Procurement Matters Issue 15.2

smarter spending > www.expense-reduction.co.uk

PROCUREMENT MATTERS

Andrew Lees of Expense Reduction Analysts, Lead Consultant on the Paperchase partnership, reviews the project so far: “The categories of expenditure that David Bateman asked me to analyse were wide-ranging, so I was fortunate to be able to call upon the expert services of my colleagues, whose

vast experience in their respective areas was crucial to the analysis of Paperchase’s existing spend and the recommendations on its enhancement.

“Hartley Jenkinson realised savings on Merchant Card Fees; Steve Clamp undertook Contract Cleaning; Sue Carbin reviewed In-Store Music and Cash-in-Transit; Pete Bramhall worked on Waste; and we also identified substantial refunds due on double payments for Lease Service Charges.

Music is an important part of Paperchase’s in-store ambience and their spend on it is split between

ERA has teamed up with the good folks at Supply Management – the publication of the Chartered Institute of Procurement and Supply – to produce a White Paper based on a survey of more than 350 CIPS member procurement professionals. The respondents were from a variety of organisations small and large, and we looked at a number of different areas, including how the procurement teams felt about

where improvements could be made in their businesses and what might have been some of the causes of overspend on indirect costs.

Our White Paper makes for some interesting reading; we will be publishing it next month, so look out for it. For more information, or to reserve a copy please contact [email protected]

ERA and Supply Management survey CIPS members

Also in this issueBusiness Rates: 31st March Deadline fast approaching

Energy Savings: Opportunity knocks

Benchmarking price: The logical step

Logistics: Export

Time Wasting

Card processing fees for merchants to change in 2015

HR: Workforce Management

Don’t waste the opportunity to review your supplier

UK call charge changes set to catch businesses out

Issue No. 15.2

“Expense Reduction Analysts have delivered material savings in most of the areas I have asked them to examine. Their recommendations on our procurement of in-store music, in particular, stand out and prove their ability to think outside the box”

David Bateman, Chief Financial and Operating Officer, Paperchase Products Ltd.

The latest news from Expense Reduction Analysts

the licence fees payable to PRS (Performing Right Society) and PPL (Phonographic Performance Limited), and the rental of players and the provision of copyright music. Sue Carbin recommended upgrading the technology to a network solution, tendering to the market for more competitive rates on players and music provision, and, crucially, she suggested Paperchase consider playing non-copyright music.

Paperchase accepted all of these recommendations and realised a huge 70.8% saving. An additional benefit is that the system is flexible enough for Paperchase to continue

to be able to play copyright Christmas music in their busiest month of December.

Only paying for the service that they needCash-in-Transit also realised major savings through Expense Reduction Analysts introducing Paperchase to a new, more flexible national player. Previously, cash would be collected from and delivered to each store twice a week, whether this was required or not; now there is the option to modify this schedule according to Paperchase’s needs and trading patterns, and a lower tariff per delivery into the bargain.(Continued on back page)

Paperchase is the UK’s undisputed leader in innovative, design-led stationery, cards and gift-wrap. The company has been in business for over 40 years and is now firmly established as the top destination for customers looking for new and different gifts, cards and stationery.

Merchant Card Fees

Contract Cleaning

Cash-in-Transit

Waste

In-Store Music

5-10%

17%

58.7%

15.7%

70.8%

Summary of savings


Procurement Matters > Issue No. 15.2

Business Rates: 31st March Deadline fast approachingby Paul Giness

Energy Savings: Opportunity knocksby Ian Morrison

The government will change the rules so that alterations to rateable values can only be backdated to the period between 1 April 2010 and 1 April 2015 for Valuation Office Agency (VOA) alterations made before 1 April 2016 and ratepayers’ appeals made before 1 April 2015.

Business rates are a property tax, and they are based on the hypothetical annual rental value of any non-domestic property on a fixed valuation date, using regulations fixed by statute. Sometimes these assumptions and interpretations can be incorrect however and so businesses are due a rebate.

