Blog & Press Releases
Posted 19 November 2018 | | 0 Comments
As I write this article, Prime Minister Theresa May has received the resignations of two of her cabinet less than 24 hours after having announced the joint UK-EU agreement of a draft Brexit deal. Thus it appears that the risk of a 'no deal' remains, with only a few short months remaining before the UK officially leaves the EU at the end of March 2019. Such uncertainty is hitting UK manufacturing and engineering sectors hard, hampering investment decisions and damaging staff morale.
It should be born in mind that typically 50-70% of manufacturing costs reside in their supply chains, and in 2017 £258 billion worth of goods were imported by the UK from the EU. That's why preparing for all Brexit outcomes to mitigate supply chain risks is business critical. How well prepared is your manufacturing business and how aware are you of how the different Brexit outcomes could affect your supply chains? What are the likely risks and what should be done to mitigate them?
UK Manufacturers fear the consequences of a hard Brexit; they fear the loss of client orders - a recent manufacturing sector survey conducted by Sheffield Hallam University found that 83% of UK manufacturers have confirmed they're preparing for a hard Brexit by seeking new trading relationships outside of the EU as they fear a decline in orders from over the Channel. Other impacts highlighted by manufacturers include the 20% who predict further budget tightening; 21% predict increased trade tariffs on goods imported and exported; 18% showed concern with the possible divergence in standards and legislation. And non-trade barriers such as border checks and additional admin/time to process imports and exports, together with general supply-chain disruption, are identified by 18% of those surveyed.
So let's consider the range of supply chain risks coming out of Brexit. Whilst arguably the greatest threats relate to food retail, technology and automotive sectors, most of these risks will impact on all manufacturing and engineering sectors.
1. Tariffs - the key to this is the EU 'rules of origin' for goods and services. Any product currently with 55% or more of its make up being of EU origin is deemed to be EU sourced and therefore carries zero rated tariff for EU based manufacturers. Should the UK fall out of the customs union and single market, this arrangement will be under threat. For example, the Dutch government has advised Dutch manufacturers to avoid UK components for fear that post Brexit, including UK components (legally outside of the EU) could bring their finished products below the magic 55% level. In such cases, if EU manufacturers continue to rely on UK suppliers, their finished products may no longer qualify for free trade and so will incur significant additional costs. And for UK manufacturers who send parts over to the EU for processing, because less than 55% of their origin comes from the UK, they will struggle to qualify for free trade with non-EU export countries even if the UK can mirror EU trade agreements with these countries. So they will struggle to compete on price with their foreign competitors.
2. Exchange Rates - sterling has fallen by over 20% since the Referendum result. Manufacturers should consider hedging to mitigate further currency fluctuations as import prices increase in real terms (though exports become more competitive). Procurement must assess the likely import price fluctuations and consider changing the currency in contract terms with overseas suppliers.
3. Lead times & administration burden - there has been much talk about the likelihood of congestion at UK ports and nearby roads and how this might create serious headaches for those manufacturing companies who rely on frictionless trading for their Just in Time supply. Dr Ke Han of Imperial College, London, forecasts 30-minute queues at Dover and Folkestone if there are just 4-minute checks. Supply chain and logistics managers at UK manufacturing companies must seek to understand from discussions with HMRC and their freight agents how bad such delays are likely to be, and what plans are being made to reduce these delays. Are you clear which UK ports and ferry routes are being used when importing from the EU? And are you prepared for the additional import/export clearance administration? Are your systems and staff ready for a sudden increase in customs declarations? And are you involving your supply chains in preparing for these challenges?
4. Contracts - the impact on legal contracts must be considered in good time, based on the different Brexit scenarios. Clearly there are challenges here - in a recent Chartered Institute of Purchasing & Supply (CIPS) survey, 20% of UK businesses were struggling to secure contracts that run until after March 2019. And 15% had postponed or cancelled contracts due to uncertainty. This highlights the need to evaluate all contracts to ensure post Brexit compliance, for example reflecting any legal or regulatory divergence.
Having considered the major risks facing your supply chains, how best to organise your preparation? I recommend that you map out the web of suppliers who serve your business.
This is not simply your immediate (tier one) suppliers, but tiers two and three as well. If you only consider direct tier one suppliers based in the UK, you will miss the potential risks being carried by these UK organisations should they have EU suppliers in turn. (nb: as procurement and supply chain specialists, Buying Support Agency Ltd can show you how to strategically map your in-bound and out-bound supply chains and then to develop appropriate mitigation strategies).
Should it be agreed that new (non-EU) overseas supplier relationships be explored as part of the strategic plan, you must research the possible new risks being introduced by such a move. For example, other markets have different regulatory regimes and trading with suppliers within those markets potentially increases the risks of non-compliance with UK and International law (e.g. bribery, corruption, child labour and slavery).
Summary - your supply chain plan for Brexit (and other external risks):
Adherence to the following guidelines should be considered when planning your approach to Brexit:
1. Define specific risks for your company and financial impact
2. Build a set of probable what-if scenarios and associated financial impact
3. Devise a set of strategic options
4. Develop a clear set of action trigger points - timing is key so you need to agree on when action will be taken, not just the options.
Brexit is not the only risk out there for the UK manufacturing sector; there's cyber security, increased automation as technological advances continue at pace, global trade wars, environmental climate change and political instability. With such a changeable external environment, strategic planning is crucial in giving your business the agility to adapt at the right time which will give you competitive advantage.
