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ERA - Market intelligence - June 2016

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In these uncertain times (who mentioned Brexit...) it is crucial to ensure that you're getting best value from all of your suppliers. Expense Reduction Analysts focuses on Procurement, helping our clients to get the best cost, quality and service possible from suppliers. Our quarterly newsletters highlight opportunities to reduce costs, and also highlight changes in the procurement environment.

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ERA - Market intelligence - June 2016

  1. 1. Issue No. 16.3Insight and market analysis to achieve better value from suppliers MARKET INTELLIGENCE ERA’s Fleet expertise benefits British Telecom’s Fleet operations BT Fleet, the specialist fleet management business of the BT Group, appointed ERA Fleet Cost Management to join their working group to review the internal BT management car fleet. The project included an in-depth review of the existing policies and processes involved in the provision of management grade company cars including manufacturers and pricing strategies. ERA Fleet Cost Management provided significant discount improvements across a wide range of manufacturers, together with a substantial increase in the operational efficiencies regarding the provision of the company car fleet. “ERA was engaged to assist the internal review of the company car fleet to reinvigorate the company car scheme and provide an improved defined benefit for our core management grade employees. Their interaction challenged existing practices and delivered substantial improvements in both costs and processes that have resulted in a much enhanced car scheme.” Duncan Webb, Commercial Director, BT Fleet “ERA’s interaction challenged existing practices and delivered substantial improvements in both costs and processes that have resulted in a much enhanced car scheme.” Duncan Webb, Commercial Director, BT Fleet For more information please visit: WWW.EXPENSE-REDUCTION.CO.UK
  2. 2. Frankly, an overcrowded, overcomplicated market place with few sellers - often with few scruples… Postage by Nick Clement Does your franking machine represent the best value for money for you company? Are you fully aware of all costs associated with running the machine? And when do you need to change the machine? When the suppliers say you should or when you want to? There are sound commercial reasons to use Royal Mail. The cost of sending a franked Second Class letter under 100 grams is 30% less expensive than using postage stamps and there is a further significant discount for using the relatively unknown Mailmark™ channel. There are also other intangible benefits to franking - such as speeding through the mailing system and the professional impression made by a (sometimes bespoke) franked image versus ordinary postage stamps. However, there are only four manufacturers in the market, with the top two supplying in excess of 70% of all machines purchased in the UK, therefore controlling price and supply. This market sector’s sales practices have often been called into question, starting sometime ago with an investigation by the Office of Fair Trading. The major criticisms have centred on a number of areas such as questionable sales tactics, the high cost of leasing, the “discouragement” to purchase, the high cost of maintenance with additional hidden charges like the costs of recharging the meter per top-up, and the cost of inks and labels. Industry figures indicate that the working life of a franking machine is in the region of ten years. This should be expected of such relatively technically simple machines that work, unless used in a mailing centre for only a few hours a day. The industry standard term for a lease/rental agreement is either 60 or 72 months dependent on the supplier. However, it is estimated that a machine financed in such a way will be upgraded by the supplier within three and a half years from the time of initial installation. The balance attributable to the old contract is then settled and rolled into the new contract, generally at a higher quarterly cost. This ‘rolled over’ figure can sometimes account for up to 50% of the total payments being made. It is estimated that purchasing outright represents approximately only 19% of machines licensed by Royal Mail. This figure is low when compared to other market sectors and can possibly be attributed to the influence from the two market leaders. All franking machines licensed in the UK are required to have a service contract in place and have to be inspected annually, as ‘one-off call-outs’ are generally not available. They also need to be maintained by Royal Mail approved technicians and the level of service differs very considerably. For example, if your machine breaks down will it be replaced, repaired on the spot or taken away to base? Will you have to pay for parts? Does it include telephone support? Quite often it is not clear whether the service contract includes the cost of postal updates. Sometimes, the Royal Mail updates their prices and services, which means your machine might need updating too. Service contracts typically range from 