Monday, 7 April 2008

Save us!

Dry technical work related stuff. Having trouble sleeping……..?

April is another one of those fun times (are there ever any other type?) in the world of Health Service purchasing. Being the start of the new financial year it’s time to submit the departmental ‘workplan’ for the year. Contracts to be let, opportunities to investigate and savings targets to be received from on high.

It would of course make sense to determine what the potential savings are using market intelligence and from the opportunities available. However it works the other way around. You are told that you have to save £1.5m and it’s up you to find the projects to fill the gap. Which after a few years of concerted contracting activity over a wide range of product groups isn’t as easy as it sounds as you hit diminishing returns pretty quickly

I pointed out to my lords and masters a few weeks ago that considering the inflationary pressures in the economy we would be doing pretty well to maintain current costs into the new contracts this year. I went on to say that perhaps the really way to improve cost efficiencies is to look at supply chain issues, are we buying and stocking things in the most efficient way possible. Are they the best value alternative available? Are we using products correctly to reduce unnecessary wastage or do we need them at all?

Coming from a private sector manufacturing background these are basic questions to be asking but the response was pretty blank. ‘Yes Grendel, that’s something we should look at. But what about the price of these ink jet cartridges?’

But the real fun starts when you try to define what a saving is. Is it the reduction of the price paid for a thing or a service? Well partially but of course it’s not always that simple.

The term 'Cash Releasing savings' do cover this.

But then you enter the nebulous world of 'Cost Avoidance Savings'. This is where a price or the increase of a price has been negated or delayed through negotiation or some other action.

There are other categories of saving too but two is enough for now.

Of course the finance people, although pretending to have an interest in all of the savings types are really only interested in those that allow money to be reclaimed from a budget. The 'Cash Releasing' type. It’s a shame that they don’t view Cost Avoidance in the same way. You could ask a friendly supplier to prepare a list price for a £1 widget at £1,500,001. One purchase order later and hey presto that’s the target achieved, off down the pub then!

The other thing that they do is once a contract has been awarded they will remove the ‘savings’ from a departments budget there and then. Which is also a bit of a nonsense. You will never really know what the true expenditure and savings figure are until the contract is finished. They may end up buying lots more than expected of whatever it was during the contract period and naturally the savings figure will go up but so will the expenditure. So they may end up being over spent anyway. They may buy less so although not overspent the savings performance is shot to pieces. But either way the money stripped from the budgets just after the contract has been let is unlikely to bear much relation to either.

And where do the piles of saved cash go? Well it’s often used to subsidise the running of the overspending departments. Sometimes this is due to inefficiency, unpredictable demand but quite often rather bad budget setting.

But being a hospital you can’t just close departments down. However the departments who do achieve financial balance and make savings sometimes get a little disgruntled and ask what ‘the point is’ when I come a knocking to discuss their views of potential tendering opportunities. If they put in the time and effort they would occasionally like to directly get some of the benefit.

And of course in reality this means that the savings aren’t really that at all. It may reduce any general overspend but unless the budget setting is done on a more scientific basis or processes and practices improved then any money saved will just be thrown back to support the status quo rather than being available for general service improvement. Which seems both a shame and the wilful swapping of carts and horses.

Who in their right mind would through additional money at a service and then hope to reform it. …. Oh!

But fear not dear taxpayer, the target will probably be reached in one way or another. The recent increase in the list price of Inkjet cartridges is shocking.

1 comment:

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