Materials Management ‘Stores Outsourcing’ Tuesday 27 th January 2009 Shaun Aldis Director of Property Services Repair

1. Materials Management ‘Stores Outsourcing’ Tuesday 27th January 2009 Shaun Aldis Director of Property Services Repair and Maintenance in the 21st Century

2. Historical Context • Wolverhampton Homes:- A.L.M.O. established in October 2005. • Large unionised multi-disciplined in-house DLO – approx 300+ operatives – gas/ electrical/ asbestos/ voids/ response repairs/ programmed/ special projects. • Cultural Change • Internal and External Pressures regarding VFM

3. The Scope of the ReviewThe scope looked at:- • How the service was currently provided • The size and scale of the existing operation • Need to meet future vision & core business decisions • How the service needed to change and provide support to a 2/3 star organisation • The quality and capacity of the existing service • ICT implications and major investment needs • Accommodation issues; rent/ site redevelopment • Value for money and efficiency issues • Comparison exercise; what do others do & why? • And more importantly what was best for Wolverhampton Homes

4. Background/ IntroductionPosition Statement The large ‘in-house’ stores operated with:- • High overheads (24-33%) • Turnover of approx £3.5m per annum • Unsustainable high staffing levels and associated costs relative to turnover (18+ staff) £194k turnover per operative • Unacceptable short term investment needs (ICT) • Poor stock control, wastage/damage and turnover • Unknown ‘leakage’ levels and poor audit controls • Operated with in–efficient transport and fleet • Unable to provide or demonstrate the potential to deliver a service capable of underpinning a 3 star housing organisation

5. Procurement Model and Options • Fundamental Service Review linked to Asset Management and Procurement Strategies • Detailed Options Appraisal :- Option 1 :- Retain the Current Service Option 2 :- Strategic Supply Partner (OJEU route) Option 3 :- Office of Government Commerce (OGC Framework) Option 4 :- Procurement for Housing (pfh)

6. Option 1:- Retain Current Service • The level of investment need • The size and scale of the existing stores to meet our future core business – ‘speed of change’ • Development and regeneration of the Hickman Avenue site (registered head office) • Risk management issues: on-costs affects the viability of other ‘in-house’ service sections • Outdated and inefficient working practices and procedures (double handling and in some instances treble!) • Audit, tracking and process system weaknesses

7. Option 2:-Single Strategic Supply Partner (i) • Wolverhampton Homes level of spend would attract OJEU notice • Robust test and explore the external market • Through its cost/ quality model the best solution for Wolverhampton Homes business objectives would be sought and obtained. • It would embrace new technology • It would provide an integral material delivery and fleet solution – smarter working. • Partners with specialist Market place experience

8. Option 2:-Single Strategic Supply Partner (ii) • Service providers can provide new innovative solutions tailored to Wolverhampton Homes specific service needs • It would provide shared incentive schemes and annual efficiency statements • A long term partnership agreement could be developed • The appointment and evaluation process would involve representatives from a range of all stakeholders :- Unions/ Customers/ Board members

9. Option 3:-Office of Government Commerce • Provides the opportunity to adopt a national ‘buying solution’ • It offers public sector organisations flexibility to buy discounted prices. • Limited time period • It would restrict Wolverhampton Homes to two specific suppliers:- excluding local company – potentially unique situation

10. Option 4:-Procurement for Housing (i) • Procurement for Housing is a national purchasing organisation for the social housing sector. • It uses its collective buying power to achieve the best possible supply terms. • The consortium was initially set up in 2004 • The purchasing route utilises purchasing cards (similar to a credit card) that are issued to operatives.

11. Option 4:-Procurement for Housing (ii) • Would involve more than one supplier • Aimed at relatively small housing organisations that manage a stock in the region of 1000 units • Suited to a dispersed stock over a large geographical area. • Potential lack of standardisation and sustainability of materials and goods • Does not lend itself to a ‘complete solution’ for example delivery of goods to site etc. • Requires additional supervision for audit purposes.

12. Partnership/ Contract Details • Type of Contract:- Term Partnering Contract (TPC 2005) • Contract period /term:- 5 years (+2 year option to extend) • Procurement Route:- Official Journal European Union (OJEU) Procurement/ Restricted Tender Process • Detailed Implementation Action Plan

13. Evaluation Model • Based upon 60% quality 40% cost • 4 key stages:- • 1. The Term Proposal (51%) • 2. Financial/ Tender Submission (40%) The Price Framework :- Extensive basket of specific materials (700+ items) • 3. Formal Presentation and Interview (5%) • 4. Reality Check and Site Visits (4%)

14. Challenges • Staffing:- HR/ employment relations/ TUPE/ REM and Union/ Staff Transfer Consultation • Cultural Change for ‘in-house service’ • Mobilisation Period and Risk Management • Operational Change -more disciplined • Identified poor historic operational in-efficiencies - previously ‘masked’ • Capturing of all service requirements- avoid surprises • Ambitious but realistic procurement timetable

15. Efficiencies • Reduction in low value and short term contracts (replaced approx 35) • Consolidated Invoicing ; financial management savings • Operating with reduced staff –( 40% reduction- turnover around £300k per operative) ) • ICT hand held technology- PDA’s (Northgate) • Operational efficiencies driven by KPI’s • Greater flexibility for innovation –material standardisation and rationalisation • Better control of materials for sub-contractor and partner organisations

16. Outputs (i) • Did not limit or restrict the market place • Avoids repetitive tendering high number of small value, short term supply contracts • It will demonstrate value for money, savings and efficiency gains • Overcomes the site/ accommodation/ staffing difficulties • Process savings through electronic purchasing and invoicing • Accommodates sustainability and standardisation • Centralised billing and single point of contact • One sole provider for consistency of service

17. Outputs (ii) • Avoids double handling and removes the dormant costs of stock, ‘leakage’ and write offs –reduces risk. • Accommodates a long term partnership agreement :- maximum 7 year period • Wolverhampton Homes does not specialise in materials management – conscious decision • Provides greater efficiencies and vfm gains for other ‘in-house services’ – more competitive • Increased purchasing power of the supplier • Help the existing workforce develop in an organisation that specialise in materials management

18. The Future • True Partnership Agreement • ‘Open Book Accounting’;- shared incentives • Value for Money- cost, quality and performance • Tenant and Staff discount schemes • Engaged new technology and Market Leader- National Company • Ability to benchmark nationally • Operational and Core Group Meetings • Annual Scrutiny Reviews

19. Endorsements/ Critiques • Audit Commission Inspection (Sept 2007):- “There has been a robust approach to the re-procurement of stores operation” “Procurement of an OJEU contract on a full partnering basis is ongoing and processes to develop this have been strong and involved tenants” • Trowers Hamlins Solicitors “ This is an innovative and forward thinking approach to the tendering of materials management” “ The tender documents are organised in order that, on selection of the Service Provider, all of the information will form part of the contract , it focuses on quality and innovation, open –book pricing and incentivisation”

20. Opportunity for Questions and Answers