The 6 trends affecting risk management that you must consider – the rise of procurement

The professionalisation of procurement, particularly within larger organisations, and the ability of procurement departments to drive greater influence over decision making, is a clear trend we’ve seen over recent decades.

 

Of course, there are many areas of business where having a hard-nosed procurement professional beating a supplier over the head on price is very effective and certainly justified. However, when it comes to maintaining buildings and workplaces in the cleanest and safest condition, this may be dangerous.

 

The cleaning industry is so competitive that you can always find a prospective supplier that will be willing to do the work cheaper. But the only way to feasibly achieve a lower price is by cutting aspects of service levels or outcomes. For example, I have seen regional managers who, five years ago might have had 30 sites now overseeing 100 sites. So, the cost-focused, procurement-lead process has led to that middle management layer being cut out. The impact is a fall in service levels which affects cleanliness standards and / or safety.

 

We’ve also seen a huge number of examples of hours being cuts from contracts. Let’s take a train station, which might have four operatives for six hours a night. “Well”, someone might say, “why can’t we cut that to three operatives for six hours a night or indeed three operatives for five hours a night because it’s “just cleaning”?” What this does is puts further margin pressure on contractors, corners therefore, get cut one way or another and outcomes are diminished.

 

 

Floor cleaning and safety maintenance is a science. If you want to clean a floor correctly and effectively to keep it clean and safe then you need the right combination of:

  • Frequency: how often are you cleaning that floor?
  • Time: how many hours or minutes are being given to the particular task bearing in mind the size of the area to be cleaned?
  • Method: including…
    • Mechanical versus manual
    • Agitation and rinsing versus mopping
    • Which type of brush, pad or mop is used
    • The type of equipment you’re using between let’s say a cylindrical headed scrubber drier or a rotary headed scrubber drier
    • Whether or not you’re using a chemical and if so, whether the dilution rates was correct
    • The level of training and support given to the staff
    • The level of monitoring undertaken

 

By cutting prices consistently, aspects of this system are inevitably going to worsen and therefore the outcomes achieved will not remain the same.

 

In the context of an accident costing perhaps £120,000 to a company, the fact that cleaning is a fantastic control measure in almost every case to mitigate the risk of a slip accident means that if you can prevent one accident (therefore save £120k) instead of cutting out one cleaning operative (costing you c.£25k a year), then you’re making a significantly higher profit.

 

 

But are procurement departments incentivised to make this kind of holistic savings?

 

These types of analysis are often not undertaken, partly because of the process but also because larger organisations in particular tend to work in silos. So the budget holder for cleaning might not necessarily speak to the budget holder for construction or the budget holder for facilities management for the budget holder for risk management. The overall cash flowing out to the business from the perspective of slips could be huge yet the person who is potentially the first line of defence against this, the person that’s looking after the cleaning, may not be aware of it. Indeed that person might be under pressure to cut day-to-day spending on their budget, irrespective of the fact that actually there could be evidence to suggest that an increase in budget would be much better financially for their business. Overall, there’s a lack of joined up thinking.

 

 

I would encourage you to do this analysis for your own business. Look at which accidents and claims are costing you the most (remembering to include all the “hidden”, non-insured costs); then look at what your defence mechanisms against these issues are and see what could be done to increase mitigation. Build a business case to invest in accident and claims prevention.

If you are the person responsible for safety and risk in your business it is incumbent upon you to bring the different functions of your company together to share this information, calculate the true costs and build the business case to improve. Procurement can, then, have the  right goal in mind – not just saving day-to-day opex which then cost money elsewhere, but achieving a higher net profit for the business overall.

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