2 days ago
- Business
- The Herald Scotland
How Scotland Excel strives for excellence in prudent procurement
It aims to help local councils source whatever they need to deliver high-quality services within their communities, and it focuses on delivering a range of benefits through its procurement services and carefully designed contracts. These benefits include community benefits, climate mitigation and supply chain risk mitigation.
Carr explains that councils face a variety of supply chain risks. These can include local issues with potential suppliers' non-compliance with environmental policies to geopolitical instability with, for example, the war in Ukraine.
Simply trying to ensure that, given current budgetary constraints, councils maximise the value they get for every pound they spend, is a challenge in its own right.
One of the biggest problems faced by councils today concerns dealing with both escalating labour costs and the difficulty of finding appropriately skilled staff in the first place.
'Our portfolio of contracts stretches from the provision of school meals and school materials to new-build housing and the care sector,' Carr says.
'About two-thirds of the value of what we do is service-related, and the rest is goods-related. With council service contracts, labour costs are a huge consideration. The social care sector for example amounts to around 45 percent of all the procurement activity Scotland Excel manages. And within social care, staffing costs amount to 75% of the total contract costs. So, this is a huge area for us.'
(Image: Scotland Excel's Head of Strategic Procurement Hugh Carr)
Carr points out that there are a whole host of challenges associated with staffing costs, and Scotland Excel works hard to mitigate these challenges and provide solutions. Brexit, he points out, greatly exacerbated staffing problems in Scotland's care sector. A lot of European nationals returned home and that created all kinds of pressure in filling vacancies. More recently, the increases in National Insurance contribution costs have exacerbated the problem. Trying to contain staffing costs while facilitating value-for-money procurement has become a significant challenge.
Similarly, in the construction sector, labour costs can easily amount to 50% of the budget, with councils facing the risk of cost overruns.
'What we look to do here at Scotland Excel is to give councils certainty as to the costs they are going to incur, allowing them to plan the staffing levels that they are going to need to fulfil the services they deliver,' Carr explains.
Because Scotland Excel works across 32 local authorities, its team of procurement specialists have a very good idea of what the labour component is likely to be on any particular council service offering. 'In this way, we can enhance and sharpen a council's understanding of labour demands in any area.
'Our market research can give a good degree of certainty as to what the labour costs are likely to be in that service area, be it health care or construction. Obviously, with the difficulties in today's post-Brexit labour market, it is important to drive cost controls and diminish the risks of budget overruns,' he comments.
Also, by focusing on market indices, Carr's team can adjust its analysis of past labour trends to show what is likely to happen going forward. There is never 100% certainty, he points out. As always, when using historical data to predict future trends, there is a risk that unexpected events, be they driven by market events or geo-political risks, will impact predictability. But this approach goes a long way to de-risking estimates of labour costs.
'If we can support councils by predicting what is likely to happen, they can adjust their buying patterns to fit with what the market is likely to be doing,'
he says.
Managing inflation risk is another case in point. 'Two years ago, inflation was at its peak, with food inflation running at 17%. This is very disruptive for councils who have to cater for around one and a half million school meals every week. With predictive analysis, we can show which foodstuffs are likely to increase the most in any period. Pre-planning food purchases and adjusting school meal recipes accordingly can have a very significant impact,' he notes.
Right now, food price increases are running at around 4% and are increasing, so this is an area that Scotland Excel is watching closely.
Inflation has also played havoc with the construction sector. 'Materials supply is much more stable now than it was two years ago. However, this is a sector that can be rapidly impacted by events,' he notes.
If anything leads to a widespread delay in building projects being started, it means that the builders' merchants sit with a lot of stock on their shelves. Building materials manufacturers in turn cut back on their production and prices start to move about.
Carr points out that this is one of a number of areas where AI tools are likely to be able to add considerable clarity in the near term. 'We are not quite there yet, but AI is known to be very good at taking a whole host of factors into account when doing predictive analysis. It can really improve on human modelling, so we are monitoring developments in this area.'
He says Scotland Excel helps councils to understand the likely impact demographic changes in their areas will have on demand across a range of services. This is particularly impactful in the care sector and in council efforts to generate a sustainable care programme across all areas of the country, including the less densely populated regions.
