Queensland Health Transforming Procurement

Procurement & Logistics in Queensland Health

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Queensland Health’s operating

budget $13.622 billion FY14–15

Employs approx. 80,000 people

across 182 hospitals and the

department

Procurement & Logistics sits in a

broad group of support services

in Health Support Queensland

(HSQ) a commercialised

business unit within Queensland

Health.

Supports the state’s 16

independent Hospital and Health

Service Boards (HHS’s) with

their supply and procurement

needs.

The independent boards were

established in 2012

We are responsible for leading and coordinating the sourcing, contracting

and end-to-end supply of medical and non-medical goods and services on

behalf of the Department and 16 Hospital and Health Services.

Procurement & Logistics Role

Provides overall governance,

coordination and support for

strategic procurement activities

across QH

Circa $3b Addressable Spend

(exc. Grants, IT, Infrastructure)

Top 83 Suppliers represent

50% spend / Long Tail

Strategic Procurement

Complete end to end supply

chain service spanning

Purchasing, Warehousing,

Distribution, and Imprest

Management Service

2 DCs, 5 warehousing facilities,

7 Purchasing hubs

Throughput of $830m per

annum

3.2m transactions p.a.

Supply Chain

One Stop Shop for the supply

and distribution of

Pharmaceuticals across the

state

Includes a state of the art

manufacturing facility

COGS = circa $300m

Over 3000 SKUs

Central Pharmacy

QH Procurement & Logistics

Macro health trends and challenges

• Queensland is a geographically dispersed population requiring a service platform to

all corners of the state

• Increasing burden of chronic diseases

• 15% of population represent 60% of the costs

• Declining workforce participation and productivity rates impairing capacity to deliver

healthcare services and

By 2026:

Growing Population – Qld will increase by 1/3 to 6.1m

People living longer - 1.1m in Qld will be over 65 – an 83% rise since 2011

Queensland Health will consume the entire forecasted State Budget if we do not

contain our spend projections

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Key Procurement Challenges Customers, People & Processes

• Centralised Model is not customer centric

• Systems are high effort, and drive errors and off contract purchasing

• Capability is operational not strategic

• Clinical customer behaviour drives inflexible purchasing practices

• Lack of data and purchasing transparency make governance and compliance

challenging

• Manual workload means we are focussing on managing a system rather than

improving it.

Key:

Multiple aging systems and manual processes unable to support data requirements of

modern strategic procurement

Key Procurement Challenges Systems

Vision

We strive to be the benchmark healthcare procurement and logistics service

across Australia.

Where do we want to

be?

Strategic Focus

Areas

Outcome Measure

Optimise Customer

Experience

Become a trusted and

responsive ‘Supplier of Choice’ - Net promoter score

Develop

Our

People

Build a highly capable and

engaged workforce

- Engagement score

- Personal Development Plans in place

Innovate Service

Delivery

Leverage technology and

strategic partnerships to

optimise service delivery

- DIFOT

- Spend under Management

- % benefits from Innovation

Adopt Commercial

Principles

Embrace performance

benchmarking and significantly

shift customer ROI outcomes

- Realised benefits ($ against target)

- Average cost to serve per volume unit

- Price Benchmark for ‘Basket of Goods’

We strive to be a benchmark healthcare procurement and logistics service in Australia

Procurement Transformation

Horizon plan

1.0 1.5 2.0 2.5 3.5 5.0 3.0

Laggard Foundation Established Leading Excellence

1.8

• Functional Siloes across the

Procurement Value Chain

• No basic Procurement processes

or capability

• Procurement is highly reactive,

with no collaboration with

customers

• Commercial contracts managed

outside of procurement

• No reporting

• Limited strategic sourcing

• No category management

• Highly transactional and manual

– no automation.

• Systems insufficient for

procurement purposes.

• Basic collaboration across end to end

Procurement functions

• Processes in place, but not enforced

effectively

• Procurement has limited collaboration

with customers – no governance

• <25% spend managed

• Many major contracts not managed by

Procurement

• Mainly Compliance focused –

excessive approvals

• Category strategies focused on basic

price / cost re-negotiations

• Paper heavy

• Capital and

FTE intensive

• Systems very

limited -

manual workarounds required to

extract data

• Integration across the entire value

chain occurring for some spend

categories

• Solid processes with some strong

capability in place

• Collaboration on specific categories or

initiatives

• New Governance developed

• <50% spend managed

• Category strategies

include demand mgt,

• product standardisation, & waste

control projects.

