Delivering value to the NHS NHS Supply Chain Segmentation Analysis Jahanara Choudhury Geoff Ellis

Delivering value to the NHS

NHS Supply Chain

Segmentation AnalysisJahanara ChoudhuryGeoff Ellis


Background information


An introduction

Centralising procurement Achieving value for money for the NHS Reducing management costs Managing financial risk Making the most effective use of resources

• DHL appointed 1st October 2006 to manage on behalf of the DoH an organisation – NHS Supply Chain

• NHS Supply Chain is the integration of NHS Logistics, Part of NHS PaSA and DHL

/ /

The Department of Health (DoH) engaged with industry to identify and appoint an organisation to fulfil a set of key objectives:

NHS Supply Chain has exclusive scope from the UK Department of Health covering over £5bn of market. This represents over 28% of NHS procurement spend.


Who do we work with?

• NHS Supply Chain works with around 600 trusts to provide an end-to-end supply chain service or one of our key services:

– Acute care trusts– primary care trusts– mental health organisations– ambulance service– private sector service providers– collaborative procurement hubs– patients in their homes.


Our customers


Product categories

• Food and kitchen• office products, print and stationery• uniforms, clothing and linen• furniture and office equipment• medical and facility furniture• lab/pathology products and equipment• medical supplies• medical and surgical equipment• operating theatre supplies• patient appliances• maintenance• capital equipment.


Logistics overview

• 33m lines despatched annually

• national fleet of 340 vehicles

• national trunking fleet to facilitate cross

dock services and supplier backhauls

• delivery service to all NHS England trusts

• integrated warehouse management and

ordering system

• dedicated call centre and customer

service.


Core logistics services offering:

• 51,000 product lines• consolidated service using a combination of stock, cross dock, co-ordinated direct

delivery and patient home delivery service• break bulk to specific order requirements, e.g. ward, department, clinic, home• 48 hour service or 24 hour for critical care, eg theatres• 98% availability, 99% on critical lines• 98% delivery on time measured to

within +/- 30 minutes of promise• five hour emergency response

when needed.

Logistics overview


Summary


Key facts

• We supply to over 250,000 NHS requisition points

• we deliver to over 10,000 delivery locations

• we service 120,000 patients in their own home

• our catalogue range covers over 610,000 different products

• we manage over 4 million NHS orders every year, servicing over 30 million

order lines

• we send out only 52 invoices a year to each trust

• dedicated and closed loop transport fleet.


Commercial arrangements

• NHS trusts are not obliged to use NHS Supply Chain

• Prices will include a margin as they have previously

• Cost base transferred from Department of Health for NHS Logistics Authority and NHS PASA; increased by new recruitment

• No underwrite of profit for DHL but upper cap in place.


Why do we need to segment?

• To drive increased cost efficiency and profitable sales growth by migrating customers towards best in class behaviours

• To ensure we selling the right items to the right people

• Increase return on investment through targeted sales and marketing

• To ensure our service development meets customers needs

Theatre / Surgical Services

Medical

Food & Facilities

Clinical Markets

Capital & Maintenance


Customer segmentation

• Initial segmentation conducted to understand the user group of every single requisition point on our system - >100,000 points reviewed and labelled

• Identification of 91 customer departments• Analysis of 4 million transactions across 10,000 requisition points as a sample to

understand buying behavioural types across those segments, undertaken by a consultancy with segmentation expertise

• Review of outputs and qualification of findings


Contract Segmentation

• Phase 2 of segmentation based on products analysis• 26 million transaction records analysed over a one year time frame• Analysis of all classifications of trusts broken down into each region and classification• Departmental contract segmentation completed• 316 contracts analysed with over 51,000 individual products• 6 clusters created incorporating profitability, market value and transactional activity• Customer information analysed at trust and department level


2D Segmentation

• The combination of segmentation by Product & by Customer

• Review of outputs and qualification of findings• Identification of 13 behavioural types/segments• Next ready to start to use results to drive business strategies

– Understand and develop strategy for each segment– Influence multiple buying behaviours of each segment and migrate towards best

in class


The Use of PASW (or even SPSS!)

