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PROCUREMENT
MATTERS
The latest news from Expense Reduction Analysts
Issue No. 15.1
Karndean
Designflooring
Continues to drive its costs lower
Expense Reduction Analysts’
specialists deliver significant
cost reduction and multiple
process improvements across
a wide range of categories.
Karndean International, based
in Evesham, is a leading global
supplier of commercial and
residential luxury vinyl flooring,
faithfully reproducing the beauty
and look of natural materials such
as wood and stone. They operate in
a very competitive market place, so
control and reduction of overhead
costs is a key priority in continuing
to deliver the best prices to its
customer base.
Steve Rundle, one of ERA’s Business
Development Managers met with
Karndean’s Alan Massey and 11
categories were originally agreed
upon – Electricity and Gas, IT
Hardware, Fleet, Postage, Couriers,
Office Supplies, Packaging, Print
(not Media), Merchant Cards and
Communications – with a further
seven joining them over the
next couple of years, assuming
results warranted such action –
Photocopiers, Inbound Freight,
Water/Wastewater, Business Rates,
Insurance, Waste and Recycling,
and Facilities Management.
Tony Catling, Client Relationship
Manager for these projects, takes
up the story: “The European
Outbound Courier project was
conducted by Charles Reid, and
this proved to be a catalyst in
our evolving relationship with
Karndean. Having been pretty
confident that they were achieving
very good value from their
incumbent provider, Karndean
were greatly impressed by the...
(Continued on the back page)
In association
Also in
this issue...
Utilities Market Update
‘Broke’ the Broker
Eyesight
Tests for
At-Work Drivers
Finding the Perfect Match
BRC Pushes for Rates Relief
S amsung Shakes Up
Managed Print
S tretching the Meeting’s
Budget
Plotting Your Transformation
There can be no discussion about
procurement without talking about
cost savings. Being defined by
something as narrow as savings
means that teams are often bound
to transactional ways of thinking
and the better they perform
here, the more they become
siloed, stereotyped and, perhaps,
disregarded. This paradigm
forces the savvy procurement
chief to orchestrate change that
can simultaneously deliver to
expectations, but also demonstrate
potential and open internal
conversations that touch on value,
the kind recognised by finance,
treasury and even shareholders.
In a sense, there is no roadmap
for that kind of journey, but for
every team that attempts to
break out from that well-worn
view of the function there are key
changes that need to happen,
both in terms of capabilities,
communications, attitude and
priorities. Individuals that can
make that happen are worth their
weight in gold.
That is precisely why
Procurement Leaders has teamed
up with Expense Reduction
Analysts (ERA) to deliver a white
paper designed to spearhead
innovation in procurement.
smarter spending > www.expense-reduction.co.uk
with
INSIGHT PL
OTTING YO
UR TRANSF
ORMATION
For your free copy of this
white paper, visit our website
expense-reduction.co.uk
or call us on 02380 829 737.
Procurement Matters > Issue No. 15.1
Utilities Market Report
By Richard Clayton
UK wholesale energy prices rose during November with gas
rising just under 5% to 1.90 p/kWh and electricity up 2.5%
to 5.00 p/kWh. Oil prices continued their dramatic fall and
ended the month 19% down at $70.00/ barrel whilst coal
rose 2% to $74.00/ tonne.
UK wholesale energy prices rose
during November with gas rising
just under 5% to 1.90 p/kWh and
electricity up 2.5% to 5.00 p/kWh.
Oil prices continued their dramatic
fall and ended the month 19%
down at $70.00/ barrel whilst coal
rose 2% to $74.00/ tonne.
With very little consensus on the
likely winter weather, and the gas
market jittery with an unplanned
outage in the Norwegian sector
of the North Sea, UK energy
prices were prone to considerable
volatility during November and this
uncertainty countered significant
falls in the price of oil and LNG. It
is likely that more LNG cargoes will
find their way to the UK as LNG
prices have fallen in Asia (as they
are indexed to falling oil prices)
and the Japanese regulators have
now given the green light for the
restart of two nuclear plants in
early 2015 with more likely
to follow.