We can help resource your procurement and supply chain Brexit planning
Buying Support Agency Ltd (BSA) can help your manufacturing company to prepare its procurement and supply chain function for Brexit, typically as part of our independent procurement health check and risk assessment. And if resources are tight, one of our team of highly experienced senior procurement leaders in the manufacturing sector can work alongside you to develop supply chain strategies, facilitate complex tenders or provide top level guidance as you prepare your supply chains for Brexit.
We can offset our fees through your using BSA Buying Group - many manufacturing companies have used this cost reduction service, reducing utilities, packaging, freight, telecoms, workwear/PPE, travel and other overhead costs by up to 58% within six weeks.
If you need external procurement and supply chain support but want to avoid additional recruitment costs, please call 0800 254 0344.
For more procurement related information relating to Brexit we also recommend that you visit the CIPS (Chartered Institute of Procurement and Supply) website.
by Matt Roper | 19 November 2018
Posted 9 April 2018 | | 0 Comments
For most small and mid-market UK Companies, times have been getting steadily tougher when it comes to keeping a lid on supply costs. The UK has recently experienced significant inflationary cost pressures on imported raw materials thanks in part to the weakened pound, and the threat of import customs tariff costs grows by the day. Even if this isn't directly impacting on your business, the chances are that it's hitting much of your supply base, which will be either looking to pass some of this extra cost onto you or taking the hit and suffering financially (which ultimately ups your own risk of supply chain failure). These increased costs and risks mean that it's vital that companies have highly experienced procurement professionals in place to protect profits and mitigate supply chain risks.
Adding to the pressure, the large corporate competitors are able to leverage their size for competitive advantage. They have highly skilled procurement teams, busy developing future strategies not just to keep a lid on costs but to seize new supply innovations to make their products or services even more appealing to customers; their suppliers (some of whom also supply your company) are attracted to supply them so as to maximise sales revenues directly, and indirectly through bolster their own marketing by citing these well-known companies as clients, thereby demonstrating their credibility to prospective new clients (who may currently be served by your company).
So how can your small or mid market company enjoy similar advantages of cost/risk management, supply chain innovation and maximising your attractiveness to suppliers and clients alike? There are two challenges. First, finding high quality procurement leaders. Just as the largest companies can attract the best suppliers, so they can attract the most talented procurement professionals. With UK unemployment at its lowest for decades, procurement skills shortages make it even harder to find good people. The second challenge is that the most effective procurement leaders don't come cheap and as a smaller company you may not have the budget to attract or keep them.
So on the one hand you have an urgent need to develop an effective procurement and supply chain function, but on the other you may struggle to develop the skills or find the necessary salary budget to make the necessary change. How do you solve this business challenge?
Buying Support Agency (BSA) can solve it. We have a ready-made team of passionate procurement leaders, all with 15+ years of operational and leadership experience. They've worked in the corporate world but want a more flexible work-life balance which is why they want to work with BSA as associates. This flexibility for them is also flexibility for your business - our team tend to work with a client for typically 4-5 days per month, delivering exceptional value to the client, who avoids the cost of having to pay for all the traditional costs of having a senior level member of staff on their books. Clients have complete flexibility and can therefore expand or reduce our resource as needed. As an additional value add, all associates bring to clients completely free access to our BSA Buying Group, which enables them to quickly cut your overhead costs whilst also tackling some of the more fundamental strategic issues facing your supply chain.
Want to know more? Call 0800 254 0344 today and we'll arrange a conversation without obligation.
by M Roper | 9 April 2018
Posted 5 May 2017 | | 0 Comments
With the UK triggering Article 50, now starts the challenging task of negotiating our exit in a way which delivers the best possible outcome for UK businesses.
I’d like to consider how those with purchasing and supply chain responsibilities in your business should prepare to cut the risks and seize the potential opportunities that reveal themselves through the Brexit process. Let me first consider the potential risks.
Increased market uncertainty and inflationary pressures
The weakening of Sterling against the key international currencies will make it more expensive to import raw materials. Oil prices, set in dollars, may rise due to currency movements even if your overseas suppliers are not themselves experiencing an uplift in costs.
The economic and political uncertainty risks dampening corporate and institutional investment within the UK, though a weak pound may encourage foreign investment despite the uncertainty. Lower investment could curb employment levels, thereby cutting domestic consumption and damaging UK economic growth. Should consumer demand and corporate investment fall, suppliers from the UK and overseas may seek price increases to protect their profit margins.
Barriers to travel and movement of goods to and from the EU
A further inflationary threat is the raising of customs duties and greater administrative hurdles imposed on EU goods and services being imported into the UK. Added to this is the delays caused by customs checks. UK buyers need to think about the impact on their business of lengthy delays at UK ports and increased prices.
But with risk comes opportunity. Buyers dealing with EU based suppliers can turn negative into positive by engaging fully with them to both reassure and protect the supply chains. Conversely, even if relationships with EU suppliers sour, buyers may be unaware of some highly innovative and value add supply chains in the rest of the World, including within the UK itself. Positive consequences may well result in switching to non-EU suppliers, but only if buyers can develop the appropriate alternative supply strategies.
