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PAC 42nd Report (1990-91)
HC 466
| 1. In October 1991 the Committee of Public Accounts reported the outcome of their examination of National Health Service supplies in England. They recommended, in particular, that the NHS Executive needed better information about their main suppliers and about the lines they purchased, so that they could tighten their grip on supplies activities and get better value for money from the enormous expenditure involved. They also expected the NHS to attain a position where the price levels they achieved stood comparison with the very best of purchasing organisations, and that action taken on supplies should be related to financial or service targets and closely monitored.
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C&AG's Report(HC 457 of Session 1995-96), paras 1-2
Cmnd 1798, 1991-92
| 2. The Government established the NHS Supplies Authority (NHS Supplies) on 1 October 1991 to ensure an efficient, effective and economic purchasing and supplies logistics service for the NHS. NHS Supplies' remit was to address inefficiencies in the previous supplies arrangements managed by regional health authorities. The Government's response to the Committee's 1991 report looked to NHS Supplies to take action on the recommendations.
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| Evidence, p. 1
| 3. Since 1991, the NHS has spent over £8 billion under supplies arrangements operated by NHS Supplies. On the basis of the Comptroller and Auditor General's report and a memorandum from the NHS Executive updating data in that Report, our predecessors examined the progress made by NHS Supplies since they were set up in helping to ensure value for money from this expenditure.
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| 4. We have considered the evidence given, and our main conclusions and recommendations are as follows:
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| The Performance of NHS Supplies:
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| (i) We note that NHS Supplies have achieved estimated purchasing savings of over £260 million since they were set up. However, these levels appear modest when viewed against the £8 billion of NHS spending that NHS Supplies influenced in the same period, and their annual operating costs of £70 million (paragraph 32).
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| (ii) We are therefore surprised that the NHS Executive have relaxed the savings targets for 1996-97 to between four per cent and five per cent of contract value. We expect the NHS Executive to take a hard look at the scope for further savings and to set tough targets for NHS Supplies (paragraph 33).
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| (iii) We also look to the NHS Executive and NHS Supplies to supplement the existing measures of savings achieved by benchmarking NHS Supplies' operations against best commercial practice, as well as the broader comparisons with other sectors (paragraph 34).
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| (iv) We note that the NHS Executive accept the scope for further improvement in supply chain management by NHS trusts following a report by the Audit Commission, and that they plan work with the Commission to achieve this. We note too that they plan to measure progress in achieving the forecast savings of £150 million over three years. We look forward to receiving a report on the outcome of this work (paragraph 35).
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| (v) We note the action taken by NHS Supplies to respond to concerns about their performance amongst trust chief executives, and that NHS Supplies' 1996 survey suggests some improvement in levels of satisfaction over those recorded by the National Audit Office in 1994. However, the latest survey shows that there is no room for complacency particularly on price and value for money. We look to NHS Supplies to continue to address chief executives' concerns and to repeat the survey on a regular basis. And we recommend that the NHS Executive set specific performance targets for NHS Supplies to achieve in key areas of customer satisfaction, taking into account benchmarks for the industry as a whole (paragraph 36).
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| (vi) We recognise that the vast majority of NHS trusts surveyed by the National Audit Office provided a response to their questionnaire but we are concerned that a small minority did not. We expect the NHS Executive to ensure that all health service bodies fulfil their responsibilities in providing information requested by the National Audit Office (paragraph 37).
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| (vii) We welcome the fact that NHS Supplies have offered a lowest price guarantee on virtually all goods sold since April 1996. This is a helpful mechanism for assessing whether NHS Supplies are providing good value for money (paragraph 38).
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| (viii) We are concerned that it has taken five years to move to a single purchasing organisation; to remove differences in pricing; and to introduce a new activity-based costing system. While we recognise the need to ensure continuity of service, we doubt whether either the NHS Executive or NHS Supplies have achieved these changes with sufficient urgency or as quickly as they might (paragraph 39).
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| The Organisation of NHS Supplies
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| (ix) We note the progress made in rationalising NHS Supplies' warehousing facilities. However, we are concerned that it has taken so long and that NHS Supplies still do not have the optimum mix of sites and facilities. We recognise that proposals to address this are under consideration by Ministers (paragraph 57).
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| (x) We note that NHS Supplies have devoted much effort to extending their materials management service in hospitals, and are now operating differential pricing according to volume on an increasing number of goods to discourage trusts from purchasing in uneconomic quantities. We look to the NHS Executive and NHS Supplies to work with trusts and the Audit Commission to help develop best practice in supplies management at local level (paragraph 58).
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| (xi) We note that NHS Supplies have developed partnership agreements with 40 major suppliers and that they are increasingly making use of external expertise particularly in transport and warehousing. Effective collaboration and dialogue between NHS Supplies and the private sector is important in ensuring that NHS Supplies take full advantage of best commercial practices available and opportunities to remove duplication and cost in supply chain management for the wider benefit of the NHS (paragraph 59).
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| (xii) We note the steps that NHS Supplies have taken to enable new, and in particular small, suppliers to gain entry to the NHS market, and their plans for promoting wider dialogue between customers, suppliers and transport organisations, through supply clubs, as a way of encouraging innovation. We expect NHS Supplies to maintain and develop an effective dialogue between all parties involved with a view to maintaining healthy competition and to enabling the NHS to benefit to the full from innovative ideas and products (paragraph 60).
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| (xiii) We recognise that NHS Supplies have made progress in tackling the weaknesses in supplies arrangements highlighted in the predecessor Committee's previous examination and report of October 1991. However, we are disappointed that overall progress has been so slow and at the time being taken to realise the full benefits anticipated from setting up a central supplies organisation. This delay will have added unnecessary costs to health care providers (paragraph 61).
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| (xiv) For the future, we expect the NHS Executive to set more challenging, measurable targets and milestones, both annually and in the longer term, as a basis for securing improvements in operational performance and in the supplies organisation and infrastructure (paragraph 62).
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