Geoff Ellis


Segmentation aim

• A 2D segmentation

• Each product belongs to a segment

• Each Customer belongs to a segment

• Each combination of product & Customer belongs to a unique segment


Some technical details

• 2 Step Clustering– Similar to the combination of Hierarchical & Non-Hierarchical (K means) clustering

techniques– Analogous to CHAID

• Variables– What variables to include– Continuous / Capped / Binned data– Are some variables more important than others

• How should they be weighted

• Number of clusters– How many do you want– How do different solutions compare

• Missing Data– Discriminant Analysis on variables present


clustering by customer

the following variables were produced & used

– Whether customer placed order in last week

– Whether customer placed order in last fortnight

– Whether customer placed order in last month

– Whether customer placed order in last quarter

– Volume sold of each of 19 product groups

– Whether anything was sold to each of 19 product groups

– Capped No of orders– Capped sales value

• Capped sales volume• Capped margin• Capped unfulfilled amount• Capped Av order value• Capped Av order volume• Capped Av order margin• Unfulfilled proportion• Capped No products• No product types• Av price band• Capped total quantity supplied (incl

carton size)


How many clusters?

strongly suggests a 5 cluster solution

Ratio of Change in BIC

0%5%

10%

15%20%25%30%

35%40%45%

3 5 7 9 11 13 15 17 19 21 23 25 27 29 31

Clusters


total supply quantity


occurrence of sales of prod type B (staff uniforms) by cluster


cluster by ‘customers’


cluster by value of sales


clustering by product

the following variables were produced & used

– Av price band– No. departments buying the

product– Unfulfilled prop– Carton size– Volume sold to each of 91

departments– Whether anything was sold to

each of 91 departments– Capped No of orders– Capped sales value

• Capped sales volume• Capped margin• Capped unfulfilled amount• Capped No unique ‘req point codes’• Capped Av order value• Capped Av order volume• Capped Av order margin• Capped total quantity supplied (incl

carton size)


Products by cluster

4321Outlier Cluster

Cluster


Sales (Value) by cluster


Cluster 3


Cluster 5


combined segmentation

1 2 3 4 5A 1 2B

Product DCE 8 9 10 11 12

3

76

Customer

4 5


definitions

1 A1 high buying customers buying popular general products

2 A2 top customers buying popular general products

3 A3 A4 A5 customers who don’t buy much buying popular general products

4 B1 B2 D1 D2

high buying customers buying specialist products without high prices or margin

5 B3 B4 B5 D3 D4 D5

customers who don’t buy much buying specialist products without high prices or margins

6 C1 C2 high buying customers buying low volume, high margin products


definitions

7 C3 C4 C5 customers who don’t buy much buying low volume, high margin products

8 E1 high buying customers buying top selling general products

9 E2 top customers buying top selling general products

10 E3 low purchasing customers buying top selling general products

11 E4 low purchasing but high margin customers buying top selling general products

12 E5 infrequent customers buying top selling general products


segment 11

1. Av Margin per Order = £24.56 Av = £2.84

2. Av Value per Order = £506 Av = £33

3. Av Supply Qty per Order = 106 Av = 10.1

4. Av Price Band = 1.49 Av = 1.19

5. Av No Prods Types/Cust = 6.1 Av = 10.1

• high value large orders for specialist products


cluster 11 – 0.7% orders

metrics key features

top departments top product types

low purchasing but high margin customers buying top selling general products

• 1/3 the Av orders per customer

• 1/2 the Av orders per product

• relatively infrequent orders (Av cust = 3.5 days)

• 1.5x the Av carton size

• Items bought have 2x the Av no custs

• Customers buy 1/3 the Av no of products

• top bulk purchasing discount

• customers 258

• products 709

• value 10.3%

• volume 6.6%

• margin 5.9%

• av value £506.28

• av volume 106.3

• av margin £24.56

• Audiology (84%)

•Domestics (5%)

•Pathology (4%)

•Lab Chemicals & reagents (86%)

•Laundry & Cleaning Materials (6%)

•Lab Instruments & Eqpmt (4%)


Av. margin per order by segment


2D Clustering

• Every product / customer has been allocated to one of 12 groups.

• The client wanted to target specific customer groups with different messages according to their behaviour

Buy a larger range of products, buy specific types of products, buy larger quantities less frequently

• these 12 segments cannot be applied uniquely to specific customers

• a further clustering was performed which grouped customers according to their pattern of purchases (as defined by volume, value and margin) across these 12 segments

• this resulted in 13 groupings of individual customers


Av Spend per Customer

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

1 2 3 4 5 6 7 8 9 10 11 12 13


clustering by department

1 A&E

6 Chiropody / Podiatry

40 Orthopaedics

42 Paediatrics

63 Theatre

68 Audiology

86 Supplies & Procurement


clustering by department

Weighted by Orders


Targeted Marketing

• By hospital (postcode) & department

• A full day workshop with all marketing staff

• Where are they now?

• Where would we like them to be that’s feasible?

• Resulted in 11 specifically targeted marketing and communication plans


Any Questions?

Documents

Delivering value to the NHS NHS Supply Chain Segmentation Analysis Jahanara Choudhury Geoff Ellis