Building Back Supply Chain Resilience

Posted 13 July 2021 | | 0 Comments

Procurement teams have never been more stretched for time, as the number of supply chain challenges mount. Let’s consider the last 18 months, and it’s not pretty - the financial stress and supply chain disruption (think computer chips and PPE) caused by the Covid-19 pandemic; the surge in cyber security attacks which have increased operational and reputational risks; the supply disruption and reputational risks caused by the climate crisis; tariff barriers and admin delays caused by geopolitical tensions such as Brexit and US/Chinese trade disputes; and as if that wasn’t enough, we’ve had localised incidents with a global knock-on effect, such as the supply disruption caused by the Suez Canal blockage which held back estimated $9.6bn worth of goods per day.

These shocks have shed light on the fragility of global supply chains. Business leaders and politicians have been quick to question our decades-long obsession with outsourcing overseas (particularly to lower cost Asian economies). One cited example is the global shortage of computer chips caused by the covid-19 pandemic – staff shortages in the Asian manufacturing plants cut supply at the very moment when more chips were demanded as huge numbers of people started working from home. The huge smartphone and consumer electronics buyers outgunned smaller buyers of vehicle manufacturing based chips, forcing car production of higher end models to be delayed.

So how do UK companies evaluate the degree of supply chain risk? And what strategies should be followed to ensure that both risks and opportunities in this new world are managed effectively?

First, Gather Intelligence

To review supply chain risk and opportunity effectively, procurement requires intelligent data and transparency from their suppliers and the markets in which they operate. Any evaluation without good quality data is less meaningful and potentially dangerous if key business decisions are going to be made post evaluation. Suppliers may be reluctant to be open to their clients, particularly if they are in a vulnerable financial position or nervous about losing demand.

This is where procurement needs to communicate effectively with its existing and potential suppliers, to build trust through openness. And to look for other independent sources of intelligence where possible to validate the accuracy of information being fed from the suppliers. Financial credit checking, cross referencing with clients in non-competing sectors and market research are all options to consider. Equally businesses must invest in planning tools able to rapidly detect shifting trends in customer demand and in supplier capabilities and risk factors.

Next, Risk & Opportunity Evaluation

Armed with timely supply market intelligence, Procurement must then evaluate both the probability of various supply risks and their likely consequences. ‘What if’ scenario planning is a good way of approaching this as it helps identify possible risks. Procurement cannot do everything at once so will need to work with other parts of the business to decide on which risks need addressing, in what order of priority and with what level of resource and funding.

As well as risk factors, procurement must consider supply performance. Are suppliers delivering best value, including evidencing how they are mitigating risks? If buyers have negotiated hard in the past and cut out most of the supplier profit, it may increase the risk of the supplier being unable or unwilling to take decisive action. It is also vital that service levels are being monitored carefully, to help spot any negative performance trends early on.

The third element to consider is current and future capability of the suppliers to expand products and supply capacity as markets start to bounce back. Have the suppliers been damaged to the extent that they are unable to react swiftly to changes in the market?

Then Develop Supply Chain Strategies

Once risk, performance and capability have been evaluated across the supply chains, procurement must work with other stakeholders across the business and customer base to develop sourcing strategies which align with future customer demand, internal resources and budgets.

One short term tactic might be to stock build, though this is proving more challenging with UK warehousing space at a premium and with rents climbing rapidly; this also requires that a company has sufficient cashflow funds. Smaller companies may not have the cash to make this strategy viable.

A multiple sourcing strategy, ideally across more than one region, is one approach to ensure protection against supply chain disruption. Whilst it can take time to develop, building a portfolio of suppliers can help to ensure continuous supply availability. But this only works where there are several supply options and where the products being sourced are standardised.

Many supply chains remain rigid and vulnerable to supply side shocks. To counter this, another strategy could be to push for product or service innovation or product rationalisation to enable the interchangeability of inputs, standardisation of components and switch of production sites. Standardisation also helps with economies of scale and so lower cost. Diversification of product or service or moving into new markets and new customers can help the business bypass existing supply chain challenges or take advantage of lower cost/risk supply chains.

Building strategic partnerships with critical suppliers is the most effective strategy in a world of disruption and may be critical to the future success of a business if they are unable to extract themselves from existing supply chains. It ensures business as usual whilst giving the business more influence to reduce risk, cut costs and improve sustainability. It can also help suppliers suffering from financial stress as the business can potentially subsidise them with funds (or just paying them faster) or work on shared projects to cut costs – all are more likely when there is a longer-term commitment and trust built between buyer and seller.

By integrating supply chains, the business can obtain accurate and real-time data which helps it make informed decisions at the right time. It can also share challenges and data back the other way, such as forecast demand and client behaviour trends, and pool resources and funds to streamline supply and remove costs. It has the added advantage of giving the business greater ability to manage cross supply chain challenges such as sustainability, CSR and cyber threats.

The business must also consider the logistics providers as well as the manufacturers. Increasingly there will need to be closer collaboration between companies and their logistics providers across the supply chain to ensure that lead times remain competitive and supply disruption minimised.

