Housing associations must collaborate to overcome supply chain risk during COVID-19

Comment14 May 2020Steve Malone

As the coronavirus crisis evolves, landlords must use changing scenarios to inform their procurement risk profile. Analysis and prediction will be most effective when it is collaborative, argues Steve Malone of Procurement for Housing

Steve Malone

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Housing associations must collaborate to overcome supply chain risk during COVID-19, argues Steve Malone @PfH_News #ukhousing #socialhousingfinance #coronavirus

Housing associations must collaborate to overcome supply chain risk during COVID-19 argues Steve Malone @PfH_News #ukhousing #socialhousingfinance #coronavirus

Procurement has gained greater visibility over the past six weeks than at almost any other time I can remember.

In housing, the pandemic has triggered shortages of critical items such as personal protective equipment and heavy-side construction materials, led to unprecedented supply chain vulnerability and triggered a spike in contract terminations and declarations of force majeure.

Although buyers are juggling this melting pot of challenges, now is the time they can prove their worth. Before our eyes, social housing procurement teams are demonstrating their role in business continuity.

But this is not just about meeting short-term sourcing needs. Procurement can make a strategic contribution to protecting supply chains, stabilising markets and delivering forward value for the whole organisation.

As restrictions are eased and providers work out how they can sustainably operate alongside COVID-19, what new challenges will procurement managers face?

Some central issues are emerging, as I outline here.

Disease modelling has predicted a second and possibly third deadly wave of COVID-19. The shape and timing of these peaks depends on behaviours, restrictions, testing and vaccinations. Landlords must use changing scenarios to inform their procurement risk profile so they can forecast peaks of demand.

One factor here is changing supply markets. Many suppliers have stopped trading, either temporarily or permanently, and this may lead to price volatility.

Procurement managers must forecast changes to their supply sources and work with finance directors to develop contingency plans.

This type of risk and prediction analysis will be most effective when it is collaborative – with spend assessed at sector level, rather than landlords evaluating separately. Similarly, every layer of the supply chain must be examined – not just tier one.

“Providers can no longer rely on the relationships their asset teams had with contractors before COVID-19”

The sector must reassess what supply chain risk now means and what the new norms will be. Providers can no longer rely on the relationships their asset teams had with contractors before COVID-19. More data and insight is needed to get a better handle on risk.

Reassess upcoming tenders

With some social distancing expected to remain until a vaccine is found, procurement managers should risk-assess any tenders due for renewal. Legal provision must be tightened to cover force majeure and frustration clauses as well as transparency issues – particularly around open book rules that suppliers must follow if they receive support payments.

Companies should be offered extra time to complete tender exercises and some existing contracts may need to be extended to cover an interim period if the tendering process is lengthened.

Market options should also be reassessed, with attention given to local suppliers to minimise movement of goods and people. Likewise, market prices may continue to be disrupted and pricing uncertainty should be considered when agreeing contract length and terms.

Continue supporting suppliers

The Cabinet Office recently called on contracting authorities such as housing organisations to behave responsibly and fairly when it comes to enforcing contracts. This follows similar guidance in late March, encouraging public sector buyers to be flexible and understanding when it comes to the cash flow problems of at-risk suppliers.

I believe that all social landlords must carefully consider how to sustain their supply chain. This is about payment terms but also workflow planning with other providers to smooth backlogs and demand.

I’ve heard of some landlords offering relief on service credits, others paying on order and many remunerating suppliers even if work is disrupted. But more providers must show how they are approaching this crisis with a collective spirit of empathy.

Fairness and compassion can co-exist with commercialism and value for money. Sharing good practice will encourage others to adopt a balanced approach.

Plan for a future downturn

According to Bank of England scenario figures, UK GDP growth may fall by 14 per cent in 2020. During a recession, construction is typically hit three times harder than other sectors and this could have a major impact on social landlords’ ability to deliver repairs and planned maintenance.

Providers must consider how they are going to manage the economic waves that coronavirus brings, particularly as they face additional challenges such as zero carbon targets, fire safety requirements and the pressure to build more homes.

The shock of COVID-19 may change procurement procedures (and cultures) in social housing for the better.

One emerging theme is that the collective is stronger than the individual and I’d like to see more providers joining forces to tackle future challenges together rather than staying in their pre-pandemic silos.

Collaborative procurement will be instrumental to this, providing the commercial insight and social value drivers to support future recovery and growth.

Steve Malone, managing director, Procurement for Housing