1. Introduction
Stevenage Borough Council (SBC) is a small local authority, covering an area of 10 sq. miles in the East of England; with an influenceable spend of approximately £38.5million in 2015/16.
Like most local authorities, SBC continually seeks to identify savings and/or added value opportunities. The Council recently rolled out an e-tendering system for quotes (contract value below £75,000), analysis from recently published quotes identified cleaning & hygiene supplies as an opportunity of disaggregated spend that has not been considered.
This paper focuses on the product category of cleaning supplies (incorporating hygiene supplies).
Assumptions: No plans have been published to review the current way cleaning services are provided by the various departments therefore it is assumed that SBC will continue to provide cleaning services as is, for the foreseeable future.
2. Spend Category Analysis
2.1 Importance to SBC
To determine the importance of this category it has been applied to the adapted Kraljic matrix as provided by (CIPS, 2016). This matrix maps the complexity of the supply market for the category against how important the category is using the criteria within the four box structure.
Cleaning supplies has been assessed for SBC as High importance with a Low complexity of supply market (see figure 2.1).
This categorisation is due to the following:
a) Category is identified as crucial and includes specialised items – SBC provides cleaning services to the public arena, tenants and buildings (including supported housing, residential and commercial) and as such is highly visible. Unavailable, poor quality or incorrect products have a detrimental effect to the services provided including; services to vulnerable persons in supported housing, potentially reduced income to the Council from commercial sites alongside reputational and health and safety risks.
b) SBC’s spend when aggregated can provide leverage in the wholesale cleaning supplies market especially with SME’s. There are large numbers of wholesalers who provide commercial cleaning materials, pricing is competitive with products easily available and generally substitutable (products that are branded differently but share the same characteristics). There is benefit in standardising products, wherever possible, across the Council.
c) SBC has limited storage space therefore it is important that products are delivered ‘just in time’ and are of the quantities /products required. A strong relationship with a single supplier will create commitment to manage the flow of materials to SBC. A contract term of 24 months should encourage investment in the relationship however the contract should be subject to regular benchmarking, price controls to ensure it remains competitive and options to review core ranges to suit changes to working practices or innovative products.
As mentioned in Purchasing Models Handbook 2nd Edition (Reynolds & Thompson, 2013) Kraljic’s matrix is used extensively however some consider it limiting as it considers the buyer’s point of view at a specific point in time and does not consider resources needed to manage suppliers.
The original Kraljic model assesses profit impact as opposed to importance as the axis however the principles of the four boxes remain the same. Alternative Kraljic models such as O’Brien’s (CIPS, 2016) looks at profitability and market difficulty (specifically aimed at the private sector) or Supplier Preferencing (Steel& Court, 1990’s) which considers the attractiveness of the buying organisation against the relative value of the buyer’s business – useful in understanding how suppliers may view organisations.
2.2 Stakeholder Analysis
To determine the impact this category has within SBC, a stakeholder analysis has been undertaken.
It is important to look at all persons the project will affect in any form, to ensure that all stakeholders are accounted for. The model identifies the stakeholders and what weight they may have but won’t address how best to work with them. To be effective, analysis should be carried out to understand the stakeholder priorities, their specific interest level in the project and how much influence they have, you could also include a view of their current allegiances. This enables development of communication plans for working with the stakeholders to ensure success and buy in to the project.
2.2.1 Mendolow Model
Mendelow’s – Stakeholder Management Matrix has been utilised for this analysis. Mendelow is noted as a popularly used purchasing model first published in 1991 (Reynolds & Thompson, 2013).
This model categorises each stakeholder into one of the following groups:
The classification is determined by assessing the power / influence a stakeholder has and the interest they are likely to show in regards to the project.
(Reynolds & Thompson, 2013).
Mendelow works on the basis that underlying analysis is used to plot a four box format. The model is flexible; it can be adapted from a basic format, such as that used for this paper, to showing a more detailed level of results by; using individual names/titles rather than groups of individuals and using keys for colour indicators and differing formatting of names.
There are differing models available i.e. Stakeholder Analysis Toolkit (CIPS, n.d.) shows an alternative nine box format rather than the four-box format of Mendelow. There are also different presentation formats such by Eden and Ackermann (1998: 349-50) which uses influence lines between stakeholders. Research suggests that Mendelow is the most commonly presented, albeit often with slightly amended formats.