Future Proofing the Supply Chain

The business must continue to monitor supply risk and opportunity and to develop supply options as customer needs and markets continue to change – in other words they must future proof their suppliers. Covid has forced change to happen much more rapidly than would have previously been predicted and the state of flux will remain for many years to come. One example is the shift to home working and flexible working patterns. Businesses will need to monitor their suppliers’ ability to support their remote workers and digital communication and those suppliers providing adequate upskilling and support structures for their employees will be favoured by buyers.

A balance needs to be struck between building flexibility through diversification of supply on the one hand and creating strategic supply partnerships on the other. It requires careful evaluation of risks and a development of a supplier strategy over short/medium/long term. But by being proactive now, companies can use the current disruption as a trigger to shake out old rigid supply chains and to build back stronger with built in agility, future proofed and with sustainability at its heart.

by Matt Roper | 13 July 2021

ISO 20400 Sustainable Procurement – guidance for cutting carbon

Posted 25 March 2021 | | 0 Comments

For those organisations seeking to secure business through the UK central or local government, one thing cannot be avoided; public procurement managers are increasingly requesting evidence from bidders that their organisations have set CSR and sustainability goals and that they are working proactively towards achieving these goals. Hence the 10% minimum bid score weighting relating to sustainability and social value.

I have a strong belief that procurement has a critical part to play in greening up the organisation. This is because any company will struggle to reach its sustainability targets in isolation. Most carbon emissions are generated not by the organisation itself but rather by its suppliers – perhaps as much as 80%. Ignoring the supply chains in which an organisation operates means that they are only directly influencing 20% of the problem. So procurement must take the lead and develop policies and procedures to tackle the 80% which they have a varying degree of control over.

How should procurement start the process of developing an approach? Without a structured approach there is a high chance of inefficient use of resources and sub-optimal results. That’s where ISO 20400 is extremely helpful as it provides a consistent approach and means Procurement Leaders aren’t required to reinvent the wheel.

What is ISO 20400 Sustainable Procurement?

This April is the fourth anniversary of the publication of ISO 20400 Sustainable Procurement. This international standard builds upon the British Standard BS 8903 and provides an understanding of what sustainable procurement is, what the sustainability impacts and considerations are across different aspects of procurement activity and how to implement sustainable procurement. This standard is for guidance only, so cannot be officially audited and certified.

If you company has a CSR goal to become more sustainable, ISO 20400 is an extremely valuable framework by which your purchasing people can align their activities with your overarching company-wide sustainable objectives. Without a structure in place plus base line audit and regular milestones for performance improvement, it is very difficult to ensure that your company is moving in the right direction.

So what does ISO 20400 cover? It is not possible to do this justice in a short blog post so I’ll focus instead on how it builds on previous Sustainable Procurement standards (e.g. BS8903). There is a greater emphasis on social responsibility and on the identification and prioritisation of sustainability issues. It makes sense to prioritise given scarcity of resources and time – both at a company level, a cost category and supplier level. If you can achieve some victories early on where the resulting reduction of carbon or waste is significant, this will help maintain the motivation to continue.

In terms of risk and opportunity, ISO 20400 recommends a robust due diligence process to prevent, treat, reduce or control potential positive and negative sustainability impacts. It also recommends that procurement seeks to influence the behaviour of the suppliers and to avoid being involved in any wrongful acts. An organisation can be considered complicit where it stays silent about, or benefits from irresponsible practices of its suppliers.

The standard makes it clear that company leaders must work hard to drive commitment and responsibility across all levels of the organisation including the procurement function. It argues that the organisation will not achieve its sustainability goals unless individuals and teams are accountable.

The standard emphasises the need to measure and monitor the results of sustainable procurement. Four indicators can be used to manage performance:

1. Process indicators – how many contracts are compliant with sustainability; how many staff have been trained; how many suppliers have been engaged.

2. Output indicators – suppliers’ performance, carbon emissions, waste volumes, number of local employees.

3. Outcome indicators – help to understand the impact and contribution of the supply chain to overall company objectives, e.g. carbon footprint, workforce diversity.

4. Impact indicators – economic, environmental and social impacts that are positive/negative, direct/indirect, short/long term, intended/unintended.

The standard recognises the need for procurement decisions to take account of the wider cost data rather than simply initial purchase price. It recommends where possible extensive analysis to include impacts on society that can be monetised such as carbon emissions, job creation or losses and other impacts which can’t be easily monetised. Total Cost of Ownership (TCO) excludes external cost benefit analysis and so is an incomplete picture.

ISO20400 also challenges the organisation to consider its ability to influence its suppliers in relation to the sustainability agenda. It suggests that companies build a matrix with two parameters – Supply Chain Influence (ranging from ‘not significant’ through to ‘significant’) and Ambition (ranging from ‘low’ through to ‘high’). Where influence in a supply chain is high, the buying organisation should be leveraging this influence to encourage its suppliers to improve their sustainability practices.

Another important aspect of ISO 20400 is the strengthening of message around the verification of sustainability requirements. Procurement and those specifying requirements need to understand and decide on which certifications, marks or labels could or should be used to ensure compliance with sustainability. And whether such certification should be a requirement of anyone bidding for business. This needs careful consideration as not every supplier, particularly the smaller suppliers, will be familiar with such certifications and may lack the internal resource or cash reserves to put that issue right. In which case, rather than penalising them through dismissing their bid offer, it may be better for procurement to share best practice and offer to work with the supplier to help them to gain certification over time.

