Strategic Procurement is Key to a Resource Management Step Change
This month I spoke to FMJ magazine about how businesses that are serious about finding cost effective ways to significantly improve, and leverage the associated commercial and environmental opportunity, must start by looking at their procurement processes – and be prepared to tear up what has gone before.
All too often it seems like there is a big disconnect between the way we talk about managing our waste and how we go about procuring the services to actually manage it. There is a rising swell of marketing and media noise about waste not being something we just look to throw away. Instead we now all regard it as a valuable secondary resource that we should look to integrate within more sustainable supply chains for the future.
My experience of procurement for waste and recycling services is that it often does not reflect the stated aspiration to better manage resources. There certainly hasn’t been the same level of innovation in the procurement of waste and recycling services that is evident with other ‘higher profile’ services. Perhaps this is because waste isn’t perceived as sexy or maybe it is just too low on the list of priorities. We still see tender processes driven by pricing waste in the most unimaginative ways, which is predominantly based on the price per bin per lift. Yes we see other commentary in the procurement documentation relating to an aspiration to embrace innovation and be more ‘circular’. But the reality is, when it comes to evaluating the service providers’ solutions, cost is still king. To limit opportunity further, cost is usually measured in one dimension which is the price per service and rarely acknowledges the benefit of cost avoidance or almost never measures the cost of not changing at all.
There are two important points to make at this stage. Firstly, I do believe that this is always the intended objective. Procurement teams are accustomed to buying services in a particular way and will (understandably so when they lack specific specialist sector expertise) tend to edit and develop the brief from the previous time they went to market. Secondly I am not an idealistic tree hugger; I recognise that we are talking about a commercial environment, where businesses are operating to tight margins and costs are under constant pressure and scrutiny.
One of the main challenges we face is that there is very little middle ground when it comes to how ‘waste’ material is viewed. It is either seen as rubbish, which must be disposed of as cheaply as possible or as a resource for which as much money as possible must be obtained. There are however other important and valuable variables to be considered with regard to the way we manage our resources. These are all too frequently marginalised or overlooked completely through the one-dimensional ‘digital’ procurement lens.
Take for example Marks & Spencer’s Plan A. This is probably the best-known example of a business having realised that their environmental credentials can be a very powerful way to help differentiate and build their brand. The company’s management team had the foresight to develop a set of challenging targets and then use these to drive the development of new and innovative ways to manage the waste they produced.
Ultimately, we need to take a more holistic view of how we manage resources and encourage contracts that support the development of genuine partnerships between producers and their supply chains and service providers. We also need to find mechanisms that support the introduction of innovation, which are capable of delivering substantially lower costs over the lifetime of the contract. Still further, if we can avoid material ever going into a bin then perhaps it will never become ‘waste’ and by default we’ll view and manage it in a far more positive fashion.
So is there an opportunity to change for the better? I certainly believe that in many cases, if we were prepared to tear up our existing waste and recycling procurement plans and start again then we would be able to realise significantly improved environmental and commercial benefits. An important element of this is to encourage unilateral engagement across the business as part of a holistic procurement process. Adopting an approach that is inclusive of Purchasing, Operations, Marketing, Finance together with those that have environmental responsibility will help ensure that all stakeholders’ objectives are met. It will also help to avoid one of the key pitfalls associated with implementing a new system where key stakeholders have not been consulted and business ‘buy-in’ has either not been sought or attained. This results in Facilities, Operations, Logistics or another intrinsic function resisting or even worse, working to undermine the solution because they resent having something imposed upon them, especially when it impacts their day job and they cannot see the wider business benefit.
Consolidation is one of the most dangerous words you can hear when discussing the development and implementation of a new waste and recycling system. It is understandable that a number of moving parts in the external environment can seem to present a challenge that is simply too big to face up to. Consolidation to a single Super FM provider in this instance can seem like an obvious and simple solution. On the face of it the ability to work with a single FM provider, capable of providing all the services required by a customer, is a pretty compelling thought. The customer should benefit from a ‘single point of contact’ and the bundling of services gives the service provider the scale that they need to leverage improved cost control.
So why not try and source one provider with responsibility for compliance and cost control across the whole piece? This approach is not without risk and the drive for a low price – high volume service can severely limit the quality and capability of services that customers are receiving. The “jack of all trades, master of none” approach can dilute the innovation, personalisation and specific expertise needed to radically improve performance. Quite simply no business can confidently offer a market leading service across all FM disciplines. In addition a solution driven purely by cost will never be a solution designed to foster creativity and deliver innovation. Yes it will work, yes it will probably represent what appears to be decent value, but it will never be the optimum solution for the customer.
Knowledge is also often a potential barrier to the procurement of a more innovative and efficient waste and resource management systems. Very few companies have detailed in-house procurement knowledge of the sector. This, when coupled with the lack of obvious differentiating factors, results in the ubiquitous price based decision. Whilst it is obviously not practical for every business to have waste and recycling ‘experts’ in their procurement team there are things that we can do to help improve awareness and understanding. This might involve inviting the appropriate people to attend approved courses like the CIWM’s Foundation or Advanced level certificates. By seeking specialist advise, procurement professionals can understand how and why waste should be managed efficiently, offer advice and guidance on how this can reduce costs and aid regulatory compliance and ultimately help empower them to understand the options available for their business and make better decisions. There is also the potential for businesses to work with ‘experts’ and consultants in the field to help devise a waste and resource management strategy. This can be undertaken as a cross business exercise. Once this is complete the procurement team can transpose this in to a brief, which they can take to market.
There is also an argument that we often focus our attention on the front-end of the process and produce a very prescriptive ‘input’ specification. This is perhaps reasonable if you have an excellent end-to-end understanding of the waste management sector. If this is not the case, then all this really does is limit the potential of the system you put in place. Instead, businesses would be better advised to focus on the output or outcomes that they are aspiring to and see what the experts can do to help them meet these objectives. Of course this may result in some work needing to be done to identify the right group of suppliers to talk to (not just the biggest or the ones with the biggest marketing budgets) but by being clear on what you want it will help (and in some cases force) suppliers to innovate and create systems capable of meeting these needs. One thing it will certainly do is to help businesses avoid ending up with a system that is more designed to meet the capability and capacity of the service provider than the customer themselves.
Finally, and this is a really important point, it is important to make sure that you “buy to a strategy not just a deadline”. The reality is that most businesses review their service (and go out to market) solely because their current contract has run its term. The result is a reactive or at best tactical purchase. It is far more effective to go to the market both when you have time on your side and with the objective to secure a clearly defined skill set or service, which will help your business progress towards a clear set of goals set out in a bespoke waste and recycling strategic plan.
So to conclude I genuinely believe that businesses that are prepared to disregard what has gone before and adopt an openness to change can enjoy a new way of working. They will benefit from a service aligned to their business objectives, optimised for the materials they produce and the processes they employ. This willingness to change, coupled with a focus on the desired outputs, will facilitate a radical change in the way we manage resources and has the potential to unlock a host of commercial, reputational and environmental benefits. To enable this to happen however we will need to adopt a more positive mindset that engages procurement as an agent for integrating cross functional change and not as a one dimensional price review mechanism.