PolicyHalf of English council spending goes to a handful of suppliers, risking another Carillion-sized failure

Half of English council spending goes to a handful of suppliers, risking another Carillion-sized failure

Despite one in five councils disclosing previous work with Carillion, further cuts to supplier diversity are planned in the next year.

A new Freedom of Information request has revealed that councils spend an average of £52.5m on their top five suppliers in the last 12 months, equating to 55% of their total spend.

These FOI requests, made by Ivalua, the Procurement empowerment platform, also revealed that more than half of the spend was concentrated on a handful of suppliers, meaning the failure of just one could present a serious risk for many councils, possibly bringing critical public services or infrastructure projects to a halt.

This demonstrates  that councils have failed to learn from the collapse of the infrastructure giant Carillion, which was used by 22% of councils. This should act as a warning, highlighting 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.

Alex Saric, smart procurement expert at Ivalua has warned: “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.” He went on to state that: “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, 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.

Saric also commented on this consolidation, stating that it makes sense up to a certain point: “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. 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.”

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