Procurement should provide clarity on what suppliers need to do to comply with sustainability requirements. If additional costs are involved, procurement need to consider who bears this extra cost and how necessary it is to spend such money. There is ultimately a balance between 100% compliancy at a very high cost, versus 75% compliancy at a much lower cost. But whatever certification is insisted upon or recommended within an Invitation to Tender, procurement should be explaining why such certification is sought.

My final point in relation to ISO 20400 is that it stresses the need for continuous improvement relating to sustainable procurement contracts via the “Plan, Do, Check, Act” approach. A debrief document is recommended which feeds into the next procurement and sourcing strategy. Publicising any lessons learned will also help other organisations learn lessons too.

by Matt Roper | 25 March 2021

Preparing for post COVID-19 lockdown world

Posted 4 May 2020 | | 0 Comments

I have a sign above my desk, a Government Public Information Notice which says "Keep Calm and Carry On." It's arguably an apt comment for the strange world in which we all currently exist. There is plenty of reason to worry, with the threat of huge numbers of jobs being lost, particularly in those sectors which can't adapt easily to social distancing rules.

One of the biggest threats to any business is running out of cash. No-one knows how long the government will continue to support companies with 80% wage bailouts and no interest loans. Whatever is offered, companies of all sizes and in all sectors will need to protect their cash flow, particularly where sales revenues have fallen (which will be the majority of businesses).

Other than make redundancies - which carries with it the prospect of long term negative growth - one way to preserve cash is to rapidly cut running costs. However unless your business spend represents a significant sales growth for a new supplier, it will be difficult to make the kind of step change cost savings required to protect cash flow. That's where we can help.

Since 2002 Buying Support Agency has been supporting large corporate procurement teams and Directors of SMEs to reduce costs by up to 35% thanks to our BSA Buying Group's buying power and supply chain partnerships. NOW is the time to tap into this free resource for your own business. We offer a wide range of indirect costs - from energy to insurance, from parcel courier services to telecoms, waste recycling to merchant fees, workwear/cleaning supplies to packaging. Plus we can protect your staff via our partnership with myworkperks - we've negotiated free access which will reduce their household finances and protect their mental well-being.

You've spent years building your business success, so whilst we may not stop you worrying, we can at least free up more of your cash and more of your time to focus on re-building your sales revenues. Call 0800 254 0344 and our procurement team will rapidly get to work on your behalf.

Best regards

Matt Roper

(Founder & CEO, Buying Support Agency Ltd)

by Matt Roper | 4 May 2020

To be, or not to be (alone), that is the question

Posted 29 October 2019 | | 0 Comments

It's been a long time since I dipped into Shakespeare - the last time was when studying Romeo and Juliet 35 years ago. So I surprised myself last week by reading one his most famous works - Twelfth Night. I stumbled upon a quote which resonated, and from which triggered the theme for this article. It was a quote from Orsino, when he says "I myself am best when least in company."

Like Orsino, many companies remain "least in company" when it comes to how they approach their purchasing. Why is this? After all, it's not as if their entire business strategy is to be isolationist; companies are increasingly collaborating with third parties when it comes to the front end of business - R&D and business development. Third party collaboration often happens when tendering, or to innovate without the need to develop new skills in-house, or to beef up resources to ensure timely service delivery.

But yet on the supply-facing, purchasing side of business, too many companies stick to a strategy of 'splendid isolation.' They don't reach out to third parties to benchmark the value they're receiving from their suppliers and so can only assume that they've secured optimal value for money. They don't join forces with other organisations to boost their buying power and make themselves more attractive collectively to the supply base (i.e. to create economies of scale). So buyers are locked into a cycle of trying hard with their limited spend to negotiate lower prices, or at least to mitigate price increases. Unsurprisingly this approach makes it difficult to move the dial in terms of total cost savings.

It doesn't need to be this way. The most insightful purchasing managers understand that being open to third party collaboration will ultimately make their company more attractive as a client. This includes encouraging external, independent supply value benchmarking to optimise value for money. How best to do this? We built BSA Buying Group for this very purpose, to provide purchasing managers with the ability to independently benchmark prices and service levels. They take advantage of our buying power to deliver on average 10-35% cost savings. It also frees up their time to focus on more challenging core supply chains where the risks and value is greater.

So break out of splendid isolation in your purchasing approach and great things will happen! Open your mind to collaboration and reflect on the words of Hamlet: "We know what we are but know not what we may be!"

by M Roper | 29 October 2019

Procurement & Supply Chain Brexit Planning in UK Manufacturing Sector

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

Are you seeking procurement leadership but lacking sufficient skills or budget?

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

The impact of Brexit on your purchasing strategy…and 8 tips to help you navigate the risks

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

How Academies can protect themselves financially through Collaborative Procurement

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.

Conclusion

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

What is the impact of Brexit on Procurement?

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

Re-thinking the role of Procurement

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