Our 8 tips to help buyers navigate Brexit
1. Most importantly, prepare an action plan that considers the short, medium term and long term impact of Brexit on your business. Don’t put your head in the sand, thinking that Brexit won’t impact your business. No-one really knows the consequences of Brexit, and you can’t control it, but you can at least plan ahead. You need an action plan to ensure that your supply chains are both flexible and secure;
2. Audit your supply chains, looking for risks and opportunities. Classify suppliers by degree of risk to the business, and do some ‘what if’ scenario planning, involving the whole business;
3. Consider your own internal business and the risks caused by supply chain disruption. Make sure that the buyers are working alongside colleagues in other parts of the business so they can discuss risks and options for mitigating those risks. And consider the opportunities too, such as exporting outside of the EU - though moving into new non-EU markets may require changes to product specifications and the adoption of new suppliers. This will all require a lot of time and resource, hence starting the planning now is vital;
4. Review the contractual arrangements with EU based suppliers, and consider re-negotiating terms such as contract duration, break clauses;
5. Prepare for negotiations should existing suppliers press for price increases as they seek to protect margins. Resist demands for price increases unless the suppliers can provide clear evidence that their demands are genuine. Consider switching suppliers if the impact of cost inflation is too severe;
6. Start talking openly with EU based suppliers and where appropriate begin planning joint strategies to mitigate risks (remember that your suppliers will also be concerned about losing your business so will want to work with you). And keep showing your support and appreciation of your EU suppliers, as anti-British sentiment in mainland Europe could increase your risks;
7. Ensure that you have good quality supply market intelligence gathering, so you can monitor potential supply risks or opportunities;
8. Check that your internal finance and ERP systems can be adapted to reflect changes such as lengthening order to delivery lead times, greater currency fluctuations, customs duties, etc. System changes will need planning and testing in advance otherwise risks will increase. Plus review all purchasing related online or offline documentation such as purchase orders, terms and conditions, delivery notes. Will these need to be amended post-Brexit to comply with any diversion between EU and UK legislation?
Change is the one certainty
In summary, Brexit poses threats and opportunities for UK based purchasers. The one certainty is that big change in the business landscape is happening, for good and bad. It is therefore critical that you start to plan now. But there is no need to panic. By planning now, your business will be in much better shape to not only withstand any shocks but to seize upon the opportunities that will inevitably come from Brexit too.
by M Roper | 5 May 2017
Posted 26 April 2017 | | 0 Comments
Academies are increasingly being encouraged to protect themselves from the impending funding cuts through collaborative procurement. Whilst we're seeing a growth in such collaboration, there remain considerable barriers which are putting brakes on the trend, resulting in a fragmented picture across the UK. In this article, Matt Roper, CEO of Buying Support Agency (BSA), procurement specialists, considers how schools can overcome these barriers and take full advantage of the benefits whilst avoiding the pitfalls.
As funding cuts start to bite, Academies - particularly those not within Multi-Academy Trusts (MATs) - are vulnerable to financial difficulties if they don't tackle their back-office efficiencies, such as their management of procurement. No longer can they rely on their Local Authorities own procurement resources, as Local Government have experienced significant budget cuts themselves and are experiencing a decline in their buying power as more and more schools go it alone.
Degree of take up of collaborative procurement
A logical way of combatting the funding cuts is for every Academy to join forces with other like-minded schools, pooling resources to re-gain the economies of scale previously enjoyed from Local Authority procurement support. Many MATs are already doing this. And as well as economies of scale, schools also benefit by sharing insights into markets and supplier performance through benchmarking prices and service levels. Buying collectively puts the cluster of schools in the driving seat whereas those going it alone are less able to stand up to suppliers or compare alternative supply options from a value for money perspective. It should also be noted that the EFA and Ofsted are increasingly seeking evidence of value for money when auditing school finances.
The Department for Education's March 2016 White Paper ("Education Excellence Everywhere"), places great importance on strong financial health and recognises that collaboration between schools will play a big part in the future of academies, especially through Multi Academy Trusts, in helping schools to share expertise and reduce costs.
However, despite the obvious benefits of joint procurement there remain factors which are slowing down the take up. According to a recent National Schools Procurement Survey, carried out online by Incensu with support from the National Association of School Business Managers (NASBM) and with a sample of 106 schools, the main reason for schools not working together when procuring goods and services was a perceived lack of time (72%) and expertise. 87% thought that savings were possible from collaborative procurement but over 60% said they lacked someone who could take responsibility for facilitating the partnership of schools within a cluster; only 24% could demonstrate that they were already working jointly with other schools. So clearly the majority have yet to benefit from collaborative working.
Some schools surveyed didn't see shared procurement as being a priority - perhaps because they see most of their budgets being spent on staff wages, pensions, and so forth. But whilst this is true, across the UK schools spend £9.2 billion on non-wage costs such as energy, catering, cleaning and back-office costs. And whilst funding is falling, it will be challenging for schools to be able to make significant in-roads into their staff salary costs. There is already a shortage of quality teaching staff, and this combined with inflationary pressures, constant pressure on exam results performance, and even Brexit, will make it unlikely that cutting salary costs will make up the funding gap in many schools. As the pressure mounts on budgets, more Academies will need to focus on back-office efficiencies and lower supplier costs.
Those surveyed did however come up with suggestions as to how this barrier could be removed. These included the setting up of a formal framework, freeing up time and providing training e.g. collaborative procurement, legal issues, contract performance management. It was also suggested that suppliers could do more to encourage schools to procure together rather than as individual customers.
Types of collaborative procurement models
There are various collaborative models available to Academies. At the simplest end of the spectrum is the informal cluster - where procurement isn't shared but ideas and issues are shared and discussed; then there is the contractual collaboration where two or more schools create a joint contract - though a formal agreement must be signed between the schools; next comes joint committees; the most formal arrangements include setting up an umbrella trust, a joint venture company or a MAT. Each option has advantages and risks, and should be considered based on the needs of the individual schools within the group.
