PROCUREMENT Process Diagram for the Rutherford Initiative

CONSULTATION ON
PROCUREMENT
RUTHERFORD INITIATIVE
Process Diagram for the Rutherford Initiative
RI review commences once list of
areas and priority is established
with key stakeholders
Meetings with staff, stakeholders,
representatives and Service Review
Team members. Subject matter
Expert decided as a result of initial
consultation
RI team analyse service and seek
further advise or information as
required. Including confirming
major assumptions
Report written and draft sent to CE
CE considers interim
recommendations and meets with
Service Directorate Manager
Service Directorate Manager meets
with RI Implementation Team
Recommendations agreed and
consultation document written
Service Directorate Manager meets
with staff
Consultation document provided to
staff and representatives
Consultation period 30 days unless
agreed otherwise
Summary of submissions report
is created and feebdback given to
staff and other stakeholders
Implementation Phase commences
with all relevant parties
JAN/FEB 2011

Rutherford Initiative – Procurement Consultation Document
COST SAVING INITIATIVES
Initiative 1
Transfer management of consignment stock to Procurement and fully review
consignment stock at Nelson and Wairau sites.
Total estimated savings $468k, through a 15% reduction in costs.
Rationale
Consignment stock particularly in large organisations can be problematic. In brief,
ownership of consignment stock is not transferred until it is used: invoicing is not
immediate. Only after the DHB actually uses the consignment stock may an
accounts payable be created. The nature of consignment inventory is that “change of
ownership” is unrelated to the shipment/receipt processes. This is contrary to the
basic design of most inventory/accounting systems transactional processes.
Because of this, most inventory systems do not handle consignment inventory very
well. This forces many businesses to manage consignment inventory with manual
off-line processes (sending reports back and forth, maintaining data in spreadsheets,
etc). Not only is this time consuming, but it also creates many opportunities for errors
because the additional transactions necessary for consignment inventory can get
rather complicated and are highly dependant on accurate information sharing. If this
process is not monitored closely, an organisation can end up in a situation where
reconciling its consignment inventory becomes a nightmare. Having one point of
accountability with the tools to manage and the following principles will result in cost
reduction.
Recommendations:
• That all consignment stock is reviewed by Procurement alongside the relevant
department manager;
• That all consignment stock is managed by the Procurement service; and
• That the level of consignment stock generally is reduced.
Ownership
Procurement Team Leader
Page 1 of 9

Initiative 2
Negotiate contracts with all suppliers costing $40k or more per annum
Total estimated savings $217k
Rationale
Not all of NMDHB suppliers are covered by a contract for a variety of reasons - some
suppliers have refused to enter into contracts.
Increasing the number of suppliers with contracts will improve the administration of
contracts.
Recommendations:
• Ensure Procurement staff have the time to focus on this aspect of
procurement; and
• Negotiate supply agreements as soon as practicable.
Ownership
Procurement Team Leader
Initiative 3
Review stock levels across ward stores, other stores and Nelson and Wairau
stores
Rationale
There is not a clear point of accountability for stock locations.
Recommendations:
• That a thorough and systematic review of all store locations is undertaken,
starting at the stores with higher stock levels;
• That Charge Nurse Managers are accountable for their department’s stores;
• That KPIs are established for stock in stores for HODs and CNMs;
• That regular audits take place; and
• That procurement teams with the assistance of the Quality team review the
Nelson and Wairau main stores.
Ownership
Procurement Team Leader
Page 2 of 9

Initiative 4
Shift undefined products to the catalogue
Estimated total savings $132k. Savings are based on the assumption there will be a
reduction in current level of undefined products and a move to more cost effective
products in the catalogue.
Rationale
NMDHB spends a considerable amount on products each year. The products fall into
four categories:
1. Capital items;
2. Stock (in catalogue and held in store);
3. Non stock (in catalogue but not held in store); and
4. Undefined products (not in catalogue).
The organisation spends approximately $20m a year on undefined products. This
does not allow appropriate controls on purchasing.
Recommendations:
• Procurement service focuses on and accelerate processes to transfer
agreed non defined product to the catalogue; and
• That procurement aims for 95% of undefined stock being defined and if
appropriate transferred onto catalogue.
Ownership
Procurement Team Leader
Initiative 5
Reduce purchase orders and process more purchases using TechOne
Total estimated saving $83k through a reduction in the level of “no purchase orders”
with a consequent saving through better administration and control of expenditure.
Rationale
At the time of review, of the total spend ($70m) on supplies/products, only 53% was
raised by purchase order.
The number of non purchase orders needs to reduce significantly to allow better
management and control of spend.
Page 3 of 9

