Anchor Network supply chain hub: a proposal
In the third of his blog series exploring the mechanisms for anchor institution networks to deliver on their aspiration to create and reinforce local economic ties, Conrad Parke details the thinking behind a proposal to create a supply chain hub to service the Birmingham Anchor Network. This idea is covered in our recently released how-to guide for growing anchor institution networks in place. Here, Conrad gives us more detail on the project, the logic underlying the approach and the process by which the concept has been developed.
For the past six months the procurement leads from the seven Birmingham Anchor Network partners have been sharing ideas as to how they can use procurement opportunities to increase their contribution to the Birmingham economy, particularly by engaging socially generative SMEs and micro businesses.
However, this process has identified a number of obstacles:
- The Anchor Network partners operate at very different levels of procurement value and scale. For example, Birmingham City Council spend £1.2bn annually on procurement and contracts, whereas the two housing association partners in the network spend closer to £6m.
- Different levels of procurement require different solutions for ensuring contracts awarded yield the most social value possible.
- Some Anchor Network partners are already subscribed to their own national procurement frameworks.
- Anchor Network partners have limited resources available to support greater local procurement.
- The Network partners do not know the potential Birmingham based businesses they would like to contract with.
- When an Anchor Network partner does identify a local business that would fulfil the criteria for adding social value to their contract, that business frequently does not have the necessary experience or knowledge to successfully tender for the opportunity.
- Some larger businesses have learnt how to “game” the procurement system, so they can win contracts without necessarily delivering the desired social value outcomes.
A common opportunity identified across all of the Anchor Network partners is sub £25k contracts/orders. Compared to larger contracts, these offer greater flexibility, in terms of using the procurement process to create successful tender opportunities for Birmingham based SMEs. For example, if a contract requires three quotes and if all of these come from socially generative, Birmingham-based SMEs, then a positive procurement outcome is guaranteed.
Small contracts also add value by:
- Providing more significant cashflow for smaller businesses than for larger organisations;
- Providing a low risk opportunity for anchor institutions to try out new suppliers;
- Helping small businesses get established in supply chains and be in a position to win further work;
- Providing a stepping-stone onto national frameworks and larger contracts.
In terms of the scale of opportunity here, one Birmingham Anchor Network partner, The University of Birmingham, has identified £75m of annual spend in sub £25k contracts/orders. Extrapolating that across all of the Birmingham Anchor Network partners results in a potential joint spend of £600m per year. Alternatively, viewing this opportunity nationally, there are approximately 30 universities of the same scale as The University of Birmingham in the UK – that’s £2.25bn of annual spend that could be redirected towards socially generative SMEs. Now, obviously, not all of this sub £25k procurement is going to be appropriate for local spend but, nevertheless, the scale of the prize on offer here is significant.
It is, however, recognised that this opportunity is unlikely to be realised with the current resources available to Anchor Network partners. Similarly, a lot of work still needs to be done to develop the sectors where this sub £25k spend is going.
To address this gap in resource, the Birmingham Anchor Network are now exploring mechanisms to fund and pilot a dedicated supply chain hub that can be an active “bridge” between the Network partners and Birmingham based SMEs. The hub will be delivered by Birmingham organisations who have the knowledge and experience of working with socially generative SMEs and would:
- Identify local SMEs that have the potential to add social value to an anchor network supply chain opportunity (i.e. businesses that pay the living wage, that look to maximise social impact, and in other words, have a social purpose);
- Accredit the social value generated by businesses;
- Develop the capacity of those SMEs to successfully tender for and deliver Anchor Network supply chain opportunities;
- Provide an efficient and accessible way for anchor institutions to invite tenders from socially generative Birmingham-based SMEs
- Conduct ongoing evaluation of the impact of the hub.
This proposal is in the early stages of development. However, it has support from all seven Birmingham Anchor Network procurement leads and potential delivery agencies. Funding for a two year pilot is now being sought with a hub currently expected to open in September 2021.