How to make a success of collaboration
Ensuring that collaboration delivers maximises commercial benefit requires an investment of time on the part of each school participating. Given that the majority of Academies cite lack of time as the key barrier to collaboration, then it is important to make the engagement process as time efficient as possible.
Before deciding on the approach, and which collaboration model to develop, it is crucial to consider a number of key questions; all stakeholders must recognise the time investment and be prepared to allocate such time consistently – if one school feels it has the lion share of the work load, the collaboration will soon collapse; everyone must agree on what is to be jointly procured and the priorities; there must be clarity about the outcomes of joint contracting and the benefits to all parties; what the legal implications are of the collaborative model being adopted and the need to comply with the Public Contracts Regulations (see section below); what funding requirements will there be on each school in the group; what happens if one school wishes to withdraw from the arrangement, or a new one wishes to join an established group?
Other critical success factors include the need to establish a clear and realistic vision and business case; maintaining good communication with all stakeholders; setting clear targets; establishing sound governance arrangements; remaining sensitive to the different needs of each school within the cluster and listening to any staff concerns about job security.
Compliance – the EU Procurement Regulations & Public Contract Regulations (2015)
Regardless of whether an Academy decides to collaborate with others, it must realise that poor procurement decisions and a failure to comply with EU procurement legislation can result in legal challenges from suppliers, contracts being cancelled and financial penalties which can be costly, time-consuming and impact negatively on the school’s reputation.
Academies are deemed to be ‘contracting authorities’ because they receive their funds predominantly from the tax payer via the Education Funding Agency (EFA). This means that they must comply with the Public Contracts Regulations (2015) when contracting higher value goods, services or building works. ‘Higher value’ will depend on what is being procured – for goods and the majority of services this is £164,176; for building works contracts it is £4,104,394 and for social and other specific services (including education, catering) it is £589,148. If the total contract value of the spend (i.e. not just one year’s spend – you’re not allowed to artificially disaggregate a large contract into smaller sections to bring it below the threshold) exceeds these thresholds then the tender has to be advertised across the EU and EU Procurement Regulations must be applied.
Where clusters of schools can go for assistance
One way of cutting down the amount of time needed from each school is for the group to take advantage of ready-made procurement consortiums or buying groups. More Academy Trusts are showing interest in buying organisations, not only for large scale contracts such as IT and classroom equipment but also for more complex services such as building management and professional services. As Academy Trusts expand, their supply chain needs will be less served by the local supply base.
These buying organisations have significant buying power and will already have spent the time vetting suppliers, seeking invitations to tender, completed the competitive tendering process and set up supply frameworks which comply with EU Procurement Regulations. Organising EU compliant tenders take up a lot of resource which Academies may not realise.
The contractual terms will also have been negotiated favourably on schools behalf. Plus should anything go wrong with the contract the schools will have the support from the purchasing consortium who set up the framework.
Utilising these resources will mean your cluster won’t need to have legal or commercial expertise and can save the group having to tender itself. In short, why re-invent the wheel? The best consortia also provide contract templates and training, helping to share insights when procuring educational supplies and services.
Price and value benchmarking is another benefit of utilising purchasing consortia. By comparing prices and value prior to going to tender, Academies can see the opportunity for total cost savings and this can help prioritise which cost categories to tackle.
Examples of professional buying organisations in the public sector include the Crown Commercial Service (CCS), Pro5, Crescent Purchasing Consortium and EduBuy. In the private sector there are several alternatives, including the company which I lead - Buying Support Agency Ltd (BSA). BSA operates a Buying Group ideal for spends under the EU Procurement spend thresholds, plus it can offer cluster procurement support for higher value tenders and benchmarking.
To maintain enthusiasm and to justify the resource, the school cluster needs to see a decent return on investment and hence identifying and then targeting those cost categories likely to secure the greatest level of cost savings and service level improvements is critically important. But the value benefits are clear. One recent example is the National Church of England Academy Trust (NCEAT) which led a procurement for insurance services on behalf of five academies. NCEAT used the Pro5 Insurance Services framework agreement (RM958) and saved over £40,000 on their previous year’s premium and brokerage fees.
As funding is squeezed across the education sector, and the traditional sources of procurement support (i.e. local authorities) declines, Academies are being forced to evaluate ways in which they can save money. Once a school has made its own efficiency savings, the most effective way to achieve significant further economies is to combine with other schools and to consider outsourcing certain back-office functions.
The good news is that schools can already draw on excellent practice within other schools which have already organised themselves into collaborative clusters and via a wide range of training, tendering tools and supplier frameworks delivered by public and private sector organisations.
If you’re on the School Management Team or a Governor at an Academy Trust or individual Academy and want to find out more about collaborative procurement and external procurement support that is available, please contact Buying Support Agency Ltd (tel: 0800 254 0344)
by M Roper | 26 April 2017
Posted 31 March 2017 | | 0 Comments
So the UK has finally triggered Article 50, formally initiating our divorce proceedings from the European Union. Now begins the extremely challenging task of negotiating our terms of departure to deliver the least negative consequences for the United Kingdom and the remaining 27 members of the EU.
From a procurement perspective, I’d like to consider how procurement functions in both private and public sector should prepare over the next couple of years and beyond to mitigate the risks and seize the potential opportunities out there. First let’s consider the possible impact on public procurement law.