The latest revaluation period runs from 2010-2017 and the bad news was announced in the Autumn Statement that any appeals lodged after 1st April will not be allowed to be backdated. So, in order to take this entire savings period into account, businesses must get their appeals in now. Failure to do so will mean losing all refunds and savings up to 31 March 2015.

For example, a property with a Rateable Value of £200,000, which is then reduced to £160,000, would result in a savings exceeding £125,000 up to 31 March 2017 - assuming the appeal is lodged on time. However, if the appeal is submitted after the 31st March deadline the savings are reduced substantially resulting in potential lost savings approaching £90,000.

The good news is that Expense Reduction Analysts’ experienced property and commercial rates specialists are highly skilled and well versed in this particular issue, so are well placed to advise businesses what they need to do before the deadline.

It’s mandatory for qualifying companies to comply with Article 8 of the EU Energy Efficiency directive and there will inevitably be costs attached to it for businesses. In the UK, the scheme will be administered by The Environment Agency and according to The Department For Energy and Climate Change (DECC), the average cost for organisations will be in the region of £21,000 for year one set-up and £13,000 per year thereafter. We’re already starting to help clients with ESOS and the cost does vary hugely depending on the size of the organisation and the amount of relevant data and material that is already easily available. We’ve seen the audit costs vary from £5,000 to £50,000. Adapting our strategic approach though, can help you the client to gain real benefits from this mandatory scheme. Those that take a strategic view to compliance and look at the longer term, will likely fare far better than those who leave it too late and are forced to spend to comply.

If you are already engaged with us, we can easily add business rates into the project plan of categories to review; we will measure existing spends, monitor actual savings and manage your ongoing liabilities after implementation ensuring the value is delivered to the business. If you are new to ERA, one of our new business team will discuss our success fee basis with you.

The steps we will adopt prior to the deadline are summarised below:

1. Send us your copy rates bill – Which helps us establish any rating changes and prior appeals during this List.

2. Initial Assessment - Provides you with initial feedback on viability for us to take this forwards for you.

3. Confirm Category Instruction – Confirm the instruction clarify any questions.

4. Collate remaining documentation – Working with you to collate the remaining property information required to move this forwards.

5. Rating experts determination – Pass to the rating team for their final assessment prior to the end of March 2015 deadline.

The compliance deadline is 5th December but it is businesses that plan ahead and view ESOS as not merely a compliance issue, but an opportunity to develop a strategic plan to get the most out of their participation that will provide real value and achieve significant savings. There are clear steps to the process, but there is a significant workload, including calculating your total overall energy consumption, identify any areas where your consumption is significant, appoint a lead assessor, notify The Environment Agency by 5th December and there are penalties for non-compliance. There are complexities as well, size of operation, numbers of sites, fuel types, headcount, data validity site visits and more. ERA has been developing a plan to assist our clients in this area and engaging our help in creating and implementing a robust strategy will not only ensure compliance is met, but will also identify opportunities to save on energy bills, and provide data to support a business case for investing in energy efficiency measures for the organisation.

Due to a recent change to government policy announced by Chancellor George Osborne during December’s Autumn Statement from the Treasury, Ratepayers’ appeals must be submitted by 31st March 2015.

In order to comply with EU regulations on energy efficiency, all UK businesses either employ more than 250 people, or employ less, but turned over more than 50 million Euro last year, must take part in the Energy Savings Opportunity Scheme.



Benchmarking price: The logical stepby Nick Martindale

When buying in products or services, it’s always difficult to know what a ‘good’ price looks like. Any reduction of a few pounds negotiated during a contract renewal can feel like a win, but unless you have visibility of the entire market you can’t know whether you are still paying 50% more than the company next door. Opportunity based pricing – pricing according to what a supplier believes the client can pay – is rife across a whole range of different areas. Most of us assume that if they are purchasing the same volume of product as their competitors next door, they are also paying broadly the same for it, but the truth is there can be huge variance. You cannot assume you’re on the same deal, it’s about how well you can buy. At ERA, we work in the supply market across over 100 cost categories, so we know what good looks like – and we can tell whether your newly negotiated rate really is a matter for pride or not. Adopting a more evidence based approach to buying can deliver significant savings, and

