EROS eProcurement: The key to successful supply chain engineering

The EROS eProcurement system is currently used in some 94 NHS organisations across the UK. This case study is based upon the experience of Mr Ian Shepherd, Head of Procurement and Logistics in Plymouth Hospitals NHS Trust. As well as having responsibility for Plymouth, Ian also manages the supply chains for South Devon and Plymouth Community NHS Trusts and a number of smaller Healthcare Organisations.

Ian has used EROS as a tool to re-engineer his supply chain in order to drive down costs and eliminate waste. When Ian took over responsibility for supply chain management in January 1999 he had a large supplier base containing over 22,000 suppliers. They supplied more than a third of a million product lines with many duplications. Some £45 million worth of expenditure was not EROS enabled. Only limited use was made of NHS national or local contracts and 70% of all invoices went unmatched. The existing procedures were largely paper-based. An ambitious target was set to save £3 million over a five year timescale.

The information collected by EROS formed the basis of an aggressive supplier rationalisation campaign and within a year the number of suppliers had dropped from 22,000 to 2,343, with the number of product lines rationalised to 60,000. During 2000, £18 million worth of expenditure was e-enabled and the use of local and NHS contracts expanded to cover some £22 million worth of expenditure.

Because the Trusts could identify what products were being used, in addition to where and when, a radical product evaluation and selection programme was implemented and the utilisation of products greatly improved. Electronic requisitioning and paperless purchase order despatch became the standard procedure and in the first year Ian was able to report savings of £1.3 million. A year later, the supplier rationalisation programme has continued and the number of suppliers has fallen to 1,846. The use of local and NHS contracts has further expanded to cover £29 million worth of expenditure, and some £23 million worth of expenditure is now EROS enabled.

Over the last two years there has been a dramatic improvement in the number of invoices being automatically matched against the goods receipts. In 1999 some 70% of invoices went unmatched and required manual intervention. This year this has been reduced to 20% and continues to fall through improved receipting processes within the Trusts.

Through EROS, Plymouth Hospitals NHS Trust has continued to implement better supply chain practices including the use of embedded purchase cards designed to remove paper invoicing for low value items. The Trust has worked with Company Barclaycard to introduce this new technology in association with a number of selected suppliers.

Ian has introduced EDI order despatch into the Trusts to provide a close coupling between them and their suppliers' sales order processing systems. This close integration removes manual intervention at the supplier end and generates significant cost savings for the supplier community. These savings are reflected in lower unit prices for the hospital - a good example of mutual benefit.

Analysis of the supply chain has shown that the cost of processing an order line in 1999 was £14. Through re-engineering the supply chain this cost has been reduced to £2.94 and a target of less than 40p per order line has been set. This will be achieved by further removing manual intervention from the process, widening the use of electronic communications between the Trusts and suppliers through EDI and XML, plus further integration with other feeder systems such as Pharmacy within the Trusts.

Ian is now able to report savings of more than £2.9 million and is able to say he has achieved his five year target within two years. His intention is to build on this success and move forward to achieve further efficiencies and savings.