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Half of English council spending goes to a handful of suppliers, putting public services at risk of another Carillion-sized failure
Freedom of Information (FOI) requests to English councils undertaken by Ivalua, a global leader in spend management, has revealed that an average of £52.5 million has been spent by councils on their top five suppliers in the last 12 months. This equated to 55% of their total spend. With more than half of spend concentrated on a handful of suppliers, the failure of just one could present a major risk for many councils, possibly bringing critical public services or infrastructure projects to a halt.
Given that 22% of councils worked with Carillion, the findings expose a potential failure to apply learnings from the collapse of the infrastructure giant. This warning highlights the need for the public sector to follow best practises set in the private sector, where it’s common to have two or three suppliers for goods and services, rather than a single provider, reducing exposure to failure and improving the ability to mitigate the impact of unexpected supply disruptions.
“The data suggests that, while there are notable exceptions, too many councils are not considering a change their approach to supplier management, continuing to concentrate spend with just a handful of strategic partners,” warned Alex Saric, smart procurement expert at Ivalua. “The failure of Carillion exposed the risks of a cost-dominated approach to procurement, as well as the risks of relying on a handful of large suppliers. If there’s one thing Carillion can show it’s that bigger is not always better when it comes to supply chain risk. The findings published by the Public Administration and Constitutional Affairs Committee showed the need for a more measured approach to supplier management that balances cost savings along with other objectives, including mitigating risk. Focusing on supplier diversity and innovation will encourage sustainable cost savings that are driven by the supplier rather than the buyer.”
The data also detailed the savings made through council procurement departments in the last 12 months. Councils who responded to the FOI request said they saved an average of £1.74 million through procurement during this time.
In addition, councils have, on average, been consolidating suppliers over the last three years. Since 2015, the average number of suppliers has dropped by 12%. Despite the calls for diversity this decline is set to continue, with 21% of councils looking to reduce suppliers in the next 12 months. Less than 16% plan to keep supplier levels the same and just one council is planning an increase.
“A level of supplier consolidation makes sense. Consolidating spend in specific categories with a handful of suppliers supports volume-based discounts and the ability to better monitor supplier performance and strengthen relationships,” explains Alex Saric. “However, it’s clear that many councils have a dangerous dependence on a handful of strategic suppliers, increasing the risk of being left in limbo and scrambling to backfill contracts and onboard new suppliers. Smart procurement technology can play a key role in avoiding future failures by regularly assessing and monitoring supplier performance and health, ensuring alternate sources of supply are in place. This will help councils maximise long-term value for their constituents.”
Methodology: These findings are the result of an FOI request, submitted to 161 English councils, of which 141 replied, by Ivalua in June 2018, and collected in August 2018. The percentages are based on the total number of respondents rather than the overall number of councils requested. The councils asked were:
- 27 County councils (with 24 whole or partial responses)
- 54 Unitary authorities (with 45 whole or partial responses)
- 32 London boroughs (with 30 whole or partial responses)
- 36 Metropolitan districts (with 31 whole or partial responses)
- 11 District councils (with 11 whole or partial responses)
- The City of London Corporation (with 0 whole or partial responses)
Ivalua is the Procurement empowerment platform. Recognised as a Leader by Gartner and other analysts, Ivalua’s Source-to-Pay suite is leveraged by over 250 leading companies across the globe to manage over $500 Billion in direct and indirect spend. The platform’s combination of ease-of-use, depth, breadth and flexibility ensures high employee and supplier adoption, rapid time to value and the ability to meet unique or evolving requirements, evidenced by the industry’s leading 98%+ retention rate. Realise the possibilities at www.ivalua.com. Follow us at @Ivalua.