benchmarking prices – using the last price paid for a particular product as the reference point – can be a good start. However that only allows you to judge your value based on your own previous experience, so best practice would dictate that you also enter into a tender process, allowing a number of other suppliers the opportunity to tender on a like-for-like basis. Tender ProcessIt’s not just prices that should be benchmarked, but service levels too, that way you can make sure that everyone invited to the process has the chance to meet or improve on current service levels. Typically you would invite 5 or 6 other suppliers plus the incumbent to a tender process, but a third party organisation like ours will have such good visibility of the market that they should be able to identify the best alternate suppliers to approach. In certain categories this can add particular value, either because the supplier market is large, or because the particular requirements are complex. When looking at packaging

for example, you would consider volumes, required lead times and stock handling requirements, to first of all determine whether a merchant or manufacturer would be the most appropriate supplier. Once complete, organisations can see the kinds of potential savings on offer, as well as some of the devil in the detail. Whilst a Finance Director may already know that (for example) their business spends £20,000pa on toner, the tender process may uncover that half of it is being spent on one particular printer, offering an opportunity to change behaviours, as well as suppliers in order to reduce outgoings. Post-Contract ManagementWell managed, these tender processes can produce great headline savings, but they can quickly be eroded by supplier tactics to maximise margin and by changing purchasing habits amongst your own staff. ERA works alongside our clients for at least two years, in order to regularly audit supplier invoices to

ensure that savings are maintained for the longer term. It’s similarly important to contract a third party with full market visibility when suppliers seek to increase costs legitimately. Using printer paper as an example; you may be asked to agree to a price increase of 5%, because your supplier informs you there has been a general rise in the costs within the sector. With access to a multitude of suppliers, any third party organisation could validate this claim. Moreover, we would have the experience to ask the right questions; a 5% rise in the price of raw materials need not translate to a 5% price increase, raw material costs are only a portion of the total cost, with factors like delivery and margin all also making up the total. Taking a more thorough approach to indirect costs can pay dividends. And using a third party organisation with access to more data, so you are taking a true value of where you are against the market represents the most sensible option of all.

Applying a scientific approach to indirect spend can ensure you receive the right levels of service and quality at a competitive price, while ensuring this does not slip over time.

Logistics: Exportby Ken Rogers

Whilst UK businesses have been tasked with delivering £1trillion of export business in the years to 2020, the target also asks for an additional 100,000 exporting firms. But as the BBC recognises, the European export market is dead in the water, so firms need to look to the wider global marketplace to find opportunities. Recognising the underlying problem, Government

has sought to intervene and has doubled the 100% export tax threshold to £500,000 as well as extending it to the end of 2015; and it may extend longer still. Government credit to support export sales has also been doubled to £3billion. All of this is great news if you can find an export market. To help grease the wheels, the

“The economic recovery is unlikely to be export driven as its biggest trading partner (Europe) is dead in the water ... UK export growth is very disappointing as demand in Eurozone is close to zero.” BBC news

Logistics team at ERA has already helped some of our clients to reduce the cost of exporting by using aggressive procurement of transport; they have also been solving problems around standard export documentation and process assistance whilst maintaining service levels. In ocean freight and European road freight, opportunities to purchase at fantastic rates exist for a number of reasons; in ocean freight container ships heading back to the Far East can often do so carrying largely – or only – empty containers, so the substantial under capacity can result in significant savings.

In European road haulage, utilisation of road freight is actually far better, with regular services between European cities and fast transit times. Many firms unable to meet the modern requirement though have gone, leaving behind a pool of highly regarded and reliable transporters and a healthy competitive market.

Having a great understanding of this market has enabled Expense Reduction Analysts to help its clients receive excellent value for money, whilst retaining outstanding levels of service.


Technological advancements within the payroll and HR sector in recent years have helped businesses to revolutionise the way they manage their employees.

The development of ‘software as a service’ based solutions and integration of smartphone technology has empowered companies to implement sophisticated, and often more cost effective solutions to the benefit of both the business and its workforce. Two key areas are payroll and pensions auto-enrollment.