• Limited key partnerships

• Some system enablement – e.g.

QContracts / Dashboard / eCatalogue,

but still clunky.

• S2P strategy commenced.

Procurement embedded across all sourcing

and category mgt activities

• Governance model mature

• Processes / capability strong

• <90% of spend managed

• Supply chain partnerships piloted across

state

• Category strategies look at transforming

TCO & Total Patient Care outcomes, and

exploring joint supplier projects

• Procurement Consortia / LCCS explored

• Full S2P technology enablement 50%

implemented

• Lean, fully integrated end to end

Procurement value chain based on cat.

mgt approach

• Processes institutionalised &

systematised

• Procurement proactively sought after &

fully integrated with customers at

operational & executive levels

• >90% spend managed

• Supply Chain partnerships fully

implemented. P&L focus on being a

contract mgr rather than service provider

• Category Strategies pursue new

product/service designs, CSR &

Sustainability activities

• LCCS projects implemented

• Full S2P fully implemented

4.0 4.5

• Significant collaboration across the value

chain

2014 2015 2016 2017

Imperatives of building competitive procurement and

supply model

• Customers budgets under growing pressure seeking Procurement & Logistics to deliver

savings now.

• Time without results is our enemy. If we cannot engage customers with quick wins

along this lengthy and complex transformation journey, we risk customers finding their

own solutions.

• Risk of system fracture if we cannot deliver, diluting state-wide negotiation capability

and adding incremental consultant costs.

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Key to success Structure, governance, people & systems

capability, and engaging customers

Structure & Governance

Better compliance, pricing and service, both locally and state-wide

• \

10

HHS

HHS

HHS

Operational

hubHHS

HHS

HHS

Operational

hub

Operational

hub

HHS

HHS HHS

Operational

hub

HHSHHS HHS

HHS HHS

HHS

Operational

hub

State

wide

hub

Key Features

Hybrid model incorporates the best of both worlds -

system wide strategy, local execution

• Attractive all of state pricing on high volume

commoditised products.

• Attractive hub pricing on items that may have

attracted higher pricing in a centralised model.

• Local needs identified and supported.

• Local management of purchasing behaviour

The results of the QH procurement capability maturity assessment indicate

that the overall level of maturity is perceived to be 2.7 however was

independently observed as 1.8

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• We need an injection of strategic capability quickly to deliver value, maintain momentum and build credibility.

• We have filled critical skills and leadership gaps with short term contractors to build the capability of our

workforce

QH Procurement Maturity Assessment - 2014

People

Systems

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Objectives

• Deliver quick wins to reduce customer effort through simple non system integration initiatives.

• Timeliness and quality of the management, sourcing, procurement, inventory and payment processes

• Decrease transactional activities to free up capacity for strategic activities

• Increase information availability and reduce need for information analysis costs

• Reduce resources and costs associated with transaction processing and governance

• Reduce contract non-compliance and off-contract buying which erode sourcing benefits

• Reduce the cost of purchased goods and services

Phase 1

Qu

ick W

ins

E-Catalogue to reduce customer data entry effort and improve contract compliance

Manual category data extraction to enable quick win savings initiatives

Ph

ase

2

Sourc

e to

Pay

Syste

m

Software as a Service systems

Intuitive user interface & familiar user experience

Workflows via system, emails and apps across delegations, rules and work instructions managing governance, approvals and staff daily duties.

Agile systems for “bespoke” changes administered “in house”.

Real-time visibility, control and management of expenditure and staff workloads.

Future “Source to Pay” System

S2P, refers to the business processes that cover activities of finding (sourcing),

requesting (requisitioning), purchasing, receiving, inventorying, paying for and

accounting for goods and services.

Scope of process improvement and system

UPSTREAM PROCESS

DOWNSTREAM PROCESS

Customers

• Engage early to understand their needs.

• Encourage collaboration to build future solution.

• Encourage investment so they have skin in the game.

• Deliver quick wins to maintain buy in.

• Provide regular progress and outcomes reporting and updates.

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Q&A

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Thank You