Putting to one side the devastating humanitarian impact of Covid on the health and social care sector, the pandemic is also putting operator’s under real financial pressure. The sector is already under-funded and residential care providers are now experiencing reduced revenue due to a drop in occupancy rates. And soon we will start to see the impact of Brexit based on the UK change from EU to WTO laws. As suppliers rearrange their supply chains and work out the implications, it may take them time to assess the inevitable increase in costs and how much they pass on to the customer. But it will be coming.
EU legislation will also restrict the availability of temporary workers and this will only serve to exacerbate the recruitment difficulties many providers have experienced in the past. And in time this will inevitably lead to higher recruitment and temporary labour costs in 2021.
Marr Procurement is the UK’s health and social care procurement specialist and has sourced over £1bn of goods and services for 43 health and care groups across the UK, helping them to cut costs. This article briefly summarises some of the causes of supply side inflation facing the sector and how operators might go about cutting costs.
Where is inflation likely to impact your organisation?
We recommend prioritising the areas of spend most likely to yield greatest inflationary pressures and then create a simple supply-side plan, specific to each area of spend. (We have assumed ‘permanent/employed labour costs’ would be out of scope.)
- Category Specific Inflation Drivers: Food, Temporary Labour Agencies, Energy, Insurance and PPE are already seeing inflation; coupled with additional taxes, rises in market prices/raw materials.
- PPE: while prices have come down, compare the cost of a Type2R mask and a box of Nitrile Gloves in Jan 2020, (ie. pre Covid), v’s Jan 2021. We assessed ten care groups and PPE prices are still too high, with no justification.
- Increase in international freight costs: Checks on borders, safety checks, customs declarations and COVID-19 testing will drive inflation. Some suppliers have seen Far East container prices move from c£2,000 per container to £15,000 caused by the macroeconomic slow down, again, leading to legitimate inflation.
Once you have determined the areas of spend most likely to yield inflation, create a supply-side plan for each to cut costs. We recommend only addressing two or three spend areas so that your cost cutting plan is focused.
- Supplier engagement: engage with suppliers of key spend areas driving inflation, eg Food, Temporary Labour Agencies, Energy, Insurance and PPE. Scrutinise spend information, invoices and supply agreements. Engage your suppliers to understand and challenge inflation. Good suppliers tend to be supportive of collaborative engagement. Check your suppliers have passed on promised discounts. Explore switching products, renegotiating existing contracts, leveraging spend by consolidating suppliers and fixing prices via new short-term contracts. Run a competitive process fairly, to compete complacent and expensive suppliers. Remove suppliers which profiteered from your organisation during the pandemic and reward suppliers that supported you; having a great ‘values-fit’ is critical to securing a true supply partnership. Treating suppliers harshly rarely works; collaboration and transparency does.
- Get help: appoint Marr Procurement, the UK’s Health & Social Care procurement specialist to support you with a focused cost reduction programme that takes cost out and keeps cost out.
Christoph Marr
Managing Director
Marr Procurement
christoph.marr@marrprocurement.com