When buying something, be it goods or a service, you want to know that you have got value for money with your purchase. If you are buying from a limited amount of suppliers, value can be hard to come by because control in more in the hands of the seller rather than buyer.
The passenger transport market is no different, so it would make sense to have more choice rather than less. If a large number of suppliers can all meet the minimum standards required to deliver an acceptable level of service, then why limit the size of your supply base? Isn’t a large supplier base going to help you achieve value?
Local Authorities remain under intense pressure to get best value for money from the public purse whilst their resources continue to shrink. But by doing what feels easiest for them, are they achieving their goals? Passenger Transport services is one of those categories of spend where there is a clash of ideologies. The easiest way for the public sector to procure passenger transport for their service users would be to set up a framework with a small number of suppliers on it capable of delivering the required services. I say this is the easiest, because it results in the authorities having to manage a small, select group of suppliers.
Small supply = large risk
However, this approach comes with a huge risk attached. One which authorities in London experienced as recently as 2014, when one of the capital’s largest passenger transport providers ceased trading. This caused disruption throughout London, with some local authorities having to find replacement suppliers to contract with as the defunct organisation had been delivering all of their passenger transport needs.
One affected authority, Waltham Forest, had to replace their sole-provider framework with another limited framework before switching in 2015 to operate a dynamic provider list, which has increased their supply base by over 200%
Councils are constantly at the mercy of their suppliers’ capacity within the passenger transport category. A lack of capacity raises many issues for the council, particularly if it means that they have to go off-contract to spot purchase a supplier to deliver a route. Has this supplier been through the same checks that the framework suppliers have? Is their safeguarding policy as robust? The provision of passenger transport is often done on an ad-hoc basis, where little or no time is available to undertake the same level of checks on new providers.
Except for the geographically large London boroughs, most have set up frameworks with a small number of suppliers and are exposing themselves to these risks.
Some authorities are starting to break the mould, however, and are growing the number of suppliers that they contract with in order to benefit from reduced risk and more choice. Using more suppliers is leading to more competition, improving the performance of the suppliers being awarded contracts, as they know that they cannot afford to become complacent when others are available to take their place.
Cornwall Council have increased their supply base by 40% and now receive an average of 4 offers in response to every new route they need to buy
The common concern at this point would be that more suppliers would mean more work and more management. Actually, by having more suppliers can make performance management easier if the right tools in place. By having a CRM system in place allows you manage you market more efficiently and lead to a process of collaboration where you can work with providers to address any shortfalls in supply. A fixed framework with fewer suppliers creates a dependence on each other which doesn’t help with an effective relationship.
Those authorities who are forward thinking are looking further than a one-off engagement process. Regardless of the size of your supplier base, any immediate benefits that are recognised are jeopardised if those suppliers are not engaged and managed on a regular basis, as well as being updated with changes, feedback and opportunities. In fact, lack of communication can result in a reduction in supplier value. As the below graph demonstrate, more time invested in your supplier base will drive more value.
Those councils who are moving to dynamic supply are seeing tangible benefits in increase quality, cost savings and diversity of supply. In addition, existing suppliers who were previously on council frameworks have been spurred to increase their quality, and offer fairer pricing in a bid to secure contracts in the face of increased competition. This means that these councils no longer have the feeling of doubt that they haven’t got best value for money from their new, larger supply base.
Haringey Council have increased their SEN transport providers by 120%. They are on course to save approximately £345,000 on like-for-like routes over the last two years.
So how do you create a dynamic supplier base?
First of all you need a facility that allows suppliers to join at any point in time. Many councils operate a fixed and restrictive framework, typically over a 4 year period. By moving to an open framework, supported by a simple technology, your supplier base becomes dynamic and constantly evolves with demand. Once you have your supplier base, you need to underpin the process with commissioning technology that engages all providers on every requirement you have to find the provider that offers the best combination of price and quality.
Less risk? A market competing on quality and price? And technology that allows you to manage more suppliers and give you and your staff more time?
Bigger is better.