How can social landlords remove the barriers to business intelligence and better cost managment?

thinktank series How can social landlords remove the barriers to business intelligence and better cost management?

Dr Jo Meehan University of Liverpool Management School

Author This paper was produced by Dr Jo Meehan in collaboration with Procurement for Housing and Affinity Sutton.

Dr Jo Meehan is a Lecturer at the University of Liverpool's Management School. She spent 11 years as a procurement professional for a blue-chip, multinational organisation before moving into academia, teaching a range of procurement, strategy and operations management subjects. Jo's work is published in leading academic journals and in the professional press where she is a recognised Thought Leader in the field, working with Procurement for Housing, CIPS, Procurement Leaders and the US-based Institute of Supply Management. Her current research interests centre on B2B relationships, power, value and sustainability, and much of her research is set in the social housing sector. A practitioner at heart, Jo has collaborated with numerous organisations, applying her research to impact commercial development for organisations across public, private and third sectors.

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The limiting factors affecting progress in social housing procurement.

While procurement and finance professionals may know the value of the function, in the social housing sector a number of factors are limiting procurement’s impact and influence across their organisations. A recent research project by Dr Jo Meehan of the University of Liverpool’s Management School reveals some common gaps across the sector that are preventing procurement from driving commercial principles throughout their organisations. The research, sponsored by Procurement for Housing (PfH) and in partnership with Affinity Sutton, highlights that as a sector a number of areas need to be addressed.

The research process 

An online survey from 100 PfH members to assess the broad trends in the procurement function

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A series of in-depth, half-day focus groups with procurement staff, representing over 30 registered providers across England, Scotland and Wales, to identify and discuss the critical gaps and opportunities for procurement

The current role of procurement The results of the survey highlight the perceived lack of procurement resource.

Figure 1: Summary of survey from 100 PfH Members

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What these headline figures show is that there is potential for internal tensions to grow. An interesting picture emerges from the focus groups. The overwhelming view was that the external landscape has seen dramatic change but internal commercial approaches have not kept pace with these developments. Despite the high levels of third-party spend and small pockets of innovative approaches, procurement in the social housing sector lacks maturity and tends towards reactive involvement. The time and resource constraints exacerbate the lack of early involvement as they prevent supply chain visibility and procurement influence.

Analysis of the focus group data shows some root causes of procurement’s problems. Fundamental gaps centre on: 

Internal positioning

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Tools and techniques

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External positioning

Gap 1: Internal positioning Procurement in the sector suffers from an internal image problem. The face that most customers see is the policing role, steeped in issues of compliance, audit control and EU regulations. We know that this is an important aspect, but procurement can drive value and innovation from their supply chain too. Small teams, often teams of one, can be isolating and it is difficult for them to have a voice and push for change. The lack of resource also results in a lack of procurement pressure to extend their influence – not because they don’t see the value, but because they have no capacity to take on additional work.

The diagram below summarises procurement’s current level of maturity. The bell curve represents a low level of early involvement upstream in the procurement process and downstream post contract.

Procurement’s involvement in the sector peaks at the tender stage driven by the internal recognition of the need for ensuring compliant routes to market. In short, their internal positioning centres on compliance and regulation, rather than business intelligence and value.

Procurement is trying to stretch the level of involvement, represented by the red arrows on the diagram, to have a positive impact beyond tendering and compliance roles. Although in principle this is recommended, the results of the research highlight additional gaps that are preventing this extension of internal influence.

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Figure 2: Social housing’s current maturity level

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Gap 2: Tools and techniques The major barrier in procurement’s challenge to increase its influence is the lack of tools and techniques including robust, systematic adoption of spend analysis, market intelligence, savings trackers, supplier evaluation systems and value metrics. Some social landlords have made inroads into these, but even in the more advanced procurement teams there is recognition that these lack maturity and integration into internal systems.

These are the foundations for professional procurement development. Not investing in these tools and techniques creates two major problems for procurement development.

Firstly, it is difficult to show what we can bring to the table through early involvement. A common theme in the focus groups was the lack of true market data. Most organisations had some spend and pricing information (albeit provided often by other departments), but recognised that this is a far cry from detailed market intelligence of category trends, cost bases, suppliers’ market shares, risk profiles, product innovations, and details of other key sectors buying from these markets. Three quotes from various suppliers do not constitute market intelligence – at best it is a snapshot of three suppliers’ eagerness for the business. The inability to act as a knowledge broker for internal clients further entrenches a poor internal positioning as the internal ‘offer’ lacks credibility.

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Secondly, without robust tools and techniques it is hard to demonstrate impact, upstream and downstream in the procurement process. Buyers need to be able to quantify the benefits and value of their involvement. Equally important is the ability to show internal customers what best practice procurement looks like, whether this be through a thorough commercial assessment of a market, a categorised savings tracker linked to budgets and contract lifecycles or a procurement risk analysis on a supply chain. Unfortunately, unlike most other professions, everyone in an organisation often thinks they can be a buyer. This position is not helped by not having access to the very latest tools and techniques – without these, the myth that other internal staff are already ‘doing procurement’ is perpetuated.

Gap 3: External positioning The research shows a clear risk in the sector’s external positioning with the supply base. While there are pockets of excellence in some categories, generally the picture highlights the risks of gaps in our procurement toolkit. The biggest concern centres on the reliance on suppliers’ and contractors’ data.

If organisations are asking suppliers for spend and performance data, as these are not reliability available internally, then our bargaining position is severely threatened. The argument that we have good, trusting relationships with suppliers who wouldn’t act opportunistically is naïve and misses the point. A reliance on suppliers should not take the place of adequate investment in procurement.

To be a good buyer you must strive to be an intelligent, informed client. The current position is reflective of an insular sector. Organisations tend to use the same suppliers which in some areas can lead to a lack of diversity and innovation. In addition, many providers stipulate in tenders that suppliers should have experience in the social housing sector. Although this may provide some legitimacy of their performance, it assumes that someone else has tested them (which is not always the case), and it can limit the market opportunities. This requirement was seen as important in tenant-facing services, for example, repairs and maintenance, but the value of these clauses for products is questionable and limits the ability to use new suppliers and small local contractors.

An interesting issue highlighted in the research is the extent of benchmarking in the sector. There is a high level of knowledge sharing and benchmarking, both regionally and nationally. Although this is positive, a downside of this strategy is that benchmarking is restricted predominantly to other registered providers so it is not truly externally calibrated. Procurement has made great strides in developing active, benchmarking networks and these now need to be extended to others in the public sector and to private sector organisations. This will help to drive additional value and innovation from the supply chain.

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The future The message from the research is clear; registered providers need to invest in procurement. There is a real need for additional resource and capacity but the call for investment goes beyond a game of numbers. For true, sustainable development of procurement, where there is an increase in social value, cost efficiencies, engaged local economies and a coherent organisation-wide strategy for managing external spend intelligently, the sector needs to collaborate to share the tools and techniques that will form the foundations of procurement development. Without solid foundations procurement’s impact can fall through the gaps and will not stand up to challenge. Investing in procurement would enable the commercial approach that many organisations are seeking to be delivered. This intelligence led mindset is necessary to combat growing costs in areas such as welfare reform and to drive true sustainable social value from the supply chain to ensure they can continue to provide the best services for tenants.

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