10% to 16% of the price of the machine per annum and the levels of cover being offered can be confusing. As with computer printers, the running cost of the equipment can look very modest at first but, when calculating the total cost of ownership including the cost of the relatively expensive consumable items such inks and labels, the whole financial picture can change. Confusion can arise if it is incorrectly assumed that they are included for the full working life of the machine when they are not. Despite stern warnings from the supplier not to use compatible goods (which tend to be around 40% less expensive) you may find they work just as well. The advice is clear. As the contracts for the supply and maintenance of franking machines are not as straight forward as they seem, a careful comparison of alternative options available is essential, with close attention to the terms and conditions being offered. A final word of caution: as with all contractual agreements make sure you fully understand what is being offered and always ensure that all negotiations are recorded in writing. Photo credit: Lolostock / Shutterstock.com However, there are only four manufacturers in the market, with the top two supplying in excess of 70% of all machines purchased in the UK, and, therefore, controlling price and supply. WWW.EXPENSE-REDUCTION.CO.UK WWW.EXPENSE-REDUCTION.CO.UK2 3 Market Intelligence Market IntelligenceIssue No. 16.3 Issue No. 16.3
  3. 3. Important for importers and exporters using Sea Freight services is the deadline for the introduction of regulations on the verification of packed container weight on 1 July, 2016. The amendments to the Safety of Life at Sea Convention (SOLAS) by the International Maritime Organisation (IMO) mean that from July packed containers will not be loaded without evidence that the gross weight has been verified. We may fear the image of vehicles lining up at the docks to be weighed at the weighbridge at the risk of not being loaded, but the regulations do provide for a number of weight verification methods to ensure compliance. However, estimating the weight will not be an option and as time is running out you do need to make sure that you have the requirements covered to ensure that your containers are not delayed as this change is introduced. More information can be found at www.worldshipping.org Have you simplified your import VAT payment? As an importer how often have you been caught out by the following situation? You are into your peak period management and a critical shipment has just arrived but is being held in customs because you have hit your deferment limit. A flurry of activity follows and perhaps with the support of your Freight Forwarder you have secured the release of your shipment but at the cost of time, effort, additional fees and delays to your inbound supply. For a number of years HMRC has been offering an effective way to avoid such inconvenience with ‘Simplified Import VAT Accounting’ or SIVA for short. When approval is in place the requirement to provide a bank guarantee for the value of VAT on your imports is waived and at 20% on value this will certainly be using up a significant part of your deferment limit. A guarantee needs to be maintained to cover your expected duty charges but the overall level will be much reduced. Of course, there is an application process as HMRC will check your financial history and track record with import Duty and VAT administration - but the benefits are dramatic. If you don’t have SIVA in place already then don’t delay your application any longer, as there may still be time to make arrangements before your busiest time of the year. All the background and application forms can be found at: https://www.gov.uk/government/publications/ notice-siva-1-simplified-import-vat-accounting New legislation on Container Weight Verification Logistics by Kevin O’Neill WWW.EXPENSE-REDUCTION.CO.UK4 Market Intelligence Issue No. 16.3
  4. 4. The burden of legislation affecting Waste & Recycling Waste & Recycling by Pete Bramhall In recent years, organisations have been saddled with an ever-increasing burden of legislation relating to waste and recycling - at the last count we had identified 76 pieces of legislation applicable either to the UK as a whole or within individual countries. Not to mention the 15 EU directives which drive much of this! Keeping up with new and amended legislation isn’t easy and the documentation available online often leans towards technical detail rather than practical advice. I have lost count of the number of clients who have told me that they just can’t keep track of it all! For organisations with a national scope, matters are further complicated by different regimes in force across the UK. For example, Scotland leads the way in relation to food waste recycling by requiring all businesses to segregate food from other wastes for separate collection. Initially the threshold was 50kg per week, but from 1st January 2016 this was reduced to 5kg, bringing many more businesses into scope. Across the UK, an increasing impact is also being felt from the Materials Recycling Facility Code of Practice. This governs facilities which sort mixed materials (e.g., card, paper, plastics, metal, glass) into separate sections for recycling and limits the amount of contaminants they are allowed to reject. Although this took effect in October 2014, it was a while before the impact was felt by waste producers. We are now seeing suppliers strictly limit the types of materials that can be disposed of in “Mixed Recycling” containers and enforce much tighter contamination rules. With it has come higher pricing too. Landfill tax increased on 1st April by £1.80 per tonne and in previous years the landfill tax escalator had usually led to a greater increase for General Waste services compared with Mixed Recycling. However, this year the situation is reversed and suppliers have been seeking increases of up to 9% on Mixed Recycling collections. On a more positive note, and in a rare reversal of the trend towards greater waste regulation, the rules relating to how businesses handle their hazardous wastes have been relaxed since 1st April. Up until now, any organisation generating more than 500kg of hazardous waste per annum in England needed to register with (and pay a fee to) the Environment Agency. As part of the Government’s drive to reduce red tape, this requirement has been removed. Mind you, regulations for hazardous waste still differ in Wales, Scotland and Northern Ireland. WWW.EXPENSE-REDUCTION.CO.UK5 Market Intelligence Issue No. 16.3
  5. 5. Payments Predictions Banking & Payments by the Payments Team Paul Davidson, Steve Whitlam and Paul Lucraft from our Payments Team see ‘change’ as the norm over the next two years. Change brings a range of challenges, opportunities and potential solutions which they discuss here. The next 18 months will see many new regulations, which will open up the market and enable more flexible solutions to be delivered from a wider range of providers. Flexibility can be a ‘double-edged’ sword though: • In mid-2016 the ‘honour all cards rule’ stops, so merchants can choose which types of Visa and MasterCard to accept. This implies signage showing cards accepted, and restricting card types risks lost sales. • Rules already allow multiple brands/types to appear on a single card (e.g. Visa debit and MasterCard credit). Soon, when such a card is presented, the merchant must allow the customer to choose which brand to use. That works fine generally, but consider contactless, especially on public transport as, quite aside from building in a delay (unacceptable to commuters) there is no screen or button to allow the consumer to make the choice. The regulators missed that! The goal is a Single European Payments Area (SEPA), enabling businesses and consumers to ‘pay’ across European borders as cost effectively as domestically. Many elements of SEPA will pass into law without member state revision, but many others will require adoption, making variations almost inevitable. Even for mandatory change national variations exist, with Visa Debit in the UK charged at 0.2% plus 1p (capped at 50p* per transaction) while in Eire debit transactions are capped at 0.1%. Both of these undermine the Pan-European consistency sought. SEPA - Opportunity for new solutions: Being positive, SEPA should make it easier for new entrants to emerge, by such methods as forcing the banks to open up their services to others. Whilst these may not become mainstream in 2016/17, when considering partners for any solution, it is essential that you look ahead at least 3 years to consider what will arrive. If in doubt, just consider the 255% growth in contactless payments experienced in 2015. We receive numerous requests to help merchants who have seen the success of the early adopters, such as John Lewis. Many retailers have developed their different sales channels in silos, finding one payment partner who can deliver well for e-commerce, another for telephone/mail-order and a further one for face-to-face. Today’s savvy consumer expects a seamless experience that systems incompatibility mitigates against. We would urge that payment solutions are actively included in planning any IT project at the earliest stage to achieve a cost effective omni-channel offering. Pricing Regulation SEPA Omni-Channel A key element of card payment suppliers’ costs, Interchange, reduced significantly for credit and many debit cards in 2015. Left unchallenged, we are seeing acquirers increase their profit margins whilst apparently decreasing their charges: 1. Some have introduced charges for non-secure transactions (which they keep) to ‘encourage merchants to follow security processes’ as the interchange incentives for doing so have largely been removed. 2. Data security fees etc. have spread, justified as passing on the cost of supporting merchants in achieving and maintaining PCI compliance. 3. The full benefits of personal card interchange costs are not being passed on in pricing reviews. 4. Caps on debit card charges are not being consistently and correctly applied. We are seeing real benefits for clients when we negotiate to improve proposals made. Care and attention to detail are needed to ensure that an improvement in headline rates really does feed through to the bottom line.     *Visa debit cost changes – from September ‘16 the Interchange on UK Visa debit will reduce to 0.2%, but the 50p per transaction cap will be removed. For transactions under approx. £245 this will reduce supplier costs, but higher value transactions could see costs soar (e.g. the cost of an insurance premiums of £500 would double). Payments suppliers are considering how to respond - we anticipate further margin growth. STOP PRESS WWW.EXPENSE-REDUCTION.CO.UK WWW.EXPENSE-REDUCTION.CO.UK6 7 Market Intelligence Market IntelligenceIssue No. 16.3 Issue No. 16.3