Procurement Procurement Legislation
The UK implemented the Public Contracts Regulations 2015, Utilities Contracts Regulations 2016 and the Concession Contracts Regulations 2016 which all make up the EU Public Procurement rules. These laws seek to ensure transparent competition whilst ensuring non-discrimination on the grounds of nationality. Whilst on exit (but not before) the EU Procurement Directives will cease to apply, the UK version of these rules will continue to be applied in law unless and until the UK repeals them. The Great Repeal Bill lays out how this hugely complicated process will happen.
Why the existing Procurement Laws in the UK are likely to remain
The extent of legislative change surrounding public procurement may well depend on the outcome of the Brexit negotiations relating to trading. However whatever the outcome, I expect the existing procurement laws in the UK to remain broadly the same (though without the need to demonstrate cross border interests being considered) for the following reasons.
If we have a ‘soft’ Brexit
If the UK agrees to a ‘soft’ Brexit, it will leave the EU but will either remain part of the Single Market (unlikely, if Theresa May’s sticks to her recent comments) or perhaps the European Free Trade Agreement (EFTA), it will remain bound by the existing EU Procurement Directives anyway.
If we have a ‘hard’ Brexit
If on the other hand the UK takes the ‘hard’ Brexit line, and doesn’t sign multiple bilateral trade agreements with each member
of the EU, it will likely to become a member of the World Trade Organisation (WTO). The WTO has its own procurement rules, laid out in the Government Procurement Agreement (GPA) which it requires members to adhere to. The GPA requires that its members treat suppliers from other member states as favourably as domestic suppliers, as well as ensuring transparency and impartiality. And many developing countries have adopted EU Procurement Regulations as a blueprint for their own procurement rules, in order to reassure funders such as the World Bank.
Other reasons for status quo
First, the current UK Government will remain focused on cutting public spending and seeking value for money across all government departments. Removing the key principles of public procurement law could result in a potential loss in competitive challenge and innovation, resulting in poorer value for money for UK taxpayers. It should be added that the elements of procurement law relating to supporting SMEs in public sector bidding and the opportunity for bidders to challenge public and utility procurement decisions would be difficult to repeal without an outcry from UK business due to the perceived negative impact on fairness and transparency.
Secondly, with so many complex legislative changes required to be made in a relatively short period of time, I think that there will be little urgency to simplify the public procurement rules in the short to medium term. Any adjustments to public procurement legislation would require significant consultation across large numbers of public sector and industry bodies. Bear in mind that significant consultation happened prior to the most recent changes in EU law. Any deviation in public procurement law will also add complexity to UK companies sourcing from EU supply chains.
Increased currency market volatility and inflationary pressures
Whilst the view is that legal changes to UK Public Procurement are unlikely to be significant, other factors will have an ongoing impact on procurement and supply chain management. The current political and economic uncertainty risks dampening institutional and corporate investment within the UK. The consequence of lower investment could be a fall in employment levels, thereby cutting domestic consumption and damaging UK economic growth. Procurement departments must evaluate how they should respond to these threats.
One early challenge for procurement is the weakening of the Sterling exchange rate against the key international currencies. Whilst this is good news for exporters, it also means a higher risk in the medium term of increased import costs (e.g. raw materials, oil prices which are priced in dollars), even if their overseas suppliers are not themselves experiencing an uplift in costs.
Barriers to travel and movement of goods to and from the EU
The tightening of UK borders is likely to increase the time taken to ship goods and increase the administrative burden of moving goods and people to and from the UK to EU Member States. One example of this would be the introduction of security checkpoints and customs posts between the Republic of Ireland and Northern Ireland. It could also create political tensions.
And add into the mix the risk of Scotland voting to become an independent country outside of the United Kingdom, now that the SNP has secured a mandate from the Scottish parliament for a second independence referendum. The consequences of independence would be far reaching and procurement on both sides of the border would have to manage the new complications involved in managing cross border supply chains.
A further inflationary and logistical threat is the raising of customs duties and additional administrative hurdles imposed on EU goods and services being imported into the UK. UK buyers need to think about the impact on their business of lengthy delays at UK ports, or the introduction of a land border between Northern Ireland and the Republic of Ireland. When we experience delays at ports caused by French strikes at Calais it hurts UK companies but only happens infrequently. Imagine if such delays became the norm.
Re-evaluation of existing suppliers
With UK companies under pressure to maintain profitability and protect cash flow, buying departments will feel the heat from their Boards of Directors to keep a lid on these inflationary pressures. This will in turn force procurement to re-evaluate their existing supplier relationships, particularly those suppliers based in the EU, and to consider other non-EU supply options to mitigate risks for their organisations. It may encourage buyers to consider contracting with alternative suppliers in other parts of the World, though this introduces other risks, such as delays in logistics due to increased transport distances, cultural differences, new language barriers, new currency dealings, commercial laws which may differ from EU law, and so forth.
Procurement professionals will not only need to consider their own concerns but must also be sensitive to the concerns of their EU suppliers who may themselves wish to re-evaluate existing trade with UK customers. Trade is after all a two-way street. If the nationalist movement continues to flourish (as demonstrated by the Brexit vote), or if anti-British sentiment develops after a difficult Brexit process, some EU based manufacturers and service providers could decide to re-focus their energy on selling to EU member states and away from the UK market. Other economic and legal factors could also dampen the enthusiasm of our EU neighbours to export to the UK. This could include a significant deviation in UK commercial law versus EU law over time, a continued weak pound relative to Euro, administrative barriers such as import border checks and paperwork, UK imposed import tariffs. Any of these factors could result in lower profit margins or lower UK demand, which in turn may result in inflationary pressures or a fall in supply to the UK.
