Value-based procurement: a new paradigm for procurement?

Date Posted: 18/03/2020 Category:
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Value-based procurement: a new paradigm for procurement?

Date Posted: 18/03/2020 Category:

The NHS is pioneering an intriguing new approach to procurement that may have relevance to procurement professionals engaged in industries well beyond the health sector, the medical technology news outlet Med-Tech Innovation reports.

The novel initiative, known as ‘value-based’ procurement, is defined by NHS Supply Chain as going beyond cost reduction to deliver measurable financial benefits to the health system, including quantifiable improvements in patient outcomes that have arisen as a result of key procurement activities (tendering, contracting, clinical engagement and supplier relationship management).

According to Brian Mangan, project lead for value-based procurement at NHS Supply Chain, the aim is to bring about a “paradigm shift” from conventional buyer-supplier relationships towards a new ecosystem of industry suppliers and healthcare in a climate of mutual trust and shared objectives, benefits and improved outcomes.

Mangan gives the example of a knee transplant: procurement can often achieve a 10% cost reduction on the typical current price tag of £1,000, or £100.

However, if they sought to achieve a similar 10% cost reduction in the entire pathway, including better theatre efficiency and shortened lengths of stay, savings can be more than quadrupled.

If the total pathway cost is £5,000, the saving would amount to £500.

Reduced length of stay and improved theatre efficiency are two sources of value that would be invisible to an approach based solely on unit price.

The value-based procurement concept has been given a clearer pragmatic formulation by a team at North Western Procurement Development, who have defined the target domains for enhanced value as quality (e.g., of purchased equipment and service delivery), innovation (e.g., new products but also new forms of engagement, such as during treatment trials), financial (from improved invoice accuracy to ‘whole life’ cost reductions), and productivity/efficiency (improvements in the whole clinical pathway from treatment to patient discharge).

A key factor in the new approach, however, is supplier relationship management, a sign that success continues to be seen squarely in terms of good relationships with industry suppliers.

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