  6. 6. A clear understanding of both the current situation and the end objective underpins any effective payments strategy. From this a payments roadmap can be developed. Summary 2016/17 provides major opportunities for companies to reduce costs and drive revenue by smarter use of payments solutions. There are pitfalls to avoid as suppliers have shown that they are naturally protecting their interests and taking the opportunity provided by market turbulence to improve margins. 1. Identify Identify stakeholders in the business who are impacted by payments solutions and capabilities. Payments should not be left to the finance team to manage. It underpins and links many strategies, such as marketing, sales and operations. Typically stakeholders are drawn from IT, Sales, Operations, Marketing and Finance. 2. Workshop Workshop each stakeholder presenting their plans and, as a team, consider what payment solutions are in place, and what is needed or available to facilitate the plans’ delivery. In our experience this session justifies the whole process by itself, as functions start to see how they can work together more effectively and feed off each other’s ideas. 5. Budget Consider the budgetary needs for delivery (remember to take account of the expected sales uplift generated by the improved solutions). Consider whether there is potential to release some or all of this budget from within existing spending. 6. Draw up Draw up the agreed Payments Strategy and roadmap, allocating roles and responsibilities for delivery. 3. Agree Agree common goals and identify the steps needed to achieve them. 4. Assess Assess the capabilities held in-house for delivering these steps and where further research or external expertise is necessary. ERA stands ready to be your specialist partner of choice. We have already guided substantial companies in achieving a robust Payments Strategy to deliver to their bottom line. Steps to benefit from the changing payments environment Banking & Payments by the Payments Team WWW.EXPENSE-REDUCTION.CO.UK WWW.EXPENSE-REDUCTION.CO.UK8 9 Market Intelligence Market IntelligenceIssue No. 16.3 Issue No. 16.3
  7. 7. The UK Facilities Management Sector – A £111 Billion a Year Economy Facilities Management by Alan Oldham A recent article published by the British Institute of Facilities Management described the FM sector as a barometer of the economy. The FM sector employs around 10% of the UK’s working population and is estimated to be worth £111 billion a year to the economy, which is why it’s a barometer of business performance as a whole. The BIFM’s business confidence monitor last month released figures that 64% of UK professionals from the sector describe the business environment as ‘positive’ or ‘very positive’. The FM Business Confidence Monitor 2016 research was created from a survey of professionals from senior decision-makers to teams on the ground delivering services. However, the impact of the National Minimum Wage (NMW) and the imminent apprenticeship levy present challenges to the Facilities Management sector in terms of profitability. But this in turn presents opportunities to look at other ways to deliver efficiencies via productivity, innovation and contract management solutions for their clients. ERA have the capabilities to address these impacts on behalf of our clients via our team of Facilities Management Project Specialists. ERA’s Facilities Management offers: • Contract Review – Clients often enter into contracts prepared by the contractor, which are often heavily weighted in favour of the contractor carrying out the work with little or no protection in the event of non- compliance. The ERA Facilities Management Team have years of experience in dealing with these issues and are able to identify and renegotiate unfair contract clauses prior to contract award. • Contract Management – ERA has the capability to manage FM contracts on behalf of the client, providing ongoing services to manage supplier costs and performance criteria in line with the contract. • Resource Review – ERA has the experience and skillsets to understand the clients FM needs, taking into consideration operational requirements, the wellbeing of the clients customers and stakeholders alike in order to deliver effective solutions. • Contractor Selection – ERA assesses the delivery and commercial capabilities of each contractor and marry these to the exact need of the client, more often than not exceeding clients expectations over the term of engagement. • Innovation – The ERA FM team understands that innovative ideas and operational efficiencies are intrinsic to delivering successful FM solutions, ERA frequently works with suppliers to investigate new market innovations and present them as alternative solutions, more than often generating even greater cost efficiencies for clients. In essence our capabilities and experience give ERA the competitive edge in providing progressive solutions in the Facilities Management sector. WWW.EXPENSE-REDUCTION.CO.UK10 Market Intelligence Issue No. 16.3