Recommendations:
• That a policy of “No Purchase Order No Payment” be developed; and
• That the No Purchase Order NO Payment Policy be rolled out over a two
year period with a target of 50% reduction.
Ownership
Procurement Team Leader
CAPITAL PURCHASE INITIATIVE
Initiative 6
Greater involvement of Procurement in capex process
Estimated total saving $180k.
Rationale
Managing costs and ensuring optimal supply is the strategic contribution that
Procurement can make to the DHB’s success. By being fully involved fluidity and
cost of supply chains are improved. This should also include capex.
Recommendations:
• That the business case template is reviewed with a worked example
included;
• Inclusion of a capex checklist for all capex procedures be developed;
• Procurement's role be expanded to be included in capex decisions and to
include working with BST by providing advice on budget setting, checking
business case inputs, quoting or tendering, sign-off, placing the order and
supplier performance management;
• That with the exclusion of the Planning and Funding contracts, Procurement
is involved at least from a probity perspective on all capex, clinical
equipment and other capex greater than $100k;
• That the use of a preferred equipment list for each service specialty is
developed; and
• That a capex review is completed with each service Directorate of capex
requirements for the next 3 years and a capex plan for each service
prepared.
Ownership
Infrastructure Manager
Page 4 of 9

PROCESS INITIATIVES
Initiative 7
Reduce the number of suppliers
Rationale
In 2009/2010 there was over 2600 suppliers to the DHB. Of these 90% (1721
Suppliers) are for less than $50k which in aggregate account for only 13% of the
total spend. All these suppliers require some form of administration and
management. Reduction in the number of suppliers particularly in the 90% category
will "free up" staff time, lower administration costs and could well result in reduction
of supplier costs through consolidation.
Recommendation:
That wherever possible DHB wide all purchases are via Procurement through
TechOne. This will facilitate supplier rationalisation and enable tighter management
of supplier relationships.
Ownership
Procurement Team Leader
Initiative 8
Review Product Evaluation Committee
Rationale
The purpose of a Product Evaluation Committee is to control the introduction of new
medical equipment and clinical consumables. Its role is to assist in the development
of purchasing policy and the evaluation of equipment and consumable supplies.
When considering the introduction of new equipment or consumables, the product
evaluation process considers a range of issues, including clinical requirements,
quality, cost, and standardisation with existing equipment and products, as well as
ongoing educational requirements.
Recommendation:
That the Terms of Reference and membership for the Product Evaluation Committee
is reviewed to ensure its purpose is fully met.
Ownership
Infrastructure Manager
Page 5 of 9

Initiative 9
Increase functional use of TechOne
Rationale
TechOne is not being utilised to its full potential. To help maximise efficiencies and
savings from procurement, DHBs generally need to understand the demand for, and
usage of, goods and services at the line item level. This knowledge can improve
purchasing through a better understanding of what, why, when, how much
purchasing is happening so that best practices can be implemented.
Recommendation:
That an appropriate staff member with comprehensive knowledge of TechOne and
its functionality is assigned as project leader with the objective to increase the level
of use of TechOne starting with Procurement and then migrating to key users.
Ownership
Procurement Team Leader
Initiative 10
Regional and National Initiatives
Rationale
There are a number of National and Regional initiatives underway regarding
Procurement which if implemented will result in increased efficiencies and benefits
for the DHB through:
• Exploiting economies of scale;
• Partnering with other DHBs to share inventory management and distribution
services; and
• Aggregation of demand for medical equipment and consumables.
Regional and National collaboration between DHBs is such that initiatives will take
time to be developed and implemented. In the interim the DHB needs to focus on
doing what it can internally. We need to be cognisant of developments and ensure it
does not anyway hamper Regional and National Initiatives.
Recommendation:
That NMDHB maintains an active presence at all National & Regional forums but
aggressively addresses all aspects of Procurement as there are potential savings
regardless of National and Regional possible Initiatives.
Ownership
Infrastructure Manager
Page 6 of 9

