Winning buyers' stamp of approval

13 November 2003
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13 November 2003

Some businesses are already threatening to find another post supplier after the recent Royal Mail strikes. Others may soon join them, says David Arminas

Royal Mail Group, the main UK post supplier, is struggling to keep its service running on schedule, or even running at all, in some areas because of industrial action.

As a result, some of the largest buyers of Royal Mail's services - the direct marketing agencies and companies - have threatened to find another supplier as soon as possible.

But these threats are not just in the direct marketing sector. Tom Mills, an analyst at Datamonitor, says other large companies, including Amazon and Tesco, abandon Royal Mail during wildcat strikes and switch to rival distribution companies.

Mills said most of these businesses usually switch back when strikes are over. But the impending introduction of competition to more of the Royal Mail's traditional market will increase the options for purchasers to shop around for delivery services.

"Royal Mail is in a difficult position, needing to make a profit and keep labour relations happy. The path to recovery is not straightforward," he says.

Poor industrial-relations problems at the troubled Royal Mail Group are not isolated. Last year's major firefighters' strike and their recent local walkouts over confusion about pay rises are signs that there is a shift in the climate of industrial relations toward more industrial unrest.

The big question for purchasers of postal services, and any other service where the supplier enjoys a near monopoly, is whether they are ready for such disruptions.

One of the issues for purchasers is to be ready for alternative suppliers when they do arrive on the scene.

Already, nearly one-third of postal business is open to competition. A spokesman for Postcomm, the industry regulator that

is charged with gradually introducing competition to the market, explained that licenses are now available allowing companies such as TPG UK and UK Mail to handle bulk deliveries of more than 4,000 items.

An early example is Arla Food, formerly Express Dairies. The innovative supplier has held a license to deliver up to 46 million items a year using its milk trucks since the start of 2003. A spokeswoman told SM: "We have a number of companies that are interested in working with us."

A further 30 per cent of the market will open up in 2005, and from 2007 the entire market will be open to competition.

Another issue for purchasers is that of risk management as industrial relations appear to worsen. Talk of partnerships and supply chains where the relationships are very close means purchasers may have to make their suppliers' postal or delivery services part of their own business agenda.

Strikes in any area hit small and medium-sized enterprises (SMEs) particularly hard. Many rely on Royal Mail to deliver cheques, so strikes cause cash-flow problems. The advent of more strikes could force them to find alternative ways of doing business, according to a spokesperson for the Federation of Small Businesses.

"But most small businesses don't have time to shop around as much as they should, and it's only when they are forced to that it becomes a priority," he said.

Purchasers who have these SMEs in their supply chains could take the initiative to explore with them opportunities for larger postal or other service provisions to reduce risk to all of their businesses.

Allan Leighton, chairman of the Royal Mail Group, is well aware of the distance the company must travel to become a better supplier. Delegates at the 2002 CIPS annual conference heard his impassioned and frank opening speech, which called on suppliers to improve communication with their clients to agree on what is expected or run the risk of failing them in performance.

A winning company spends 20 per cent of effort on strategy and 80 per cent on execution, he said. Winning companies are world class at execution and Royal Mail has a big mountain to climb on this score.

But both purchasers and Royal Mail should remember a small, long-forgotten survey, ironically commissioned by the Royal Mail. As reported in SM, the survey found that UK companies are more likely to ditch a supplier because of poor service than because of high prices. The cost of a stamp is not everything.

* Have the latest postal strikes made you consider alternative suppliers? Vote now at www.supplymanagement.com

SMnov2003

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