There are tangible opportunities to reduce outgoings and increase efficiencies within the broad HR arena. Changes to legislation around company pensions and technical solutions around payroll can change the way businesses operate for the better.


HR: Workforce Managementby David Hembery

18% 2%

£15bn45%

Increase in cost of processing payroll in-house compared to outsourcing.

Cost for companies with <50 empolyees to maintain compliance with UK tax legislation. Cost is percentage of companies PAYE/NI bill.

The cost to UK companies of setting up, administering and funding auto-enrolment

pensions between 2012 and 2017.

of companies are not confident they will be compliant in time.

Payroll

Auto-Enrolment Pensions

Don’t waste the opportunity to review your supplierby Pete Bramhall

Introduced in the UK in 1996, Landfill Tax was aimed at encouraging waste reduction, re-use and recycling within businesses and households and has been a major factor in subsequent improvements in recycling rates and reduced reliance on landfill.

An escalator or £8 per tonne per annum which commenced in 2008 resulted in the tax hitting £80 per tonne by 2014. Unsurprisingly, this has caused the costs associated with waste collection and disposal to increase well above the rate of inflation during this period, typically by 8-15% per annum. Whilst the Landfill Tax increase this year has been pegged at an RPI-based 3.25%, there are a number of other factors which have conspired to cause many suppliers to seek above-inflation price increases again this year:

• Falling market values for recyclable materials mean that the revenues banked by waste companies on the “output side” of their business have dropped over the last 12 months, with no upturn on the horizon.

• New regulations which took effect in October 2014 impacted upon the productivity of MRFs (Material Recovery Facilities) where waste materials are sorted in order to extract the recyclable components.

• Mergers and acquisitions within the sector, notably Biffa acquiring both Shanks and PHS in 2014, appear to have reduced pressure on suppliers to slash margins to the bone when bidding for new business as had often been the case in recent years.

• Depleting landfill availability in many regions is allowing landfill operators to increase their gate fees, over and above the landfill tax rise.

Therefore, for 2015, annual price reviews are now expected to be typically in the 4-12% range, with a few local exceptions. Suppliers will be paying particular attention to accounts which were signed up at rock bottom prices 24-36 months ago as they may well be charging less than their current selling price and so will seek to recover some lost margin.

The other key issue which has been lurking in the background for some time now is that of bin weights. As processing and disposal costs have risen to an ever higher proportion of suppliers’ direct costs, investment has been made in sophisticated on-board weighing equipment which can accurately measure the weight of each customer’s bins. Suppliers are increasingly using this data to identify those with above average weights and implementing their (long standing but hitherto dormant) contract clauses which allow them to surcharge or increase their pricing accordingly. Sectors which have traditionally had heavier bins, such as food establishments, care homes, charity shops, etc, can expect costs to significantly increase in the near future once the waste companies become more confident with their weighing technology.

Finally, one note of caution when reviewing waste and recycling collection arrangements is the need to consider the terms and conditions relating to existing supplier contracts. Typically, waste contracts are “evergreen”, ie, renewing on an annual basis unless action is taken to terminate them within a given window each year, usually 3 months in advance of the anniversary of their original commencement date. Failure to observe these terms is likely to result in penalties being imposed. Advance planning is therefore required in order to minimise the cost of changing suppliers or arrangements.

All things considered, now is good time for organisations to be reviewing their waste handling procedures and contracts to mitigate against cost increases and maximise revenues from recyclables, as well as ensuring compliance with latest legislative requirements and internal CSR objectives.

Landfill Tax increases again on 1st April 2015 and will trigger a round of price increases within the waste and recycling sector.



Card processing fees for merchants to change in 2015by Paul Davidson & Steve Whitlam

As a merchant, you face major changes to the cost of processing your card payments as of March 1st this year. The changes are being phased in throughout 2015 and 2016, with Visa going first from 1st March and MasterCard following on for some of their card types on the 1st April, then quarterly thereafter.

