Tweaking your ‘procurement engine’ - will your lab benefit?

Brand management is giving way to supply chain management in public sector laboratory purchasing models in the drive to manage costs. What can we learn from these changes and in particular from leading institutions such as Imperial College London and the University of Manchester? Steve Roebuck of Scientific Laboratory Supplies investigates.

‘It’s the way things are done here’ might have been the response 10 years ago to the question of public laboratory procurement practice. Then, consumables would be supplied through contracts with each manufacturer or distributor, an approach referred to as Brand Management. Discount structures were agreed on a department level by end users without any real appreciation of the larger vista or any real desire to share their pricing outside their immediate group. With a large number of suppliers, relationship and performance management was difficult to undertake effectively and efficiently. Things have moved on considerably with the adoption of supply chain management, recognised as best practice in the private sector. Now we meet category managers in procurement departments negotiating on behalf of entire institutes and national cross-government agreements for the supply of scientific research products/services. A strategy that focuses on achieving best value – the balance of quality and competitive pricing – by channelling collaborative spend through a consolidated supply chain, improving access to leading manufacturers and enabling compliance with EU directives. In turn, the more nimble supply companies have had to respond to these changes and alter their business models to accommodate the moving landscape. Into the equation we can add UK Shared Business Services Ltd (UK SBS), the public sector mutual working with Government to improve efficiency, generate savings and modernise the public sector. UK SBS is a strategic partner to the Crown Commercial Service managing the cross-Government procurement agreements and supply chain within construction and research sectors. UK SBS provides an end to end procurement service to the Research Councils (RCUK), the Department for Business, Innovation and Skills and its partner organisations, but also facilitates access for any other publicly funded bodies that want to benefit from these agreements. So what difference have these changes made and what more could be done to cut costs without compromise? According to Allyson Hughes, UK SBS Senior Category Manager for Research Consumables, the organisation and its customers face the same challenges as the rest of the public sector to make budgets go further. The previous purchasing model didn’t support public sector efficiency goals or offer sustainable best value. With year on year price increases above inflation, increasing administrative requirements and little opportunity to manage supplier relationships and performance, UK SBS had to rethink how consumable supply needs were met. It was clear that a new approach was needed to improve the outcomes for key stakeholders, such as:

• Increase opportunity for new entrants or SMEs to the supply chain.
• Reduce the resource intensive nature of contract and inventory management across a wide supply chain, allowing time to focus on performance management or benchmarking against the marketplace.
• Improving the ordering process and transparency of pricing for end users.
• Increase UK SBS’ commercial leverage and allowing competition within the marketplace ensuring sustainable competitive pricing.

So the introduction of the SSD (Single Source Distributor) model for consumables in August 2014 means that all products supplied to UK SBS customers are transacted through one supplier. It focuses on managing the cost of service across the entire product range, taking into account lower pricing gained through economies of scale. Hughes maintains that this strategy should bring about a change in pricing behaviour that breaks the annual cycle of above inflation price increases. Streamlining the supply chain will enable more effective supplier management, improve relationships with key manufacturers in the sector and a simpler ordering process for its customers. The final outcome should be a better customer experience and the achievement of best value through collective buying power. Two of the UK’s leading universities, Imperial College and the University of Manchester run procurement systems which make the most of their buying power. With an annual laboratory spend of between £50-60million (including capital items) Imperial’s purchasing activity can drive pricing. The organisation uses the online marketplace SciQuest to manage compliant contracted spend and to ensure quality and reliability as well as price. The same applies for Manchester where an e-Marketplace delivers easy access to commonly purchased consumable items and allows users to select the best price options by comparing like-for-like products from competitive approved suppliers. Ian Jarvey of Central Procurement for Manchester pays particular attention to commercial relationship-building and views these suppliers as key partners in the success of the university’s teaching, research and wider social objectives. However it can prove difficult to shift buying behaviour, despite the sophistication in benchmarking quality and price. Resistance to change can come from the academics, says Peter Leahy, Category Manager (Laboratory/Research) at Imperial College, especially where a change in the particular product used could conceivably impact on the outcome of citable research studies. So the opportunity to purchase branded items negotiated through an SSD is therefore quite attractive and a potential solution to such institutional inertia. Leahy sees the value of this arrangement in cost, service and resource benefits to the university but recognises that it might take time to analyse who the best suppliers might be. He also describes how the university likes to get involved in the innovation and design of consumable upgrades where they have strong relations with leading suppliers. He would like the freedom to maintain such relations; although these new products might be more costly, if they deliver more science at a higher level of productivity that is an outcome Leahy can live with. The new approach by public sector bodies is getting closer to the recognised practice of the private sector. I have observed that quite a few of the senior procurement personnel in the public sector increasingly come from a private sector background and of course, have taken some of those attitudes with them. This is a partial reason for the shift change in attitudes in the public sector over the last 5 to 10 years. In short the differences now are less obvious than they were 10 years ago. So where might further cost-savings be made in changed purchasing behaviour? The following options are already being tried and tested, but there could be more:

• By consolidating ‘local best prices’ to regional or national availability the so called ‘smaller account’ then has access to pricing negotiated by the higher spend or volume account.
• By using professional buyers to negotiate terms and discount models.
• By fixing price over specified periods. However this doesn’t always have a positive effect as suppliers have to protect themselves from increases in raw materials or increases in their own supply chains.
• By pitching competitors against each other in tenders or mini competitions and then weighting evaluation on pricing.
• Mediating three way meetings between end users, distributors and manufacturers.
• By increasing the visibility of spend profiles and product analysis aiding scrutiny of buying patterns and identifying ‘expensive’ suppliers.
• By using business analysts to report on best buying practice.

Ian Jarvey believes more can be done to improve the procurement process by making it simpler for suppliers and laboratory users in an open and transparent process. Peter Leahy would like more use of compliance at the college community level by engaging with academics earlier and winning their confidence to appreciate the need for change. The consequences of Termed Grants and the subsequent regular changeover of research staff means the process starts over again all too frequently. In conclusion, the move to supply chain management of laboratory consumables by the introduction of the UK SBS SSD is intended to bring about a better service for end-users, greater efficiencies and cost benefits and more opportunity for new entrants at tier 2 level. A more collaborative, strategic and transparent approach to procurement appears to be welcomed by senior managers, such as those at Imperial College and the University of Manchester, whose purchasing behaviours now more closely reflect those in the private sector. Viewed from the Scientific Laboratory Supplies perspective, the management of the laboratory consumables SSD agreement will see us working closely with Allyson Hughes and her colleagues at UK SBS. Together we will continue to maintain standards expected in laboratories across the UK and investigate some of the alternative cost-saving procedures explored in this article. Above all, we want to encourage ongoing interaction with the end user - laboratory procurement officers and managers whose institutions have signed up to the UK SBS agreements – to manage resources and meet demand efficiently.

Author Steve Roebuck, Sales Manager Higher Education and Research Councils, SLS

Contact 0115 982 1111 sroebuck@scientific-labs.com

Acknowledgements UK SBS, www.uksbs.co.uk University of Manchester, www.manchester.ac.uk Imperial College London, www.imperial.ac.uk