So sourcing is likely to become more of a challenge from the UK’s perspective. UK buyers will need to keep a close eye on their existing EU suppliers to spot any change of approach as early as possible, and to build a contingency and costings plan for switching supply out of the EU if supplier relationships become more challenging within the EU.
But with risk comes opportunity. Buyers may be currently in a comfort zone with certain EU suppliers, blissfully unaware of some highly innovative and value add supply chains outside of the EU in the rest of the World, and even back here in the UK. If Brexit forces buyers out of their comfort zones, some positive consequences may well result, but only if buyers develop the appropriate alternative supply strategies. And they will need to work closely with their colleagues in sales, operations, quality assurance and so forth to ensure that the non-EU sourced alternative products and services are fit for purpose for the needs of their client base whilst complying with UK law.
A shrinking supply of cheap labour and increased wage costs
Cost pressures will grow in those industry sectors reliant on cheaper labour recruited from overseas, such as construction, hotels and hospitality, food production, contract cleaning and logistics, if these people leave the UK. The government will be under pressure to show that they have cut immigration numbers as this was a key reason for voters choosing to leave the EU. Yet UK companies will still need to employ resources and if there is a skills shortage they will have to either pay more to recruit new staff. Buyers will be under pressure from recruitment agencies who may decide to increase their fees if staff search costs rise or who pass on higher wage demands.
And the pool of talented procurement staff may well diminish if migrant numbers are cut. What impact will this have, and what plan can be developed to safeguard talent within the organisation?
Change is the one certainty
In summary, Brexit poses both threats and opportunities for UK based procurement people. And in the short to medium term it also brings uncertainty. The only certainty is that big change in the business landscape is going to happen, for good and bad. It is therefore critical that procurement starts to plan now, even though much is unclear, otherwise they are likely to miss the biggest opportunities and be more vulnerable to supply chain risks and cost increases. They must review their existing EU supply base and regularly assess the degree and risk of cost increase, time delays, relationship tensions. And they must consider new alternative sources of supply outside of the EU (or even within the UK) and weigh up the risks versus rewards of switching.
by M Roper | 31 March 2017
Posted 24 October 2016 | | 0 Comments
Watch any television news programme, read any newspaper, and you could be forgiven for thinking that the world is increasingly in a state of chaotic change and heightened risk. Examples include changes in consumer buying behaviours caused by technology (e.g. Uber), the current political and economic instability (e.g. Brexit, Syrian civil war), the early signs of the negative consequences of global warming (e.g. more flooding and extreme weather events), the explosion in frequency of cyber attacks (e.g. TalkTalk), grass root revolt against the institutions and wealthy (e.g. Brexit, the rising popularity of extreme left and right wing politicians).
The unethical behaviour of many businesses have contributed to these growing pressures. There is growing social revolt against company wealth being kept by a tiny proportion of the population, and growing corporate tax evasion at a time when government debt has been rising, public services have been crumbling and real wages have been stagnating at best. Added to this is the growing threat of climate change, environmental challenge and animal extinctions, caused in part by irresponsible, inefficient or unethical business practice.
To begin resolving these threats, all companies have a duty to evaluate and manage their impacts of doing business on society and the environment. With the dual threats of being named and shamed on social media and increasing legislation, companies will fail if they don't take positive action quickly.
One such action is for procurement functions within organisations to focus their efforts on mitigating supply chain risks caused by these global changes. My concern, having audited countless procurement departments over the last 15 years, is that too many procurement departments remain stuck in the same old cycle of fixating on cost reduction and thus reducing its value within and outside the organisation, including tackling supply chain risk management and sustainability. This is perhaps not surprising given that procurement tends to be measured by how much cost saving it has achieved. Measuring the degree of risk mitigation, environmental impact or innovation is less easy to measure, and often isn't measured or even talked about.
Companies that allow their procurement teams to purely focus on cost reduction are missing a trick which could come back to bite them at a later date. Procurement can (and should) have arguably the greatest leverage within a business to making things happen within supply chains for the good. Examples of action include adding ethics into supplier evaluation criterion pre contract award; challenging marketing to cut the need for energy-hungry packaging; sourcing energy efficient, eco business supplies; cutting waste through supply chain partnerships; evaluating the potential impact on suppliers of political/economic shifts at a national, regional and global level.
For Boards of Directors worrying about the potential impact of global change on the health of their companies, now is the time to provide leadership to their procurement teams, building procurement strategies that not only start to address the external threats, but on a more positive note, position the company's supply chains to seize the opportunities that are also there to be taken. By doing so, they will be making a positive difference not just to their own companies but also to their communities and the planet. It's time for business and procurement leaders to step up to the plate. Don't worry, just take action.
by M Roper | 24 October 2016
Posted 19 November 2015 | | 0 Comments
November is the peak month for fuel usage, as retailers stock up for Christmas and internet deliveries ramp up. Consumers use more fuel also, as what was a walk becomes a car trip in the cold and rain. The relatively low fuel prices have also meant that usage has increased. However, there remain the usual calls for fuel duty to be reduced or at least frozen and the forecast benefits that this will bring the British economy.
If you look at the figures, it is easy to quantify savings, based on any cut in duty. A small business with 6 vehicles, using 1500 litres per month would save around £180 per year on a 1 pence per litre (ppl) duty reduction. Obviously with a larger fleet, this becomes 000's and an immediate quick win, but as a percentage of running costs it is a drop in the ocean.
There are other factors which can save businesses far more than 1ppl, but tend to be ignored in small businesses, as it is easier to moan at the government than take control of your fuel spend - so here are a few simple tips to get you started in having a company fuel policy.
