Procurement for housing: you ask the questions

Q. Would rationalisation of procurement within Harvest Housing Group alone have achieved the same savings as expected through Procurement for Housing?

A. Categorically not. Through PFH, Harvest has been able to achieve greater savings because we are part of a much larger consortium. However efficient you are, you will always get a better discount the more you buy.

Bulk purchasing is the principle on which a lot of private companies work. For example, supermarkets have a history of collective procurement in areas where they are not in competition, such as purchasing building materials. And the more people that are members of PFH, the greater the saving will be because we will be able to renegotiate deals with contractors.

Q. What were the main obstacles for Harvest in bringing the benefits of PFH's work to fruition?

A. One of the biggest obstacles was PFH's initial requirement for us to provide details about our purchasing history. This was quite difficult to extract from our systems, because we lacked good-quality information about who had purchased how much and where. We couldn't say, for example, "We spent £20,000 last year on ballpoint pens."

There were some significant problems in the bulk purchasing of electricity. The deregulation of the electricity industry and the billing chaos that followed meant we had been inaccurately invoiced for our energy use. So our supplier's billing systems were not running very well and we could not check whether we had received invoices for each quarter.

We didn't have scheme-by-scheme detailed records of what was spent in a year on electricity in our sheltered housing schemes. Initially, we went into PFH with a budget scheme where monthly payments were based on the previous year's consumption.

This would have been fine if we had been accurately billed in the previous year – which we had not. We had only received two invoices in a year. It was very useful to have to check all this because we also discovered we were being billed for a couple of meters outside our properties.

Q. How did you obtain the support of your specifying officers to "common rail" product selection?

A. PFH has cross-sector product user groups that were responsible for specifying quality and design features of products and then securing the best price to achieve an agreed standard.

But there was some initial reluctance by individual members of staff responsible for some aspects of purchasing to change from suppliers with whom they had developed good relationships. Every time you move into a new product area there is a chance of some resistance because staff have been through the process of finding the best product they can so they're generally a bit suspicious.

They thought they had seen it all before and the initial savings would soon disappear once business had been acquired. But we had to sell the benefits of the scheme to them, such as the reduction in time spent processing invoices, the ease of use – which meant they didn't have to negotiate individual contracts any more – and the cost savings this could bring.

Q. How has Harvest managed to incorporate the day-to-day processing of some of these contracts for commodities into its existing purchasing system? Do you currently support an electronic purchasing system?

A. We use an electronic purchasing system for office supplies and stationery. This is very simply done by placing a coded order through the website of the approved supplier. Each of our cost centres has a number of sub-accounts with their own code and this enables us to identify in some detail where we are incurring expenditure.

Q. How are residents involved in the selection of products and contractors, and how do you expect their feedback to influence the progress of the procurement club over time?

A. Resident involvement does not apply to the sorts of materials PFH has been involved in procuring, such as office stationery, phone lines or electricity.

Q. What percentage or cash gains did you make from taking part in PFH?

A. We reduced the unit cost of electricity by 26%, our stationery costs by 20% and landline call charges by 50%.

Q. How did your existing suppliers and contractors react to you joining PFH?

A. In some cases by offering to provide services at cheaper rates; in others with disappointment. However, regular tendering for suppliers and contractors has been a feature of housing association business and accepted as such by existing suppliers. Being a member of PFH does not commit us to buying all their product ranges.

For example, we continue to buy print through our existing supplier because this was tendered very recently, we are getting good value for money and at present it suits us to have some continuity of supply. However, we will compare our existing arrangements with the PFH product when we review them next year.

Q. What non-financial benefits did you gain by taking part in the scheme?

A. Because we were seeking to compare costs year-on-year we were forced to establish systems that enabled us to identify precisely what we spent and where. As well as significant decreases in the cost per unit of electricity used, we have benefited from greatly improved management information, which enabled us to identify exceptional patterns of use.

We have a much better idea of what we are spending and we are able to compare the costs of different schemes and see whether there are reasons for big differences, or if it is just waste.

We have also reduced our administration as a result of central billing, which consolidates payments. Like many housing organisations, no single person at Harvest had responsibility for procurement before.

A number of different people were responsible for buying different things in different offices. This led to considerable duplication and also to uncompetitive prices.

The PFH deal allows designated members of staff to order office supplies over the internet and they will arrive the next day, no matter where the office is. PFH also provides good networking opportunities for staff.

Q. How did you choose suitable team members?

A. Staff were selected on a mix of their job role and their enthusiasm for the project. In Harvest's case, myself and Liz Cross, the executive director for business and service development, were involved in promoting the scheme, a member of our IT staff was the chair of the telephony product group and our group services manager was heavily involved in setting up the electricity purchasing scheme. But members can have as much or as little involvement as they like.

Q. How would you deal with high-quality, cost-effective suppliers who refuse to participate in the payment collection process or who refuse to deal with certain members due to poor credit references or past experience?

A. This does not happen as the attraction of PFH for suppliers is that they are paid by the contractor, Collective Enterprises, on behalf of all participants. Participating associations pay Collective Enterprises by variable direct debit.

Q. Are there any areas where collaboration between RSLs might cause conflicts of interest and is there any risk that collaboration between RSLs could be seen as collusion and anti-competitive?

A. I can't think of an example where collusion or conflict of interest might occur. The aim of collective procurement is to secure the most competitive price possible by purchasing goods we all use in bulk.

The initial process of supplier selection is based on competitive tender. The process is open and transparent and once quality standards have been established and agreed by the product groups, it is open to any supplier/contractor that meets the standards to submit a tender.

The benefits of doing this enable us to release resources for investment in our neighbourhoods.