2.2.2 Analysis Outcomes
Investigations at Appendix A; Tables 1 and 2 identify the groups of stakeholders and individual persons linked to the project. By following principles above, this informs a communication plan and where to focus more effort. The resulting matrix is shown at figure 2.2.2.
Investigations show this category is of particular interest to department managers, service teams and suppliers, with other parties having a degree of input but little interest. Other stakeholders will have no input in the project but would have interest generally only during the contract management stage should they notice any discernible reduction in the service / output. In relation to tenants or general public who receive service via the in-house teams, incorrect specifications could lead to a poor outcome and perceived lack of cleaning.
A project team will require specific resource from six departments directly supported by at least one of their service team representatives. Support will also be required from the Legal/Finance/Corporate Procurement leads.
Following mapping there is need to manage profiles of stakeholders by taking action to mitigate concerns they may have. Providing detailed information to stakeholders for a short time at the beginning of a project may reduce interest levels later on, as trust in the project team increases, or encourage a more positive influence.
The service teams will not be the prime leads but could have an impact in the success of any procurement. Ensuring prime leads engage with teams early should reduce any concerns and blocking tendencies that may arise.
By comparison, stakeholders may become concerned later in the project if they are not being given sufficient information and reassurance, this may increase their interest levels stakes and possibly lead to negative influences. The communication plan at Appendix A can be tailored as the project progresses.
The analysis and matrix are to be used as live documents and reviewed at each project team meeting. This action will identify additional stakeholders during the project, named stakeholders that change (which may subsequently change the power and interest level) and ensure that where there are any midway changes to the project, consideration is made to whether the stakeholders also need to change. It will also provide opportunity to review whether the communication plan is working as intended.
3. Market Analysis and Outcomes
3.1 Market Analysis
Porter’s Five Forces analysis (Reynolds & Thompson, 2013) details five competitive forces within a market at a particular time. It can be used for planning negotiations and sourcing decisions but is mainly aimed at organisations focusing on profit as opposed to not for profit organisations. Critiques of Porters say that the words ‘…bargaining power of suppliers and buyers indicates adversarial relationships. Current thinking regards suppliers as partners…’ (Lysons & Farrington, 2016).
This paper uses the model to understand the suppliers market and is summarised in figure 3.1. It is supplemented by a PESTLE analysis (Appendix B) identifying key factors in external environments that may have influence. (Reynolds & Thompson, 2013)
Threat of new entrants
Barriers to entry; there are many wholesalers in the market, new entrants struggle to be competitive with larger companies, due to economies of scale and upfront investment needed for labour, stock, storage, IT, marketing and transport. There are barriers around existing manufacturer distribution agreements, environmental legislation which may be affected by changes to EU law and uncertainty regarding the UK economy. New entrants who specialise in innovative products which are not yet widely distributed may be more successful. Research states:
The UK market for non-domestic cleaning products, including equipment, materials and chemicals, has been largely flat in recent years and only modest growth is forecast for the 2015-2019 period. Key trends in this sector include; increasing development of antibacterial products, in particular in the healthcare, food preparation and hospitality sectors, growth in the powered cleaning machine sector, greater focus on improving efficiency and increased automation of cleaning processes, increase in daytime cleaning. The market continues to be strongly driven by legislation and higher standards for cleanliness, hygiene and health and safety (AMA Research, n.d.)
Bargaining power of suppliers
Large number of wholesalers in market, UK wide. Easily substituted undifferentiated products. Reliance on brand loyalty, buyer apathy and beneficial distribution agreements. Power increased by stocking new / innovative products (which can be effectively marketed and reactive to trends in commercial cleaning) and added value options. Larger wholesalers will be less interested in lower volumes.
Bargaining power of buyers
Low switching costs, substitute undifferentiated products available from many suppliers including local. Significant SME market to whom aggregated volumes are important. Standardised products with emphasis on performance, increased knowledge increases power.
Threat of substitutes
For most non-specialist products, substitutable products exist from multiple manufacturers with little differentiation. There is also threat of substitution of products that have improved characteristics (cleaning power, environmental impact).
