Lance Pearson, Managing Director at Utility Watch, looks at procurement from supply side and the opportunities this creates marrying commercial procurement techniques with government sector buying in its current form
In an ideal world suppliers would work hand in glove with end users to form mutually beneficial partnerships however, the supplier will rate the end users on volume and margin to them. Consequently if the price is driven down to the slimmest of margins the supplier considers the account to be a pure volume asset and will attempt to either reduce the account management or try for a longer term contract to ensure the volume asset is maintained. This in turn removes the flexibility that you, the user, need to allow implementation of medium to long term strategies.
At this point it is worth taking the suppliers perception of gaining new business. They will have to price the utility to include site visits, analysis of current usage, business overheads (both incurred and operating costs) and management of the new business once billing. If the supplier could reduce these costs the package offered would generally become more attractive to the client.
The tendering process
The aim of any tendering process is to obtain the best price with ongoing account management and analysis. Historically the only ways to achieve this solution has been either ongoing consultancy at additional cost or to create a post to facilitate the organisations requirements. Both of which reduce the value in the exercise of cost reduction.
With the ever present coverage on economic downturn more commercial entities are turning to outsourced consultative solutions to deal with complex issues. Many government sector organisations have used experts in a given field to produce risk reduced planning and implementation of driven strategies, to good effect.
With more and more organisations given control of their utility costs the tendency is to go for what seems the best price from the current supply lists, either OGC or locally sourced through tendering processes in place. The risk involved with looking at utilities on a headline price basis is that details are often overlooked.
Utility Watch have been involved with numerous government bodies advising on options for change, particularly in the field on telecommunications. As discussed below, the key area is to get a solid base line of costing and rationalisation of billing before entering into any discussions on best deal for less options.
Prior to entering into any contracts it is important to set a base line of cost, usage and variables in order to make an educated decision on the way forward. Take into account medium to long term strategies and the procurement process becomes more than a little complex which in turn takes up valuable time and resource. Without employing experts in every field the risk of entering into a contract which does not give the flexibility required is increased.
Utility Watchs solution has been manufactured to fit this shortcoming. We set the base line, research market pricing, deliver the report and leave the decision with the client. Once a supplier has been chosen the account is managed by dedicated staff. The cost of this service is borne by the supplier as the cost of sale and account management is removed from the pricing equation. Giving the client the best of both worlds best price matched with ongoing unbiased account management.
Case study
Utility Watch approached a government body early 2007 to offer services on their telecom supplies. The client had regionalised control over their services and had predominantly chosen to remain with the UK incumbent supplier. After initial investigation it came to light that, though the supplier offered very competitive pricing in the main, they were not proactively managing individual accounts. This led to many sites having additional services that were not utilised, either through technological advances, staffing, temporary equipment not removed from accounts, to name a few.
The opportunity was taken to the market place and generated great interest from suppliers, all of whom were offered the option of tendering for the business on an area by area basis. This allowed each area of the client to get the best possible deal based on the volume of the entire client sites. Suppliers could not dictate volume based reductions, for fear of losing the opportunity; thereby a level playing field was achieved.
Breaking down data
Utility Watch produced a report breaking down each phone line by type, contract period, amount of traffic and location. This report itself has since been utilised to rationalise billing and connectivity requirements. Three tenders were submitted along with the report detailing call and line savings both with the incumbent supplier and two others, the client areas were then left to make their own decisions.
Once the area selected their supplier Utility Watch managed the transition ensuring a slick migration, keeping all parties informed of progress. This being the commencement of the ongoing independent account management, producing regular reviews of supplier performance measured against market status.
The client has since placed over 50 per cent of their telecoms service using Utility Watchs service saving over £1.2million to date.
Utility Watch is a trading name of Utility Switch Ltd a company registered in England Reg No 5951182.
For more information Contact Utility Watch:
Web: www.utilitywatch.co.uk
Tel: 0800 652 5100
Fax: 0800 4715109