  8. 8. Managing supplier relationships (SRM) remains a key skill by David Brassington It seems nothing changes while everything stays the same in Professional Procurement. While looking at a recent article in Supply Management I noticed again an emphasis on insightful and professional management in modern supplier relationships. So it should always have been. More than a year ago, I read comments by Roger Davies (Group Head of Procurement at Marks & Spencer) in Supply Management. He had been responding to a (ProcureCon) survey that relationship management and influencing skills were core to the Procurement role. Expense Reduction Analysts, as professional procurement specialists, see the challenges of effectively managing relationships on a daily basis. We sit alongside our clients as an expert resource in the Supply Chain. We see the considerable benefits for our clients in ‘getting it right’. This is integral to our culture and our working ethos and always has been. A few reasons why: • Trust and honesty yield benefits: the ‘Managed Partnership Process’. • Recognition of supply and supplier vulnerability reduces risk. • Aligned relationships can deliver innovation, quality and price improvements. • Improvements in ‘time to market’ through open relationships. Recent reporting also suggests that the car industry could “face losing out on major benefits which better supplier relations would bring”. (Supply Management) ERA’s specialist teams of Supplier Management Consultants enable our clients to enjoy sustainable, mutually beneficial Supplier Relationships that deliver value across a wide range of spending areas. Constantly in actively managed dialogue with thousands of suppliers at any one time, we look after hundreds of millions of pounds’ worth of client expenditure. ERA delivers long term benefit across a wide range of cost categories. “In my experience procurement people can at times wait for opportunities to come to them rather than selling and pushing what they can offer, or encouraging people to pull on what they do.” WWW.EXPENSE-REDUCTION.CO.UK 11 Market Intelligence Issue No. 16.3
  9. 9. Adare Group acquires Banner Managed Communication - How will this affect their clients? Office Supplies by Keith Copestake Global marketing services and secure & essential communications provider, Adare Group has bought Banner Managed Communication (BMC), a leading supplier of business marketing and essential communication services. Adare Group chief executive Robert Whiteside said the deal was “a truly transformational acquisition” which will boost Adare’s UK operations and give BMC better access to overseas territories, as well as be a significant step forward in Adare’s ambition to become a £400m-turnover company by 2020. More acquisitions are planned. “This acquisition is a hugely positive development for both companies’ clients, staff and investors. With our combined service propositions, high-quality client portfolios and talented teams we have the opportunity to build one of the world’s foremost marketing services businesses. As well as doubling the overall size of our UK business, the deal takes our secure and essential communications operation to the next level by bringing together Adare SEC and Banner Direct, creating a £70m, 400+ staff operation. The new organisation will have the scale and infrastructure to be able to service the very biggest and best UK businesses and global brands.” Whiteside said: “It puts Adare at the forefront of our markets, it differentiates us even further by our scale and by a wider range of complementary services and by an enriched customer base”. The combined business will enjoy an especially strong position in the global leisure, healthcare, FMCG, financial services and retail sectors. BMC operates through four divisions – Banner Create, Banner Direct, Banner Connect and Banner Tech. In the short term, the BMC operations will remain a separate entity, or as Whiteside put it, “a third child in the company” alongside Adare International and Adare SEC, which are individual limited companies. Eventually the BMC operations will be split up based on their respective specialties. BMC chief executive Catherine Burke said: “The combined organisation will open up a range of new benefits to our clients and other stakeholders beyond anything we could deliver as stand-alone businesses. A greatly-expanded global infrastructure is one obvious example, as are our much-enhanced offerings in business- critical essential communication services, multichannel, digital visual communications, creative design, print management and countless other areas. In terms of sector strengths, the two businesses complement one another particularly well, while in certain verticals, the deal makes us the single biggest provider of integrated marketing services”. Keeping clients first in merger integration The period of time following on from acquisition is often