The glut in the oil market has
been caused in part by increased
supplies from US shale and
reduced demand from Europe
and China. OPEC members
have recently failed to find a
compromise on supply cuts.
Power prices rose in line with
gas costs as gas fuelled power
generation rose to about 40% of
total electricity generation. As ever
at this time of the year market
sentiment depends very heavily on
the weather.
Accelerated closure or “retirement”
of significant conventional power
generating capacity has left
the UK market with very little
marginal capacity. Whilst there
has been considerable year on
year growth in renewable input,
particularly with on and offshore
wind and some solar, the problem
of intermittency remains and
so conventional capacity is
still required for those periods,
especially during winter when
there is little sun or wind.
The need for investment in the
power sector is likely to continue
to be reflected in rises in the
non-commodity cost elements,
both in terms of distribution
and transmission costs and in
periodic increases in government
environmental taxes designed to
subsidise continued investment
in renewables.
Daily Market Price Report – Annualised Baseload
Gas (p/therm)
Electricity (£/MWh)
75
70
65
60
55
50
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45
Whilst every reasonable care is taken in the compilation of the information contained within this document, any opinions expressed, errors or omissions are not the responsibility of the publisher.
smarter spending > www.expense-reduction.co.uk
Procurement Matters > Issue No. 15.1
Finding the Perfect Match
Picking the right supplier depends on client priorities,
the relative size of both parties and spend levels, and
ensuring the right cultural fit An interview with Simon Phippen & Sue Cooke
Finding the right supplier for your requirements is not as it easy as it perhaps sounds. As well as identifying potential options and
assessing the likely costs, organisations need to consider a multitude of other factors, some of which are all too often overlooked.
Knowing Where to Begin
A good starting point, says Simon
Phippen, project specialist at
Expense Reduction Analysts, is to
understand the current situation,
particularly around just how
important a category of spend is
to the ability of the business to
operate effectively.
“The most important thing to do
is to understand how important
a particular supplier is to you
and where the power lies in that
relationship,” he says. “If they’re
a monopoly supplier and it’s a
product that is absolutely strategic
to your business then the power
is on their side, whereas if you’re
buying some biros and paper from a
stationery company the boot is very
much on the other foot.”
Phippen suggests dividing
categories – and suppliers – into
strategic and transactional,
depending on just how important
they are to the business and the
necessity of what is being procured.
“Sometimes companies spend a lot
of time on a transactional supplier,
saying they don’t want to single
source, but even if it went down on
Monday they would find another by
Wednesday and the goods would
be in their warehouse by Friday,”
he says. In that scenario, picking
a single supplier and leveraging
buying power to get the best deal is
often the best option.
On the other hand, some products
may seem insignificant – and not
account for much value in terms
of spend – but are in fact essential
to the overall working of the
business, and here it is key that
the right suppliers are found and
risk minimised.
Spend Doesn’t Always
Mean Value
Phippen gives the example
of a high-end manufacturing
organisation which had used a
pallet supplier from around the
corner for years, but was effectively
relying on a one-man band. “If they
had no pallets they couldn’t make
any deliveries,” he says. “If that one
man got hit by a bus or the factory
went up in fire, they would be very
exposed. It doesn’t really link to the
spend amount; it’s what it is and
where could you get it from if the
supplier went down.”
A supplier review is also a good
opportunity to check organisations
are using the supply chain in their
particular industry to best effect.
Phippen gives the example of
buying pallet loads of products
from a distributor, where such
orders could be better served –
and cheaper – by going direct
to a manufacturer. “But if you’re
running an engineering supplies
project you’re not going to go to
26 different manufacturers; that’s
where you need the value-add of a
distributor,” he adds.
Size Does Matter
Once a strategy has been adopted,
the process of finding the best
fit can begin. Being clear about
priorities is important. “If a
business is really focused on
reducing costs then you might
choose to involve a supplier
that has good ability to come in
with low pricing, but you might
compromise a bit on the service,”
says Dr Sue Cooke, project
specialist at Expense Reduction
Analysts.
identifying the supplier’s turnover
and the estimated value of spend
that would be put their way. “If you
account for more than 5% of their
turnover then you will come on
their radar, both in terms of what
you’re requesting in price and
conditions but also risk,” he says.