1. Do I have the appropriate vehicles for the business? Not a quick win, but how many times are large vans sent out less than half full, when the load would be carried in a maxi van or smaller. Can you replace some of your fleet with smaller more efficient vehicles?
2. Do I have a fuel card, which is convenient as it saves me money?
3. Do I monitor fuel efficiency and run mpg reports - it's easy, just have the vehicles full at the end of the last day of each month, record fuel purchases and get the start & finish mileage. A spreadsheet later, you will have mpg figures for each vehicle to use to:
- Compare similar vehicles efficiency
- Use as a benchmark to improve
- Use to help purchasing decisions on vehicles
- Monitor driver performance
- Identify possible fuel theft - who drives a diesel car, who carries a fuel can?
A van is designed to travel at 56mph with a load on board, but one travelling at 90mph uses 50% more fuel. If a driver filled up and paid 180ppl, when others paid 120ppl, you wouldn't be happy, but it would cost the same as driving at 90mph. Sensible driving will save on wear & tear in brakes, tyres & reduce the risk of accidents and the costs of a vehicle off the road.
4. Unnecessary journeys - 30 miles per vehicle per week adds up to around £300 per year, so going out of your way to buy 'cheaper' fuel, is costing you money and time. Telematics can help drive fuel efficiency, but adds a cost, but should give net savings.
5. What simple things can I do to reduce fuel spend?
- Lighten the load - we all carry extra things that we don't need
- Roof/ladder racks increase fuel use - do you need them?
- Tyre pressures - check them. Incorrect tyre pressures will cost 2% in extra fuel
Reducing fuel spend is not rocket science and by getting a BSA Fuel Card, you can monitor your fuel spend by vehicle, get a highly competitive rate on diesel at stations convenient to you. We could have saved you 4ppl on average UK pump prices in November.
by H Burton | 19 November 2015
Posted 3 August 2015 | | 0 Comments
We've all heard on numerous occasions the old adage "Cash is king!" and no-one doubts the critical importance of companies keeping on top of cash flow. Whilst traditionally it has been the finance function which has had the responsibility to cash flow management, Procurement has a key role to play too. But how? We've identified some of the key aspects of Procurement which, working well with Finance, can have a major positive impact on the cash position:
Option one is the most obvious one - Cost savings. Every pounds saved immediately boosts cash flow by reducing the invoice values coming into Accounts Payable. This is partly about negotiating with suppliers to seek discounts through giving them more business, or more security of supply. One big area of cost which companies often forget is overheads or indirect costs. The only way small and medium sized companies can make a step change cost saving here is by joining a buying group to leverage the greater buying power. One example is BSA Buying Group, which covers 24 cost categories (e.g. telecoms, utilities, insurances, travel expenses) and delivers on average 15-25% cost reduction. Joining this group will almost certainly make a positive impact on the cash flow.
Option two is for Procurement to develop processes to ensure that sufficient checks and balances are in the system to mitigate the risks of maverick buying and fraudulent expenses claims. For example, if the buyer can negotiate with suppliers that only official purchase orders are to be accepted by suppliers, this will help to eradicate orders off contract which are often priced at a higher level (and thereby hurting cash flow). Also bear in mind that invoices can often contain errors which may impact negatively on cash.
Option three is for Procurement to negotiate discounts from suppliers for early payments - it's a commercial benefit for a supplier who in turn as a reward may be prepares to give away a small amount of profit. Lower costs will then in turn help cash flow for the buyer's company.
Staying with payment terms, option four is for Procurement to negotiate extended payment terms. The trick here is to ensure that this is built into contract terms and consistently applied across all key suppliers. As long as the extension isn't stretched too far, it can really boost cash flow as a one-off hit. But beware over doing it, as it can lead to relationship damage if used as a threat. It's also worth noting that even when payment terms have been breached, Procurement can support Finance by engaging with the Supplier's senior management and reassuring the Supplier that payment will be coming before too long, explaining the causes of the delays. This option is only relevant if Procurement has a deep and supportive relationship with the Supplier and of course, it's a card that can't be played too often.
Option five is ensuring that Procurement are effectively monitoring foreign exchange rates and price indices for raw materials (e.g. paper, plastics, fuels) and that contracts define (hopefully in the buyer's favour!) what happens when rates fluctuate. Whilst the foreign supplier may be quick to seek more revenues when rates go in their favour, Procurement will help cash flow by seeing improved deals when the rates move in their favour. They mustn't rely on the suppliers to tell them, as it may not be in their commercial interest to do so.
Option six relates to customer complaint which results in their slow or non-payment of your invoices. Procurement can help here by tightening up the processes and supply chain rules around root cause analysis and commercial redress when things go wrong. If you wait until the problem hits, it's likely that the delay in resolving the issue to the satisfaction of the client will be longer, hitting cash flow for longer.
Option seven is to involve Procurement in the sourcing of, and negotiation with, financial borrowing service providers. Procurement is often not involved in funding supply chains, as its seen as the domain of Finance. However, when going into battle as a team with Finance, the negotiation and commercial skills that Procurement should have in its armoury can really help to secure a lower borrowing interest rate or other aspects of the deal which will impact positively on cash flow.