perceived by competitors as a time when the merged businesses can be at their weakest due to the complexity of redefining the service offer, potentially providing an opportunity to target their customers. During the transition period when the two companies are aligning their operations and forming a new strategy, possibly a restructure resulting in a new leadership team and new account manager, is a time when the customer can suffer due to lack of focus from the service provider. In some cases the customer may feel unsure about the future, concerned about service level and service quality, particularly relevant if they have previously enjoyed a good experience. Customers who may feel exposed to the company experience are far more likely to listen to a competitor with the possibility of changing suppliers. Competitors will arm themselves with as many tools (failed back office system integration is one example) as they can, to increase their chances of convincing the customer to switch their business. Internally the companies may be weakened by the integration, with the threat of an organisational restructure, employees feel stressed and naturally worry about the fate of their jobs. When companies merge, they embark on seemingly minor changes that can make a big difference to customers, causing even the most loyal to re-evaluate their relationship with the company. Integration decisions come with an inherent trade-off: if you are making changes in your operations, particularly changes that benefit your bottom line at the expense of your customers, you can expect to pay a price in the top line. Companies tend to focus on quickly reducing costs and worry mostly about the biggest things that can go wrong, such as major technology disasters, rather than long-term customer attrition. Despite their low expectations of merged companies, the reality is that customers demand consistent and seamless services across both merged companies from the start. If they don’t get them, they defect. Companies that do the best job of retaining customers (and attracting new ones) adopt the customer’s view of the merger, as they make important integration decisions. Adopting the customer’s point of view does not change the fundamental activities required in merger integration. Instead, it allows companies to sequence and coordinate customer-facing changes in ways that create a better customer experience. There are three key initiatives that can improve customer retention in a merger: 1. Customer experience. 2. Communication external and internal. 3. Empower employees. Mergers aren’t easy, and they raise real risks that customers may exit. The merger integration process brings with it a natural opportunity to re-evaluate and even improve the overall customer experience. It will be interesting to see the effect this merger has on BMC clients that purchase both print and stationery from Banner. Will it prove to be a good opportunity for these clients to review the market? “Over the next two to three months, it’s about getting out there to the customers and getting them comfortable.” When companies merge, they embark on seemingly minor changes that can make a big difference to customers, causing even the most loyal to re-evaluate their relationship with the company. Acknowledgements: PrintWeek Laura Miles, Bain & Company, Mergers & Acquisitions Ted Rouse, Bain & Company, Global Mergers & Acquisitions WWW.EXPENSE-REDUCTION.CO.UK WWW.EXPENSE-REDUCTION.CO.UK12 13 Market Intelligence Market IntelligenceIssue No. 16.3 Issue No. 16.3
  10. 10. Electricity users face higher non-energy costs Utilities by Richard Clayton Successive UK Governments have taken a variety of steps to encourage a move towards a greater market share for renewable energy and thus to a lower carbon economy. Support for renewable electricity has been funded through electricity bills and the amount of this funding is controlled through the Levy Control Framework, essentially a budget agreed between the Department for Energy and Climate Change and the Treasury. The LCF budget is estimated to move from £3.2bn in 2013-2014 to £7.6bn by 2020-2021 and there is a provision for a 20% contingency for cost overruns in any one year. The LCF covers the cost of three schemes: The Capacity Market (CM) scheme which has been established to ensure that peak electricity demand requirements can be met is also included in the LCF, but is not subject to the £7.6bn budget. CM costs will be borne by consumers using electricity in the peak hours of 4 pm to 7pm Monday to Friday during the months of November to February (i.e. not across all electricity demand) and have been designed to incentivise consumers to avoid peak period usage (rather like the way the triad system is used to calculate transmission charges for half hourly metered customers). All costs from schemes covered by the Levy Control Framework are levied on suppliers and it is expected that these will then be passed through to consumers in their electricity bills. Whilst there is a plethora of variables and sensitivities which may impact on the precise outcomes, energy market consultants Cornwall Energy have gathered evidence to support that on a p/kWh basis LCF costs alone will