Are you a good customer?

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Recent events in the construction and housing sectors, such as the collapse of Carillion and the tragic events at Grenfell, have led me to consider the viability of housings long-term business plans.  What would happen if supply chain costs rose above our forecasts?  What’s the impact of market failure?  Are we managing the risk of scarcity of supply?

This prompted me to ask a question the sector rarely addresses – Am I a good customer?  Why should I even consider this question – Suppliers are lucky to have the business.  But with pressure mounting on the sector to drive value and reduce risk and other markets looking increasingly attractive to suppliers, that attitude may need to change.

There are a number of things the sector should reflect on in order to become a better customer.

We are often slow to make decisions, we often have a lowest price procurement philosophy because we target our teams with ‘price’ savings rather than evaluating the total cost of ownership or ‘lifetime’ cost. We regularly have demand fluctuations or sometimes cancel projects last minute due to funding issues. We can be adversarial with suppliers and complain when contracts don’t go well.  Yet we do little contract management to make projects successful.

Overlay this then with huge construction issues such as skills shortages; a policy environment with no cohesive long-term strategy; margins hovering at 2%; payment periods in excess of 70 days; major works and maintenance spend down by 12.95% and 7.56% and no decent homes programmes to fall back on.

Although the sector still spends huge amounts in construction, we must examine how we do business and plan ahead.  As HS2 gathers pace and private house building increases will our supply chains look to other markets?  These conditions will also potentially drive costs upwards – the impact of Brexit on material prices and labour shortages is already having an impact.

It is estimated that 65% of organisations have no visibility of their supply chain beyond their ‘tier one’ main contractors.  If you consider that the construction market is predominantly made up of ‘tier two’ subcontractors and below and that 38% of SME construction businesses do not survive beyond five years, landlords must recognise that they need to take a more active role in mitigating these risks.

Your procurement function should be integral in managing some of these challenges.  But how often do procurement teams in housing struggle to break in to our organisations asset spend.  Procurement specialists should be engaged with the market, assessing innovation and the use of technology, analysing spend patterns, measuring performance, supporting in contract management, mitigating risk and developing sustainable relationships with critical suppliers.

If your procurement team are there just to run a compliant sourcing process and get the lowest price then the outcome on your long-term business plan, given the market volatility could be disastrous.

 

Steve Malone is managing director of Procurement for Housing (PfH)

The future of procurement & supply management in social housing

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The Chartered Institute of Procurement and Supply (CIPS) commissioned Dr Louise Knight (Aston University) and Dr Jo Meehan (University of Liverpool) to undertake the first major academic study on the future of the profession since 2003.  The two-year study engaged business leaders, procurement leaders, practitioners, futurologists, and academic experts, to explore how the supply management landscape might change 15+ years from now.

In this article, Jo and Louise share some learning from the research project and consider some questions for procurement professionals working in social housing.

 

Artificial intelligence, resource scarcity, environmental destruction, political protectionism, wealth and health inequalities – the media coverage suggests that these megatrends are set to disrupt and transform all aspects of business and society.  While the modern world has always been in a state of flux, the pace of change is accelerating.  There are persistent challenges in the social housing landscape – the lack of affordable housing, regulatory crises, tensions between private and social housing models, the mergers of housing providers. As these interact with wider megatrends the future can start to look like an uncontrollable dystopia rather than a land of opportunity. In this new and uncertain future, how different will supply environments be?  How is procurement and supply management (PSM) positioned to respond?

 

Most methods for predicting future PSM issues tend to look backwards in order to predict the future, but the future is not necessarily a linear continuation of the past and present, and developments are not deterministic. Through our research, we argue that the best way to prepare for the future is to better understand how we create it through today’s actions, and through actively engaging in discussions on what the future could or should be. Shaping the future raises questions of what the desired endpoints are, and whose interests we serve.

 

Competing future scenarios: Titans and Networked

In our research, two competing plausible scenarios 15+ years into the future were co-developed with PSM professionals: Titans and Networked. The land of the Titans closely reflects the voice of the respondents and portrays a future where market power is ever more concentrated as, in each key industrial sector, a very small number of big corporates (the ‘Titans’ after which the scenario is named) become ever more dominant.  Markets are highly dynamic and unpredictable competing on (low) price and the Titan organisations drive and finance innovation. PSM algorithms deliver rapid, agile sourcing and contracting. To cope with the market power of Titan organisations, risk management and co-buying are critical activities.