Competitive Rivalry
High number of competitors and evolving products but currently growth is expected to stay modest for some years. Buyouts/takeovers of smaller or more specialist organisations by larger companies are common. Buyers can easily switch both products and wholesalers, larger companies use significant marketing / advertising and brand identity to attract buyers and will consolidate overheads and employ economies of scales to allow them to out price smaller competitors.
3.2 Value for Money Outcomes
By competitively engaging with the market, the procurement function will achieve value for money outcomes as follows:
i) Reduced pricing – analysis shows that spend is not leveraged or receiving the best pricing (see section 4).
ii) Improved quality of products – using output specifications rather than named products / brands will allow suppliers to propose best products for the job including options with the least environmental impact. Accreditation requirements for soft tissue such as Cleaning & Hygiene Suppliers Association (CHSA) would ensure standards of products are maintained.
iii) Delivery timescales – consolidating and forecasting our requirements enables suppliers to plan and commit a robust provision of service, linked to KPI’s to ensure continuity. It will allow for consolidation of orders and deliveries which reduces the carbon impact and takes elements of risk out of the suppliers pricing.
iv) Compliance with regulations (procurement) – ensures compliance with Public Procurement Regulations 2015 and retains a fair, transparent and competitive environment for procurement.
v) Improved service to stakeholders by providing an easy to use ordering process with standardised products and a commitment from the supplier to advise on efficiencies in cleaning processes, which could alleviate pressure on resources, and updates on alternative products which can deliver value for money.
vi) A centralised Safety Data Sheet library for ease of access online – standardising products will help to ensure correct information is used reducing health and safety risks.
vii) Reputation – using effective products for cleaning services will help to maintain a reputation for clean environments.
4. Current Approach at SBC
4.1 Spend Identification
Research identifies a silo approach for cleaning supplies with eight departments buying from seven suppliers with a total spend in the six months’ period March 2016 to August 2016 of approximately £63,000 (this figure does not include spend on specialised printed refuse sacks which equates for a further £10,000 over the six-month period). Usage of cleaning supplies is generally consistent and therefore it is reasonable to extrapolate this to an annual spend of £126,000.
A breakdown of supplier spend is shown in figure 4.1a – for the purposes of confidentiality, suppliers will be referred to a Supplier A, B and so on.
The breakdown of spend by department is shown in figure 4.1b.
Cleaning Service
Departments provide in-house cleaning services with the exception of Facilities Management which has an external cleaning contractor for specific sites. That contractor is required to provide their own cleaning supplies to carry out the service, however consumables (such as toilet rolls and hand soaps) are provided by SBC to the contractor.
Appendix C Table 1 shows the type of cleaning service provided and procuring practice of each department.
4.2 Analysis of current position
Lack of consistency in procurement practice across departments with no aggregation, collaboration or knowledge sharing.
SWOT analysis (Reynolds & Thompson, 2013) in figure 4.2 summarises the current position. SWOT is a subjective analysis of data into a logical order for presentation. Strengths are internal attributes (positives), Weaknesses are internal weaknesses (negatives). Opportunities reflect positive external factors with Threats reflecting external risk factors that could affect the position.
Departments spot buy or let short term call off quotations on a price only basis with no account taken of any qualitative elements; alternatively they source direct from existing suppliers whose contracts do not cover cleaning supplies (ie Building Materials). There has been a lack of competition, suppliers invited to quote/been used each time indicates a reluctance to switch.
The category is fragmented, differing product specifications / service requirements (departments are buying similar but differently branded products) and different prices, this is not achieving best value.
Examples are provided in Appendix C Table 2 showing price differences ranging from 13% to 120%. Prices offered under the Yorkshire Purchasing Organisation (YPO, n.d.), Eastern Shires Purchasing Organisation (ESPO, n.d.) and HertsFullstop (previously Herts Supplies) (Fullstop, n.d.) were benchmarked. Most items can be bought at better or equivalent pricing on the basic catalogue offering with no purchasing commitment so there is confidence that savings/added value can be achieved through a competitive process.
No use of formal terms and conditions or performance specifications. Generally, specifications are a list of products bought sometimes with the option for suppliers to provide equivalents. There is no standardisation of product requirements or use of outcome specifications.
Market analysis or pre-market engagement have not previously been undertaken to interest new suppliers, understand new or more sustainable/environmentally friendly products or ones that could increase effectiveness in cleaning or to understand where added value may be achieved from an aggregated corporate approach.