Finding the Perfect Match
Once a shortlist of potential
suppliers has been developed,
organisations need to find
the one that best suits their
requirements, and culture can be
important here. “To determine
the best cultural fit, I’d suggest a
beauty parade because personal
relationships become key,” says
Cooke. “Here you would invite
suppliers in to evaluate the
products and/or services they are
suggesting they would supply.
That will also give procurement
teams and internal customers the
chance to identify which supplier
they think they could work with.
With complex categories it also
gives the supplier the chance to
check their offer, having seen for
themselves what is required.”
The size of the supplier can be
important, particularly in strategic
categories. “You need to think
about how far up the food chain
within the supplier you can go if
something goes wrong,” warns
Cooke. “Often with larger, national
suppliers, procurement only ever
gets as far as an account manager
so if there are problems they have
no means of escalating it to get
it resolved. If you’re dealing with
larger spend categories you then
become more important to
that supplier.”
Buying organisations can even
work out just how important their
business would be to a particular
supplier, says Phippen, by
smarter spending > www.expense-reduction.co.uk
Another option is to conduct
site visits to potential suppliers,
says Phippen. “That allows you to
look at the suppliers’ health and
safety, quality manuals and other
documentation, and how they
process orders; you can go the full
10 yards in terms of their process
management,” he says. “While
you’re doing that you’re getting
an overall impression of how the
company is run, right from the
moment you walk up to the
front door.”
Ultimately the most effective
and longest-lasting relationships
are those which are built around
mutual trust and respect and where
there is a realisation on both sides
that everyone has to benefit. “The
most efficient category reviews are
those where you have a functional
business relationship between
the person with responsibility in
the buying organisation and the
one who has responsibility on the
supplier side,” says Cooke. “Being
fair, open and honest with suppliers
is the best way to make it work.”
Procurement Matters > Issue No. 15.1
BRC Pushes for Rates to be Dropped for Small Retailers
By Paul Giness
Back in June, the British Retail Consortium (BRC) called for some smaller retail properties to be freed from paying business rates. As
part of a wider consultation on business tax structure reform, the BRC argued that such a move could slash costs for up to 100,000
small businesses.
But would dropping thousands
of business spaces from tax
leave a massive hole in the
Exchequer’s coffers?
Business rates have been around
for hundreds of years in various
guises. Despite their burden on
high street businesses, the system
of taxation has changed very little. The government recently
undertook a consultation on
shaking up the system, however,
and the BRC had a pretty radical
suggestion: dropping properties
with a rateable value of less than
£12,000 from paying anything
at all. Business Rates net the
government over £27bn annually
so, on the surface of it, this could
leave the treasury with a hole in
its finances. But numbers from
the BRC tell another story.
According to the Consortium, the
smaller businesses that might
benefit from the change make up
64% of the total number of firms
paying the charge. Despite this,
however, the amount that the
government makes from them
is just 6% of the total income
generated by Business Rates.
Although not announcing any
radical changes in his Autumn
Statement, Chancellor George
Osborne did confirm the doubling
of the Small Business Rates
Relief incentives for 2015/16,
with inflation-linked increase in
business rates being capped at
2%. Targeting the high streets,
Osborne also announced that the
Retail Relief aimed at many shops,
pubs and restaurants will be
increased by 50% to £1,500 next
year. Considering changes already
in the pipeline, would dropping
rates for some businesses be
necessary to boost growth on the
high street?
“Business rates are a constant
worry for our clients,” says Paul
Giness of Expense Reduction
Analysts Property Team, “but
the government is helping
by providing incentives to
small businesses and giving
more powers to councils via
the Localism Act. In addition,
assuming the 2017 revaluation
goes ahead as indicated by recent
announcements, this should
Samsung Shakes up Managed Print
By Andrew Kinnear
The Managed Print Services (MPS) market continues to evolve
beyond the core services of device consolidation towards driving
improved business efficiency around paper processes.
Xerox, Ricoh, HP, Canon, Konica
Minolta and Lexmark remain the
market leaders but there are some
notable new strong performers.
Kyocera are continuing to increase
market share and increase their
dealers and service network.
