided they meet the minimum criteria. Previous participation in the supply chain project confers neither advantage nor disadvantage in the selection process.

I already have a good relationship with my prime wholesaler: does this mean I stand to benefit less than other trusts?

Each trust will have a different starting point and therefore differing reasons for applying to become a pilot. That is why it is important to be clear about the baseline at the outset and to jointly identify the particular areas for focus at each pilot site. Any aspect of current supply chain practice can be challenged as part of the project, including finance and audit policies that may be seen as outdated and act as a hindrance to the smooth operation of the purchase to pay process. It is expected, therefore, that any trust can benefit from this approach, even where arrangements are perceived to be working relatively well.

How can I be sure that the approach will be tailored to the needs of my trust?

Before the pilot commences, a Project Initiation Document will be drawn up and agreed by the Chief Pharmacist and the Supply Chain Development Manager assigned to your trust. This will detail the objectives and the outputs for your trust, based on your starting point (baseline) and the agreed areas of focus, where most benefit is expected to be derived.

It’s not just about what happens in pharmacy: what are you doing to improve wholesalers’ practices?

We have been working with the main national full-line wholesalers throughout the over-arching project. The prime wholesaler of each pilot trust will be involved as part of the pilot approach.

I have some further questions, or want to discuss this in more detail before putting forward an application. Who can I contact?

For background information about the national project, or an overview of the pilot programme, contact: [email protected] For an overview or technical/pharmacy-related queries, contact [email protected] For more detail about the methodology or input from NHS Logistics, contact [email protected]. 24

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