The (not so) hidden costs of squeezing our suppliers
“Efficient maximisation of market opportunities”
“Outsource and save”
Regardless of how you describe it local government is looking at any possible way of saving money it can and with over 50% of many councils budgets coming from ‘goods and services’ it makes sense to try and ‘squeeze’ our suppliers as much as we can. Indeed, in my local authority the trade unions have taken their mantra to be that no job cuts or pay cuts should be implemented until management have demonstrated that they have hit our suppliers as hard as is possible.
The Government have also been in on the act with pronouncements covering ‘procurement’ savings that could save savings of £450 per household.
So far so sensible. If we can save money by squeezing the private (and third) sector to deliver our services more efficiently then why shouldn’t we? Indeed, one could argue that to not do so is severely irresponsible.
However, as so often with pronouncements from Eric Pickles and my local Trade Union the actual detail is a lot more complex than either would let on.
As the BBC reported a few weeks ago ():
Councils are “living in a parallel universe” by cutting the rates they pay for care home places but expecting the same service, industry leaders say.
The English Community Care Association, which represents charities and care firms, said the “appalling” behaviour was pushing some to the brink.
I’ll take the above with a pinch of salt but care homes are a pretty low margin business and yet local authorities are being forced to ask them to take quite big funding hits whilst still delivering the same service. Can they handle this by simply reducing their profit margin? Possibly but the risk is there that as we ‘squeeze’ our supplier we are also running the risk of squeezing the resident who is dependent on the service we are paying for.
Similarly, I met a colleague in another authority who was talking about procurement savings he had achieved on behalf of his authority. To be honest the savings were impressive but there was one that really stuck out to me; a huge saving in the amount paid to the companies who provided community care to local residents. The council had reduced the hourly rate paid by something like £5 per hour. This was delivering them a massive saving (over £1 million I think) which would make a huge difference to the bottom line.
However, (being a softy) I left thinking that the people who would be dealing with that ‘saving’ were the staff who work for these care companies. The businesses don’t really have any costs which aren’t staff so any cut to what we pay them will filter through in reduced wages.
The unions might want to consider this when pushing so hard for procurement savings. Yes, we protect the council staff and still save money but don’t we then just damage the conditions of other staff? Likewise, if we are paying a lot less does this not have a detrimental effect on the quality of the staff doing the work? It’s not my area and I really don’t know but it does seem like a risk.
There are doubtless many other examples of this type of procurement saving. In some cases a good procurement will reduce costs and allow the same service to be delivered but whilst we should be sharing the pain with our suppliers let us not fall into the trap of believing that every procurement saving is without an integral cut to the service provided to our residents or the people who serve them.
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