Samsung last month launched
10 new Multifunction Devices
(MFDs) to the European market.
Their printers are the first to
be equipped with an Android
operating system, featuring a 10
inch full touch screen that enables
users to search and print from
web browsers, email, images, and
other content without the need to
connect to a PC or Server.
Customers now want more from
a traditional MPS model, as they
are already receiving cost savings
and energy efficiencies derived
from device consolidation. Now
they are seeking MPS Suppliers
to understand in more detail
the complexity of their print
infrastructure, removing the IT
burden and focusing more on
users’ printing habits rather than
device usage. This enables them
to make decisions based on fact
rather than on a ‘print volume
count’, whilst helping them focus
on innovation and employee
satisfaction.
The likes of Samsung with their
new devices are likely to focus
other manufacturers on providing
their own new range of products
using their own innovative
uniques and enhance existing
services such as mobile print.
The next couple of years
will see a transformation
of a new generation of
Managed Print Services.
smarter spending > www.expense-reduction.co.uk
rebalance the valuations to reflect
the current state of the property
market”.
While the BRC argues that a boost
in high street business and a drop
in enforcement costs would even
out any losses, there is some
hesitation about the idea.
“Asking any government to
drop taxes is a hard sell and
although there’s no guarantee
that the treasury will act on this
Consultation, we await the news
in 2016 with interest,” continues
Paul. “In the meantime, however,
there are already substantial
rate reliefs available, if you know
where to find them.”
Procurement Matters > Issue No. 15.1
‘Broke’ the Broker
By Chris Coomber
Most people think that when it comes to buying a product or
service, obtaining the best possible deal means getting prices
and specifications from the widest possible range of potential
suppliers and then comparing the results. This might be true
where the product in question is office stationery, IT equipment
or services such as telecoms and utilities. However, it’s
emphatically not the case when the product being purchased is
an insurance programme or package.
Despite this, most purchasers
persist in the belief that by placing
their existing intermediary in direct
competition with another broker,
or even better a number of brokers,
they will achieve the best possible
combination of premium, cover
and service for their business or
organisation. Unfortunately, they
are completely mistaken.
insurer’s perception of the exposure
presented carries more weight than
the reality, particularly where that
reality is not effectively presented
by the intermediary.
Despite its large economic size,
the insurance market – especially
at the insurer level – is still quite
an intimate one, built on personal
relationships.
The current insurance market
remains very competitive, despite
brokers talking up the market. To
ensure you are receiving the most
effective and economic programme
bespoke to your requirements
it is necessary to engage with a
truly independent market review
where there are no vested interests
impacting on the outcome.
Because of this, underwriting
decisions can, and often are, driven
by market sentiment or commercial
relationships rather than the
individual merits of the risk
being presented. All too often the
A broker is not in this position as
they will be looking to ‘win’ or
retain your business. It is therefore
necessary to ‘broke’ the broker
whilst also examining the market
avoiding the aforementioned issues.
Eyesight Test for At-Work Drivers
– Where do you see it going?
By Sean Bingham
EU legislation states that every commercial driver has to have
an eye test every 5 years. The unanswered question is who is
going to be responsible for making sure it happens? Duty of
Care would suggest that it’s down to the employer but should it
be something the employer wants to do willingly without an EU
directive?
The Royal National Institute for the
Blind (RNIB) has found that around
13 million motorists on Britain’s
roads are not wearing the glasses
or contact lenses needed to correct
their vision while behind the wheel
and that’s just the drivers who have
prescription eye wear. How many
more haven’t even had an eye test
since 2011?
RAC figures suggest there’s just
under 36 million drivers on the
UK roads so that means that a
third of the drivers probably aren’t
wearing their correct prescription
eyewear at the wheel and this
only covers drivers with up to date
prescriptions.
Would having an eye test policy
mean fewer accidents?
Eye tests cost less than £20 per
employee and the fine for driving
with below standard vision is up
to £1,000.
There are a number of questions
for you:
•D
oes your Fleet policy cover
eyesight tests and advise drivers
to wear prescription eyewear
to comply?
• Do you need to collect eye
test results along with other
documentation for employees
driving their own cars
on business?