Initiative 11
Increase the level of KPI reporting
Rationale
The former order system (JDE) was problematic and cumbersome. The recent
installation of TechOne with its greater functionality has significantly improved
Procurement’s ability to develop and monitor supply chain processes albeit some of
these processes are still in their infancy and need to be accelerated. Procurement
produces a monthly purchasing and inventory report off TechOne. KPI reporting
needs to be developed with regards to monitoring the Opex Initiatives, achieving
targets etc.
Recommendation:
That a thorough review of performance measures takes place, generating
performance measures as opposed to simply reporting historical and the
development of savings targets and mechanisms to monitor the efficiency of
procurement and supply chain processes, and the savings delivered.
Ownership
Infrastructure Manager
Initiative 12
Improve Supplier Relationship Management
Rationale
There are three key areas where Procurement staff can contribute to a successful
supply chain:
• Visibility - Provide clinicians, nursing and management with spend data to
detect and interpret supply and demand patterns, from which sourcing and
stocking decisions can be made. For example, this visibility can help answer
how many of a specific item, like a catheter, needs to be delivered. When are
they needed? Are there any spikes in demand? Where are they needed? How
many suppliers are needed to mitigate supply risk? Which of these suppliers
are strategically important to the organisation? Data analysis can yield great
examples of savings, such as dual/multiple sourcing strategies to ensure
continuous supply, volume aggregation and item standardisation to drive
volume discounts;
• Supply Market Intelligence - Procurement should be continuously feeling the
pulse of the industry, as well as individual suppliers, to understand
consolidation or separation, emergence of technologies, demographics and
market changes; and
• Supplier Performance Monitoring - Ongoing supplier performance
management is paramount to guarantee optimal patient outcome. Without
monitoring a supplier's key performance indicators such as on-time delivery,
accurateness of supply and responsiveness in rush-order situations, parts of
the Provider may find themselves unable to optimally serve a patient.
Page 7 of 9

Therefore standards of care at the Provider are directly dependant upon
strategic supplier management.
Therefore, central to greater efficiency in Procurement is the maintenance of user
and supplier relationships. The DHB can secure its line of materials and can reduce
transaction costs and forgo extra costs and delays of finding new suppliers all the
time. Best in class DHBs meet regularly with their strategic suppliers to discuss
supply and delivery improvements ranging from process to items upgrades.
The number of key relationships and the level of relationship activity with suppliers
should be increased and the nature of the supplier relationships become more
strategic. Suppliers are not performance monitored nor is there proactive meetings
with suppliers given the level of expenditure with suppliers.
Recommendations:
• Develop an overall supplier management plan;
• Broaden the number of key relationships;
• Develop individual supplier management plans;
• Introduce supplier KPIs;
• Building key strategic relationships; and
• Develop use of TechOne and Electronic Data Interface direct to suppliers’
inventory.
Ownership
Procurement Team Leader
Initiative 13
Link with major suppliers through TechOne using electronic data interface
Rationale
TechOne is trialling with Hawke’s Bay DHB, Johnson & Johnson and Baxter an
Electronic Data Interface which will enable the DHB to order direct from the suppliers
inventory and match the invoice to products sourced with no human interface. The
implications for greater efficiency, less procurement staff, increased speed of supply,
reduction in inventory levels held at the DHB are significant.
Recommendation:
That if successful following suit as soon as practicable.
Ownership
Procurement Team Leader
Page 8 of 9

Initiative 14
Review Impresting Systems
Rationale
Currently Procurement staff physically imprest wards every few days in the ward
stores. This process is cumbersome and time consuming. With the introduction of
TechOne it is suggested that this impresting can become redundant as the wards
themselves could order via TechOne directly from the stores. However, this is not
recommended at this stage as a cost saving initiative as there are a number of other
process changes that should first occur two of which is a complete review of ward
stores across the DHB and instilling "ownership" of ward stores in the minds of the
Charge Nurse Managers.
Recommendation:
A full review of impresting process is completed after Initiative 3 is implemented.
Ownership
Procurement Team Leader
Page 9 of 9

RUTHERFORD INITIATIVE CONSULTATION
PROCUREMENT
FEEDBACK FORM
Information about you: (Optional)
Name:
Address:
Phone:
Organisation represented: (if applicable)
Option Feedback: 1: What do you think about the proposal to outsource Ophthalmology Services?
What do you think about the consultation proposal?
Additional comment (you may like to include an insert with your returned form)
SUBMISSIONS CLOSE AT 5 PM ON FRIDAY, 25 FEBRUARY 2011
Written feedback is the preferred mechanism for submitting responses to the proposal.
Submissions to the proposal should be emailed to: karen.lindsay@nmdhb.govt.nz
Any hard copy submissions should be mailed to: Karen Lindsay, Human Resources, NMDHB, Private Bag 18, Nelson
Any staff wishing to make a verbal submission should contact: Karen Lindsay. Staff feedback during the
consultation period will be taken into consideration in the final decision over these proposed changes.