A major component of card payment costs is ‘Interchange’. Driven by EU regulations, the aim of the legislation is to cap interchange fees throughout Europe; for debit cards the cap will be 0.2% (currently 8p) and for credit cards 0.3% (currently 0.77 – 0.8%) for chip and pin UK-based consumer transactions. But will it mean lower card processing fees for UK businesses?

Recent tenders have shown, supported by conversations with both clients and suppliers that some major suppliers are unlikely to pass on savings to their customers in the foreseeable future.

The reality is that whilst there will be some winners, there are likely to be losers as well. For example we’ve already demonstrated potential savings ranging from 30% for some clients and increases of 30% for others, so it is important to understand the likely impact before approaching your supplier to seek a change.

Merchants tend to be on blended rates with the suppliers, meaning that transaction charges are levied against their account based on perhaps 5 to 15 rates, as opposed to the many hundreds of variations faced by their supplier; so it’s a complicated picture.

Establishing how these changes are going to affect your business can require additional data and lots of complicated analysis, but there are a number of things you can do to help your case;

• Look out for non-secure payment surcharges on your invoices. Although Visa has withdrawn the pricing differential for telephone and mail order based payments on debit cards from 1st March, many acquirers continue to charge a premium where the 3 digit CVV code is not processed.

• Read any notification you receive advising you of your rate change (remember that this could be attached as a note within your monthly invoices):

• Am I being given the full reduction?• Is my increase fair?• Am I on a fair rate to begin with?• If you have not heard from your supplier by April, assess whether

they are taking increased margin, rather than passing on savings.

Many businesses, not just retailers and restaurants, take card payments these days. If you take card payments within your business, you’re classified as a merchant.

Time Wastingby Brian Holmes

UK office workers are collectively spending 2.53 million hours a week searching for better mobile coverage, which comes from 61 per cent of company employees claiming to have poor or variable mobile reception at their place of work. Even 50 per cent of telecoms professionals responded that the mobile signal in their offices was inadequate.

The research, which surveyed 2,000 UK office workers at junior and

senior levels from varying company sizes also revealed that 62 per cent of employees in the finance sector were suffering from poor or variable mobile phone reception and 59 per cent of government or public service professionals face the same problem.

There’s two important points here. Firstly, if you work in the financial sector the best practice is to not use mobile phones but if you do make sure the call is recorded for

A recent survey conducted by a company marketing small cell solutions to improve mobile signals found that UK businesses are losing over £30 million a week as employees waste time hunting for mobile phone reception in the workplace to take business calls.

compliance. Secondly, why on earth are you using 3G/4G signals to make calls in the office when you have a perfectly serviceable landline phone sitting on your desk where calls will be cheaper?

Yes people use mobiles for ease of use and the telephone directory, we all do. But these were mid market firms here that were surveyed. None of this should be too much of a surprise, mobile signals are not good at penetrating concrete and steel.

The latest Ofcom report from Oct 14 showed EE leading with 4G coverage in 70% of UK premises with O2 and Vodafone both lagging behind with 51%.

And finally the research data also showed that 42% of enterprise users are not aware that there are technologies available that can cure the plight of poor mobile phone signal in their place of work, with only 15 per cent having heard of small cells as a viable solution.


www.expense-reduction.co.uk

UK call charge changes set to catch businesses outby Nigel Rosehill

Yes, after myriad complaints over the years, it seems we’re finally going to have some clarity over call charges across various number groups – though the plethora of mobile phone companies and service providers means the picture is still not quite crystal clear. What will clarify things is familiarity with your mobile operator’s (new) ‘Access Charge’ which will be combined with the receiving network’s “Service Charge”.

Whereas historically call charges have featured charges like ‘Calls will cost 10p/minute from a BT landline, other operators and mobile charges may vary”, which is really neither use, nor ornament, from this summer the ‘Service Charge’ will be a specified cost by the receiving network (selected from about 80 different price points), plus your network’s ‘Access Charge’. So Service Charge + Access Charge = Total Cost.

Telecoms businesses will be contacting all their customers in the

run-up to the changeover in order to provide the information they need to work out their future call charges. In future those call charge disclaimers will read more along the lines of “Calls cost xp per minute (ie the Service Charge), plus your network’s Access Charge.” So still some maths to do, but a great deal simpler than it has been.

