Managing your digital supply chain

In this chapter we unpack four practices essential for successful supplier management.

Due to the scale of procurement choices, most NHS boards know which suppliers provide key services such as an electronic patient record (EPR). But what is less common is boards who have true visibility of how many suppliers they rely on, and where the risk and opportunity lies across the whole chain. Fewer still have a strategic plan to inform their approach to supplier management.

Technology suppliers often have a unique ability to both transform the operation of the organisation and at the same time to materially disrupt the delivery of safe patient care. There are numerous examples over the last few years of NHS organisations which have been paralysed due to problems at their suppliers, with the first officially recorded patient death due to a cyber attack recorded earlier this year.

Digital supply chains can feel complex and like the supplier has the upper hand, however the reality is often more nuanced. In areas where there are limited suppliers and specialist needs - such as EPR or specialist clinical systems - trusts may feel they have less real-world choice about who they procure from, with the cost of change often being prohibitive.

In these cases the combination of limited competition, specialist needs and the relatively small size of individual trusts as customers can skew the negotiating power heavily in favour of suppliers.

Indeed the digital healthcare market itself is divided: a small cadre of large technology giants and consulting firms capture the majority of spending and can be aggressive in bundling services to increase lock-in, while a vast and fast changing landscape of small and medium-sized enterprises (SMEs) compete for a small slice of whatever is left over.

At the same time, products and services that are purchased cross-industry, such as data centres, telephony and networks see a much more competitive market which can help the NHS to secure better deals and obtain better quality services. This is a pattern we see in other areas of the public sector as well as the NHS.

Boards need to develop a stratified view of their supply chain that recognises the sources of value, risk and opportunity that is presented. Supply chain risks could include the supplier’s financial standing, cyber-security, operational delivery and compliance. Potential upsides should also be identified - particularly which suppliers present the best long-term value in terms of culture, innovation and partnership. How do they benchmark with the best in class in the UK and internationally? 

The digital and technology landscape continues to innovate faster than most individuals and organisations are able to harness. The horizon is already here. Generative artificial intelligence, ambient voice technologies, and machine learning are transforming patient and staff expectations. The NHS has a choice: continue reacting to supplier constraints, or take a more proactive, collaborative approach that puts value, quality, and patients at the centre of its digital partnerships. Understanding the innovations that are here now and what is on the horizon, how they might be able to support your organisation and sifting the noise from the deliverable change requires effort.

The best supplier outcomes ultimately come from strong partnerships with your strategic suppliers. A well balanced portfolio of relationships will foster a shared culture, aligned understanding of risk and bring a strategic lens to the development between supplier and customer.

Strategic global digital healthcare organisations are often multi-billion pound organisations which have considerable board-level expertise and insight to offer the NHS.

Creating relationships of this nature requires effort which busy NHS boards and executive teams can struggle to prioritise. Getting alignment on the leadership and executive engagement required and your strategic intent can ensure you make the best use of limited headroom. 

Boards should consider:

• Hosting strategic senior events with multiple suppliers in attendance to reflect the team-working that occurs across the supply chain every day.

• Investing board development time with key supply chain partners.

• Collaborating early on innovation and research projects.

• Establishing joint steering committees or innovation forums to align on goals and shared research and development.

• Share performance data transparently to encourage mutual improvement.

NHS trusts usually have a procurement function that will be active in the awarding of new contracts. These teams are under tremendous pressure to transact hundreds of deals each year and generate savings for the trust. Many procurement teams focus on this buying process rather than managing supplier relationships throughout the contractual lifecycle. Meanwhile chief information officers (CIOs) are often digital-health experts rather than supplier management specialists.

This gap in accountability and expertise can lead trusts to underestimate the effort required to rigorously manage beyond the initial contract phase. Procurement teams are focussed on the next transaction to complete, while CIOs can lack the experience, expertise and confidence to engage appropriately.

Supplier teams are often very adept at navigating this gap. They will come to meetings backed by legal teams who know exactly what the contract states, what the supplier and client obligations are and how to maximise their value.

As a consequence, suppliers are not held accountable for avoidable delivery failures, trusts can end up paying for services that are under-utilised and over time an impression develops that services are poor quality or expensive.

This can be highly detrimental to NHS organisations who are left with unmanaged risks, limited agility, fixed scope and lost opportunities to evolve critical systems with your trust as it changes. Ultimately, as the bodies accountable for patient safety and experience, it is simply not possible to outsource risk.

In central government and the private sector it is common for the procurement and supply chain functions to be active throughout the contract lifecycle. This brings an multi-disciplinary team-approach to working with suppliers: experts in the specialist areas of contract management support the CIO and others throughout the life of the contract.

As a result there is much stronger visibility and foresight around procurement decisions; obligations for both parties are clearly understood and managed, and a rigour is brought to the process which provides a robust foundation for the relationship to flourish.

Without board-level oversight, supplier management can become disconnected from strategy, leading to decisions that don't support long-term goals.

A typical NHS trust is likely to have over 100 suppliers of digital and technology services, and often many more. With digital and procurement teams often thinly stretched to support day-to-day services, it can be challenging to apply appropriate time and energy to each of these suppliers. 

Many finance and investment committees will have observed late-notice procurement decisions which can often arise from sub-optimal supplier portfolios. With hundreds of contracts in place teams can often overlook contract expiry dates and end up with insufficient time to run a procurement process and safely implement a potential transition to a new provider.

In this context it can be tempting to consolidate the supply chain down to an appropriate number of strategic suppliers who are better placed to manage this complexity on behalf of the trust. But, this approach, if taken to the extreme, gets to the point where a 'strategic supplier' has too much control, and becomes too big to fail. This level of consolidation is what led in the early noughties to UK government departments almost exclusively picking large systems integrators to run their technology. Exiting those contracts, or migrating to a different supplier becomes incredibly expensive and difficult. It makes it impossible for SMEs to enter the market.

There's a balance to be struck. Trusts should identify the handful of most critical contracts and suppliers and actively manage those while consolidating the smaller and less critical ones together.

In addition to the opportunities to simplify supplier relationships, trust leaders should consider how they can harness the benefits of scale. The effect of limited sector-specific supply-side competition is amplified by the historical behaviour of many NHS trusts who have taken a local, and therefore often sub-scale, procurement approach. While there are some arguments to be had for the benefits of flexibility, an effect is that individual trusts are very small customers in a global supplier market which dramatically limits both leverage and attention.

You can end up three years into a ten year contract and have very few levers left to ensure suppliers meet your new requirements. We’ve seen that tension with EPR suppliers for example, where desire for local enhancement is swamped by big mandatory changes demanded at a national level.

In the absence of that contractual leverage, informal networks can offer an alternative. Trusts using the same systems can band together, coordinate their requests and achieve a more powerful voice. If an informal network of trusts gets together and agrees on their shared priority for example - then they stand a much greater chance than any trust operating alone.