• Should it be part of an
organisation’s Duty of Care
procedure and Fleet Policy?
smarter spending > www.expense-reduction.co.uk
Procurement Matters > Issue No. 15.1
Stretching the Meeting’s Budget
By Alastair Baker
Faced with the demand for a meeting space most organisers will
pick up the phone to the nearest hotel. Think outside the box
a little and you will find all sorts of inspiring and inexpensive
options which could have the benefit of breathing new life into
your meetings programme.
OK the summer is over so outside
spaces such as gardens and parks
are probably not practical for
now, but don’t overlook public
spaces like: libraries, museums
and churches, many have great
value meeting rooms available.
Temporary office supplier Regus
has been investing heavily in its
network of motorway service
station and railway station
meeting rooms. Take out a
membership (from just £35/mth)
and then just book discounted
spaces by the hour. If a table in
the window of the local Starbucks
is too public then ask your local
(Continued from front page)
...recommendations that Charles
made, with savings eventually
exceeding 40% through a
combination of a change of supplier
and other process improvements.
The Print project, crucial to
Karndean’s brochure and catalogue
quality was carried out by one
of ERA’s print experts, Keith
Copestake. Keith explained:
“Although the board had given
us approval to carry this out, the
catalogue and brochure colour work
was initially excluded from our
remit, as it was felt that this was too
important and colour critical to be
taken externally. Once the project
was underway however, it
became clear that our knowledge
of colour and the print process
would add a lot of value in this
area. These responsibilities were
added to the project. After our
Recommendations Report, four
suppliers made presentations,
including the incumbent. Print
trials were carried out and the
business was subsequently placed
with two new suppliers. Now, all
of the colour work is performed
by suppliers introduced by ERA.
independent coffee shop if you
can take over an upstairs room
for a couple of hours. Joining a
Members Club in London can
pay dividends providing access
to small, characterful meeting
rooms at prices well below the big
name hotel chains. Finally always
question the need to meet at all
– high quality tele-conferencing
suites (available for hire in London
and other major cities) can enable
global meetings to take place
without the executive travel,
whilst skype can work well for
one to ones.
“I have to say that the experience and knowledge of the Expense Reduction
Analysts Project Specialists is second to none. They have managed to find us
savings across a broad range of costs and have recommended process enhancements
which will help us continue to enjoy such savings long into the future.”
Alan Massey, Group Finance Director, Karndean International
The colour quality remains the
highest available and there is a
marked improvement in the printed
material. This has proved especially
valuable as the international print
requirement is satisfied through
the UK.
“In addition, we recommended
a number of operational
enhancements, including providing
ongoing updates and advice on
legislative changes, and act as an
intermediary for any service issues
there may be with the supplier”.
Sean Bingham conducted the
Fleet Project. He said: “We
looked at the entire Fleet process
for Karndean, considering it
holistically offering solutions
that eased the internal processes
from procurement to disposal. In
addition to direct savings from
contract hire rentals, we improved
Karndean’s contractual terms in
areas such as tyre replacements,
end of contract fair wear and tear
and pooled mileage.”
Tony Catling concludes on the
value of the overall Karndean
engagement: “I was very fortunate
to be able to call upon 16 Project
Specialists from within
the Expense Reduction Analysts
network. Each of them proved
their worth to Karndean with
their category knowledge, market
analysis and ongoing advice.”
Not just savings –
process improvements
and enhanced control
Alan Massey, Group Finance
Director at Karndean, summarises
the benefits that his company has
enjoyed: “The great thing about
engaging with Expense Reduction
Analysts is that not only do you
achieve best value in all of these
categories of expenditure, you
know you do, as you audit the
achievements. Their help in tackling
such a wide range of overhead
costs through one relationship is
very efficient – it means that a
sometimes neglected proportion of
a company’s costs gets the full cost
reduction experience.”
Sector Savings Achieved:
Water and Waste Water
60%
Communications–Data
50%
Couriers–International 44%
Office Supplies
36%
Communications–Fixed Lines30%
Communications–Mobility 28%
Marketing Print
25%
Insurance
18%
Gas
17%
Electricity
15%
Photocopiers
14%
Fleet
7%
Postage
5%
www.expense-reduction.co.uk