Freefone NumbersIn addition, all 0800 and 0808 numbers will also be free from a mobile phone. Holders of these numbers, who pay to receive calls, will see their costs rise though, and this is likely to be quite considerable, as a split pricing structure will come into being reflecting higher rates for calls originating from payphones or mobiles compared to landlines. The concern must be the percentage of calls originating from mobiles is likely to increase as a result. 0845 numbers will remain unchanged; however businesses will be encouraged to move to the equivalent 0345 number, since the

We are sure by you’ve all started to notice the near ubiquitous ‘UK Calling’ campaign, which seeks to educate and inform the UK public and business owners about the changes due this summer.

(Continued from front page)Steve Clamp reviewed Contract Cleaning, where one supplier was providing three-quarters of the work. Putting this out to tender, Expense Reduction Analysts insisted that all of the prospective suppliers make site visits, so that they could understand Paperchase’s needs in detail and therefore have the maximum opportunity for efficiencies that could be made. In the end, it was decided to give the major incumbent the whole contract, a move which has resulted in a smooth transition, significant savings and administrative streamlining.

The final category was Waste. Pete Bramhall outlines what happened:

“I was able to save Paperchase 15.7% on Waste even though they decided to stay with the incumbent supplier. One important recommendation I did make was to change the contract renewal date. It used to be 1st December – Paperchase’s busiest time – which impacted on their willingness to consider alternatives to the incumbent. I arranged an 18-month initial contract, so that the renewal will now fall in the summer, when the business will have more time to consider the best way forward.”

Reduced waste, added valueExpense Reduction Analysts also helped Paperchase to develop their back-hauling system whereby trucks delivering to the stores take

recyclable materials – cardboard, paper, polythene – back to the distribution centre where it is baled and sold. By identifying improvements in the way in which these materials are captured and stored, and by helping Paperchase to procure a more efficient baler, Expense Reduction Analysts has enabled the system to be rolled out to a much wider range of stores than was previously possible.

Andrew Lees summarises the Paperchase partnership: “It is not just the savings that are important in a relationship like this, but also the added value that we can bring. Sue’s recommendation to consider noncopyright music, Steve streamlining Contract Cleaning,

0845 number will be phased out by 2017.

Data RoamingThere is also change afoot in the EU regarding the provision of data, text and voice for international roaming within the EU, set to be agreed during 2015 and implemented in 2016. Advanced by the European Commission, the new regulations include a commitment to treat all 28 EU member states in the same way, meaning all voice calls, data downloads and SMS message usage by EU citizens will be treated the same in all other EU countries as it will be in their own.

Mobile network operators have indicated that this will mean a significant drop in income for them, and that they will look to regain this lost revenue in other areas; we’re anticipating a hike in monthly fees and a decrease in the amount of bolted on extras available in the average user package.

From our perspective, the changes look significant – and businesses running ‘08xx’ can certainly expect higher charges in the future. Mobile contracts are also likely to change in structure and complexity to account for the shortfall in income from the current International Roaming charges, and that will also likely mean increased cost for businesses.

It’s vital for businesses without the in-depth knowledge of the telecommunications market to engage with third parties for support at times like this, where the issues really warrant consultancy rather than employment as it’s one unlikely to be understood in-depth by many businesses (unless you happen to be a mobile network provider!).

Potential changes in phone numbers and usage habits require planning and contracts currently being negotiated need to have the necessary safeguards.

Pete negotiating the contract renewal away from Paperchase’s busiest time of year and helping the company to develop their invaluable backhauling initiative – all of these activities prove that Expense Reduction Analysts is about a lot more than squeezing margins.

David Bateman, Chief Financial and Operating Officer at Paperchase, agrees: “I believe that the Expense Reduction Analysts team are experts in their own fields and they bring an impressive attention to detail and market insight to the task. They have contributed significantly to the transformation of a number of aspects of our business and I’m grateful for that.”

Procurement Matters Issue 15.2

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Transcript of Procurement Matters Issue 15.2