Finally, option eight is focusing on inventory levels (assuming you're not a pure service based firm) and working with the suppliers to optimise stock levels. One example of this is a contingency stock management agreement with the suppliers whereby stock is only paid for when used. We see lots of companies buying excessive levels of stock (sometimes because they've been attracted by a lower unit rate by buying a larger volume) which may give the buyer a positive feeling if measured purely by unit price achieved (tick) but eats into cash flow (cross). The negative impact on the cash flow may negate the cost reduction, so the buyer needs always to consider cash flow impact when making decisions on stock volume commitment.
by M Roper | 3 August 2015
Posted 14 July 2015 | | 0 Comments
In this article, Richard Bradley outlines the changes in credit card processing charges across Europe, explains what these should mean for your business, and shares expertise on how best to ensure you don't pay over the odds or get fenced in.
Why are the changes taking place?
In anticipation of EU regulation to align charges for processing card payments in Europe, Visa and MasterCard are making changes to their transaction fees across all card types over the next 12-18 months. The important thing to bear in mind here is that the ruling only affects Visa & MasterCard and what they charge your merchant services provider (WorldPay, Lloyds Cardnet, Barclays Merchant Services etc). Visa's charging will also have the same tariff for chip & pin and a secure e-commerce transaction, which is good news if you trade on-line.
However, here's the main point. Your merchant services provider is not restricted under the EU ruling in what they decide to charge your business!
What are the changes?
Debit Cards - From 1st March 2015 Visa moved its charges for debit card payments from the fixed pence per transaction charge, to a charge which is mainly % based.
This is good news if your business is accepting debit card payments with a transaction value below £35, as it should mean a reduction in what you currently pay as a fixed pence per transaction charge. As an example a transaction at £10 which was previously charged at 19p, should reduce by over 40% to nearer 11p.
If the cost of your goods or services is above £35 it will result in an increase, with significantly increased costs the higher the transaction value. An example here would be a transaction value of £200 which was previously charged at 19p and will now be charged at over 50p, which is an increase of over 250%.
Visa have introduced a cap for higher transaction value payments, however the merchant services providers won't necessarily pass this on to you! You could therefore end up being charged over £8 for a Visa Debit Card transaction of £2000, where a cap would have reduced this to £1 for a secure chip & pin or e-commerce payment.
Key fact - Over 70% of card transactions in the UK are on debit card and this will only increase as the switch from cash to cards continues and contactless payments increase, so the pricing for debit card payments will become more important.
Credit Cards - These are currently charged as a % so you'll be used to paying anything from 1.1% to 2% on a transaction depending on the card type (business, premium, personal).
The great news here is that these charges will reduce over the next 12-18 months and as it's already a %, the savings should be reflected in all transactions no matter what the size (assuming your merchant card services provider passes a fair % of this reduction to you!).
MasterCard are reducing their charge to your merchant services provider gradually over the next 12 months and Visa are expected to reduce their charge in one go, in 2016.
The great result for you should be that your credit card transaction charges should have reduced by 20-30% by the end of 2016.
So, what should you be doing?
Be alert and know what you're paying - Now is the time to read carefully any correspondence you receive from your merchant services provider. In particular, check your merchant services statement from April onwards to see what impact the Visa Debit Card pricing has made to your charges.
"Marry in haste, repent at leisure" - Contracts can be for up to 5 years and although you can move your card processing the cost of cancelling is very likely to be prohibitive. So, before signing any new contracts or signing with a new merchant services provider, whether directly or through a sales agent - ensure you find out what their policy is re capping large debit card transactions and whether they will pass on the credit card reductions due in the next 12-18 months? Alternatively, find an advisor who is prepared to take the time to really understand your requirements and can secure tailored flexible solutions e.g. perhaps by selecting hardware that is "unlocked" or provider agnostic, keeping your options open to switch later if needs be.
Seek independent expert advice - Be careful not to use a broker or sales organisation which is potentially conflicted. Now is the time not to be sold headline rates and the service element really matters, more than ever before. A good specialist should ensure that debit card caps are provided, that lower rates are applied for low transaction amounts, and that you secure the reductions in credit card pricing when these happen. They will know in advance and rather than just alerting you and they should use their muscle to ensure you benefit to the max when rates are changing.
Finally, stay in touch with technology - It's moving ever faster in this area. Make sure your specialist keeps your business up to date with the latest payment terminals, mobile solutions and payment gateways for on-line business.
by R Bradley | 14 July 2015
Posted 22 June 2015 | | 0 Comments
When we start discussing indirect cost management for the first time with a Board of Directors, we're often told that they think they've got "a great deal" or that "they're really busy at the moment so now isn't the right time to consider joining a Buying Group."
For those who agree to join however, it soon transpires that their great deals weren't necessarily so great after all. And they also discover that far from having to spend more time, our support has actually saved them a lot of time.
But how is this so? Well first of all, most companies have never compared their "deals" with other companies. So other than being told by the suppliers, they can't validate their claims. The harsh truth is that most small and medium sized companies aren't attractive enough to the supply markets to achieve the best value deals because they don't spend enough. Only by joining forces with others can they achieve a step change value improvement. That's the role played by a Buying Group.
And what of the Time argument? So many organisations forget how much time is taken conducting procurement exercises. In the need to 'get 3 quotes' precious staff time is taken up, even though the best deals in the market place will still elude them at the end of the process for the economies of scale reason mentioned above.
Imagine what benefits your company would enjoy by reallocating staff time previously focussed on the necessary evils of indirect spend towards more business critical issues which will help grow the business profitability.
So we say to Boards of Directors: save time and money by joining a Buying Group. Tap into its buying power AND refocus your staff on what's core to your business success (they'll be more motivated too!) You will always be busy, there will never be a moment when you're time rich so let's act today. Besides, what would your business do with more cash and more time? For more details get in touch...
by Matt Roper | 22 June 2015