Multiple deliveries by multiple suppliers have an unnecessary impact on carbon emissions and multiple invoices, an associated cost to process.
There is no central record of the chemicals being used or stored across SBC therefore risk exists that incorrect Safety Data Sheets could be utilised.
4.3 Impact of Markets
The product manufacture for the cleaning industry is global, larger manufacturers i.e. Diversey, Jangro, Tork generally distribute through distribution agreements with wholesalers rather than selling direct. Research indicates distribution agreements do not overlap – wholesalers tend not to stock the same products from multiple manufacturers, this appears to be an attempt from the manufacturers at restricting competition and encouraging brand loyalty in a market with highly substitutable products.
The cleaning supplies market is competitive with a large wholesale arena ranging from largest wholesalers who have a wider focus than cleaning materials alone, to the wholesaler who focuses on general cleaning supplies down to the smaller niche suppliers of more specialist products such as trauma cleaning.
Market leaders are Bunzl plc, a global company. Their cleaning & hygiene supplies revenue stream was £132million for UK & Ireland in 2015 with an increase in revenue for the cleaning & hygiene stream of approx. 2% compared to 2014 (Bunzl Group, 2015). They frequently acquire other businesses on a global basis (22 in 2015).
Leading wholesalers specialising in cleaning & hygiene are Zenith Hygiene Group plc – turnover of approximately £53 million in 2016 with 66% attributed to public sector. Revenue increased by 8.4% between 2015–2016. Low level of acquisitions, one of the few wholesalers who also manufacturer own products. UK company, expanding to export to Europe & Middle East in 2015. (Zenith Hygiene Group plc, 2016)
A challenger in the wholesale market is Pattersons (Bristol) Ltd – turnover of £18.8m. There are other smaller wholesalers i.e. Avica, Global Hygiene, Hygiene Systems Ltd who could fulfil SBC’s needs.
Niche wholesalers are those specialising in certain products, i.e. Restoration Express specialise in Trauma chemicals, or specific markets i.e. Hotels/Food preparation
Cleaning supplies is an elastic market; buyers can affect this market by choosing not to buy certain products or to substitute them – i.e. by moving away from chemical based products either due to environmental pressures or due to more beneficial pricing. Long term drops in demand for chemical products would lead to higher prices from manufacturers and subsequently wholesalers. Wholesalers will seek to protect themselves by switching the products that they stock to more popular substitutes.
Manufacturers are developing new, more efficient and environmentally friendly products including more automated cleaning systems. As they become available these new products are likely to be offered at highly competitive prices to encourage take up.
Public sector is generally considered a desirable customer – low risk for payment and obliged to follow Procurement Regulations which ensures a fair tendering regime.
SBC volumes are most likely to generate best obdurate value from the cleaning supplies wholesalers in the SME arena where we would be of some importance to them. Increasing interest by carrying out market engagement alongside an aggregated tender should provide savings and added value benefits. We would have little impact on the revenue of larger multi stream wholesalers, unless they are seeking to increase influence in public sector or specific locations and we may attract less interest or added value from those suppliers.
Appendix B – PESTLE analysis summarises key influences likely to affect this market.
5. Conclusion and Recommendations
SBC has a fragmented approach to cleaning supplies using various suppliers, across a number of departments and involving a significant number of stakeholders, there is no collaboration between departments. Silo procurement means opportunities have not been open to wider competition.
In a competitive market the combined spend is attractive to SME’s, especially if SBC moves towards standardising requirements and substitutable products. There are opportunities for savings and added value at the current time however in the current economic climate costs are predicted to rise in most markets.
Current practice of price only evaluation promotes an impression that price is the only important element and that bidders can bid low and provide a poor service. Lack of contract terms enhances this impression.
It is recommended that SBC undertakes the following:
- Set up project team, establish the communication plan.
- Collate and agree core list of (standardised wherever possible) products including environmental considerations.
- Carry out detailed pre-market engagement to establish suitable outcome specifications and requirements.
- Engage with targeted SME wholesalers especially those around the Stevenage region and investigate any additional opportunities for added value.
- Undertake a procurement exercise with aggregated forecasted demand across the Council.
08.1.2017
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