account for an increase of 124% from a base of 1.51 p/ kWh in 2015-2016 to 3.38 p/kWh p/kWh in 2020-2021. Taking LCF costs alongside other pass through charges including the major network charges for distribution and transmission a picture emerges of non energycosts accounting for between 50 to 60% of the total electricity bill to consumers; and this in a period when wholesale (commodity) costs have crashed. Traditionally the main focus for buyers has been on energy market volatility when contemplating new energy contracts however the rising trajectory of LCF and other pass through costs imply an increasing importance on ensuring clarity on contract terms. In particular, whether agreed prices are ‘fixed’, ‘all inclusive’ or ‘pass through’ and a clear understanding of what changing conditions may prevail which would allow a supplier to pass on increase costs. Suppliers are faced with a considerable commercial risk in making estimates for LCF costs especially for contracts spanning a number of years. CfD FiTs and microgeneration FiTs vary on a quarterly basis whilst the costs for RO and CM are levied annually. It is therefore highly likely that suppliers will include a risk premium for fully fixed contracts. It’s much easier from a supplier’s perspective to offer a ‘pass through’ contract but this then transfers the risk and difficulty for annual budgeting to the consumer. In all cases, it is of paramount importance that the consumer has an understanding of the changing dynamics of the wholesale energy market and the ever-increasing non commodity elements which make up the whole energy bill. The Renewables Obligation (RO) which is the tradeable green certificate scheme supporting large scale renewables projects between 2002 and 2017. The microgeneration feed-in-tariff scheme (FiT) which supports smaller scale renewable investments for periods of up to 20 years. This scheme started in 2010. The contracts for difference feed-in-tariff (CfD FiT) which will gradually replace the RO and will support all new large scale renewables for 15 years. 1. 2. 3. The LCF budget is estimated to move from £3.2bn in 2013-2014 to £7.6bn by 2020-2021 and there is a provision for a 20% contingency for cost overruns in any one year. WWW.EXPENSE-REDUCTION.CO.UK WWW.EXPENSE-REDUCTION.CO.UK14 15 Market Intelligence Market IntelligenceIssue No. 16.3 Issue No. 16.3
  11. 11. Secondary Packaging Packaging by the Packaging Team Secondary Packaging, typically the ubiquitous brown corrugated box, can be regarded as a necessary evil – you need to protect items during storage and in transit, but it adds little value to your product. So it is critical to ensure that the boxes that you do use meet your requirements, while adding as little cost as possible. Corrugated cartons seem like straight forward items to specify and purchase, but in practice there are various ways in which you can ensure that the product you are buying is best suited for your purpose. If you are buying large volumes of a limited range of sizes then make sure the design of the box is optimal. Some suppliers have access to box design software, and given the specifics of box size, weight when full and how you stack and load boxes, they can ensure that the box material weight is suitable. Given new types and weights of paper used in box manufacture, there may be an opportunity to re-specify the board grades and reduce cost, while providing the required level of protection to the box contents. If your requirements are for smaller volumes of a larger range of boxes, then make sure that you order the optimum volume to get the best price, but without ending up with a warehouse full of unused boxes. We’ve all seen warehouses full of old, dusty, redundant piles of corrugated boxes! Depending on your supplier’s capabilities, they may be able to hold stock for call off, and at least this would enable you to reduce the volume of boxes held in your warehouse. A new solution that is now becoming more popular is to produce boxes onsite to meet your specific requirements. By doing this you remove the requirement to hold stocks of many different box sizes, and you are able to produce boxes that meet your exact requirements. There are operational and environmental benefits in using this type of solution. By producing a box that meets your specific needs you no longer have to select the ‘next size up’. This can reduce logistics costs and also minimises the amount of void fill required. By reducing the amount of packaging required overall, you minimise the environmental impact and also reduce the frustration that we’ve all felt on opening a box to find it half full of ‘popcorn’. However, when considering this sort of solution, it’s important to quantify all elements of the solution, so that you understand the overall cost of capital equipment, stock requirements, logistics, etc. This is where Expense Reduction Analysts can help you. By using our knowledge and experience of different packaging solutions we can help to identify the most cost-effective ways to meet your operational requirements. WWW.EXPENSE-REDUCTION.CO.UK16 Market Intelligence Issue No. 16.3 WWW.EXPENSE-REDUCTION.CO.UK

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