 

 

The Networked scenario was not developed as an idealised counterpoint to Titans, but reflects the narratives seen in the professional and futures press where technology is used to re-distribute market power, and transitions to address climate change are critical.  Firms exist with a greater diversity of form, size, and competitive focus.  PSM strategies centre on regional networks, and strong data regulation is needed. Diversity and distributed power come at the cost of slower innovation, barriers to co-buying through lack of product standardisation, and there is a slowing of decision making to avoid stakeholder conflicts.

 

The full reports (available on request) provide a rich pen-picture of both scenarios’ details. Despite their fundamental differences, there is some shared learning for PSM around our preparedness in relation to market power, supply base changes, unintended consequences, biases in algorithms, and data regulation. While the content of the scenarios is interesting, they were not an exercise in prediction, and not the ultimate focus of the research project.  The mutually exclusive, competing futures are intended to serve as mechanisms to provoke, challenge, and seed debates on PSM’s future, its roles, and responsibilities.  As researchers, we were equally interested in what people didn’t discuss, as what they did address.

 

Playing the game better

Changes to supply markets as a result of technology and other megatrends were generally not fully considered – the assumption being that suppliers, market structures, and PSM practices would be similar to what we have today – albeit with transaction times speeded up and more visibility into supply chains.  Defining PSM’s scope and its lack of strategic recognition still overshadowed debates on the future of PSM, obscuring creative thinking, new ideas and ambition. As competition between social and private providers intensifies, PSM demands new thinking on its future role and impact, rather than being able to just play the game better.

 

Changing the rules of the game

Social housing requires PSM to consider the consequences, intended and unintended, positive and negative, at a wider systems level.  It is at this level of thinking that we see issues of value, social justice, and sustainability emerge as key indicators of PSM ‘success’ in social housing. The Titans and Networked scenarios raise questions about whether PSM’s current contracts and regulatory frameworks provide sufficient protection or incentive to handle asset-less business models, future data ownership, or collaborative networks. If PSM seek to shape and steer markets we need to question the desired end-point; who wins and who loses, and what is our role in determining the direction of travel.  These are complex questions requiring careful judgement and diverse viewpoints.

 

Changing the game

People struggled to link the longer-term implications of mega-trends to PSM environments.  There was a blind acceptance of future markets with little recognition that current actions –aggregated, over time – create future market conditions. This lack of attention to the long-term, cumulative consequences of today’s procurement decisions reflects the pressure to focus on approaches that promise ever more cost reductions, technical innovations and efficiencies. The operational PSM versus strategic PSM dichotomy considered only from an organisational viewpoint constrains our field of vision and masks collective responsibilities and accountabilities.

 

Strategic PSM is not just about looking further ahead on our current path.  We need to explore other paths and other destinations, and recognise the trade-offs of our choices on profits, communities, and the natural world.  If we are heading towards a seemingly uncontrollable dystopia, how can we go beyond playing the game better? Collective, cumulative impacts across organisations come to the fore and force us to question what we buy, why we buy, how we buy, and from whom.

 

Using futures methodologies highlights the difficulties of challenging assumptions and being truly future-focused. To actively shape more desirable, diverse and equitable futures, PSM needs to elevate thinking beyond the organisation, and beyond the supply chain.  We need to challenge and provoke the deeper, often hidden assumptions and ideologies that shape human behaviours and our profession. Although this can sound abstract, principles around responsible trade and social justice or short-term profit maximisation take root here setting the performative measures of PSM success.  In many respects, social housing already leads the way here, but we need to be careful of blindly imitating other organisations, as the commercial and social impacts of collective failure can be catastrophic.

 

A crucial point here is that futures are multiple, organic, malleable and adaptive, and as PSM professionals we can have real and significant agency in shaping change. The methodology developed in our research forces an uncoupling of present and future, which is challenging, but can be the key in creating desirable futures.  The impacts of PSM on society and our wider communities is important in all industries but for social housing with issues of equality, access to opportunity, and dignity at its heart, it is perhaps even more critical.

For an extended report CIPS members can access via this link: https://cips.org/en-GB/knowledge/procurement-topics-and-skills/innovation-and-technology-/future-of-procurement–supply-chain/

Non-members can request a copy from by emailing Jo or Louise (jomeehan@liverpool.ac.uk, L.Knight2@aston.ac.uk)

Materials: Six steps to strengthen your contract

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Every social landlord wants a materials agreement that delivers top quality, at the best price, for the life of the contract. Yet few manage to tick all three boxes, all the time.

Here, Jeff Edginton – materials category manager at PfH – discusses the foundations of a strong materials deal – and offers six tips on how to get the basics right.

Stress-test your current agreement

When was the last time you procured your materials contract? If it was more than three or four years ago then your housing organisation, like many, may have evolved and your existing agreement might not be entirely fit for purpose.

Maybe your organisation is now part of a group structure with new corporate standards. Perhaps you are using a materials contract inherited from a recent merger.

Reviewing the terms of your deal might help to remove conditions that are no longer needed. For example, your housing association could be paying for a service such as Call & Collect, yet raw materials or parts are now delivered straight to site.

You may have recently set up an electrical repairs team. Are you procuring the products they require at the best price? If your operatives are driving around to pick up parts and struggling with availability, would it be better for them to get everything from one, large central merchant that stocks hundreds of different lines?

Review your KPIs

KPIs are essential to effective contract management. They ensure your supplier knows what must be achieved and what you’re going to measure their success or failure against. But setting KPIs isn’t enough – it’s the monitoring of them that tells the real story. Get this scrutiny wrong and you may miss problems or negative trends early on before they develop into more major service failures.

If you do uncover issues, then just presenting a supplier with the results and saying, ‘you need to do better’, won’t work. You also need a clear system for acting on findings and rectifying issues.

Remember to review your KPIs regularly so you have exactly the right ones in place. Perhaps you have a set of indicators that measure cost and performance, but since you last put gauges in place, social value has become more of a priority for your housing association. Do KPIs need to shift so they consider a commitment to local suppliers, the creation of apprenticeships or other wider community benefits?

Build trust and equality with suppliers

Your relationship with suppliers is paramount to a contract’s overall success. Acting in partnership with your supply chain, explaining issues and seeking joint solutions will get better results.

Occasionally, a new supplier may take time to ‘bed-in’ to delivering a new service as conditions may be ones they are not used to. It’s vital that you don’t immediately go into confrontation mode, thinking that a muscular response will solve everything. This can set a relationship off on the wrong foot, creating a combative culture that makes it more difficult to resolve issues in future. Instead, if you work with a supplier, rather than against them, then, from experience, they will settle in faster and work with you even harder to achieve your goals.

Manage your product lists

PfH achieves value for money for its members through a core list that covers the most popular materials goods, identified via spend volume. However, it isn’t unusual to see ‘product drift’, whereby less of an organisation’s spend goes on the core products for which PfH has negotiated preferential rates.

To avoid costs creeping up via product drift, check spend with your suppliers at regular intervals. Ensure that staff are buying from the core list and periodically refresh the items on this list so they reflect your housing association’s current needs. At PfH we achieve this via regular review meetings and ongoing dialogue with suppliers.

Rationalise product lines

Members often focus on the savings they can achieve when initially negotiating contracts, but further savings can often be made by looking at how materials contracts are managed on the ground.

Product rationalisation is one way to do this. For example, a housing provider might buy several types of one particular building material, product or part. By working with the supplier to refine the number of lines; they benefit from reduced stock requirements. The housing provider’s operatives benefit as it’s more likely that the product will be in stock and the social landlord benefits from cost savings.

Review new goods

New products come to market all the time, including a supplier’s own-brand goods and leading edge, innovative products that may work quite differently from existing lines. To help members navigate the latest releases, PfH looks at how products work in practice and, where advantageous, works with members and suppliers to embed them into core lists at discounted rates.

Your suppliers should keep you informed of new products that may improve service delivery, reduce cost, require lower maintenance, be easier or quicker to install and have longer guarantees – particularly relevant when considering life cycle costing.

It takes time to get the fundamentals of a materials contract right. But these six tips will help you to start building a cost effective, high quality agreement that delivers a wide range of benefits for your organisation and its tenants throughout its life time.

Materials and Associated Managed Services: The materials framework helps asset managers deliver their strategic objectives with access to a wide range of products across 10 lots including electrical, building materials, plumbing & heating and renewables.

Details are available on the PfH website or contact our category expert Jeff Edginton on 01925 286377 or JEdginton@inprovagroup.com