A fire at Ocado's automated warehouse in Hampshire in February cost £110m © Hampshire Fire and Rescue Service
A fire at Ocado's automated warehouse in Hampshire in February cost £110m © Hampshire Fire and Rescue Service

News review of 2019 part one

Will Green is news editor of Supply Management
23 December 2019

We’ve rounded up the most popular and important news articles of the year on SM.

Here’s part one, covering January to June. You can see part two here.

January

The year got off to a dramatic start with trouble brewing over the award of contracts to deliver ferry freight services in the event of a no-deal Brexit. The controversial government contracts, including one worth £13.8m awarded to a firm with no ships, were designed to alleviate freight problems at Dover if no agreement had been reached on customs procedures by the then deadline of 29 March. Following legal action the government paid a £33m settlement to Eurotunnel.

Another key story on SM this month related to a loophole that allowed local authorities to enter into development agreements without carrying out OJEU processes was successfully challenged in the courts for the first time.

Previously local authorities had been able to agree the specifications of what should be built on areas of land, without procuring under OJEU, by entering agreements with developers without immediately enforceable obligations, effectively allowing developers to walk away without being in breach of contract. And, while case law has traditionally not considered this kind of agreement to be a public works contract, the first successful claimant was granted a remedy of ineffectiveness of contract for such a case.

West Berkshire Council had entered into a development agreement with developer St Modwens for the regeneration of an industrial estate, but only on the basis that the firm acquired land on the site. And another developer, Faraday, had also expressed interest in the project and challenged the contract on the basis it was not in the spirit of the current procurement regulations, arguing the council had effectively bound itself into a public works contract as soon as St Modwens had acquired the land. Faraday won on appeal.

January also saw a proposal for fundamental reforms to the way in which the NHS does business, which would see the organisation abandon government procurement rules and have greater freedom over how it chooses to spend its money.

The proposals, outlined in the NHS Long Term Plan, called for a radical shift in how commercial relationships are conducted.

Current “rules and processes for procurement, pricing and mergers are skewed more towards fostering competition than to enabling rapid integration of care planning and delivery”, it said.   

February

A fire at Ocado’s automated warehouse in Hampshire, UK, cost the company £110m in damaged property, equipment and inventory loss.

Other costs included “transporting employees to other warehouses to work, professional fees relating to the insurance claims process and reimbursement of employees' personal assets that were destroyed”.

The fire had started in an area where goods were stored at ambient temperature, with investigators reported as saying it was caused by an electrical fault in a battery-charging unit.

Also in February, Sara Thornton was appointed the new anti-slavery commissioner, eight months after the resignation of Kevin Hyland.

Following speculation  earlier in the month, it was announced that Thornton, then chair of the National Police Chief’s Council (NPCC), would be taking up the role from May.

The former chief constable for Thames Valley Police would be responsible for driving effective prevention of slavery and human trafficking offences, as well as engaging with the private sector to promote policies to ensure that supply chains are free of slavery.

In his resignation letter, Hyland claimed that he had been frustrated by Home Office interference.

In further news in February, Kraft Heinz announced it was being investigated by US authorities regarding its procurement function. The company said the US Securities and Exchange Commission had subpoenaed the company as part of an investigation into the company’s “accounting policies, procedures, and internal controls related to its procurement function, including but not limited to, agreements, side agreements, and changes or modifications to its agreements with its vendors”.

Kraft Heinz later admitted multiple staff in procurement had “engaged in misconduct” and it was overhauling the function. And, as a result of an internal investigation, it identified total required adjustments to the cost of goods sold of around $208m.

March

It was a year in which sustainability was a key trend, with many firms making commitments on tackling deforestation, plastic waste and carbon emissions, with SM featuring individual news items in March on CargillNestlé and Unilever.

Mars also announced plans to use GPS mapping to achieve a deforestation-free cocoa supply chain by 2025.

Mars said it aimed to GPS-map 100% of its cocoa supply chain to make it traceable by 2025. The company had already mapped 24% of its global cocoa supply chain at farm level, while 40% was able to be traced to tier two suppliers and 90% to tier one.

The company outlined detailed action plans for Ghana and Côte d’Ivoire, where 65% of the world's cocoa supply is produced.

Mars said it would complete risk assessments for other countries within its cocoa supply chain including Indonesia, Brazil and Cameroon, with further risk assessments of Ecuador and other countries to be completed by 2020.

Technology also featured in another news item, with buyers and procurement officers learning they were at a 'medium' risk of having their jobs replaced by automated technology, according to the Office for National Statistics.

In a report the ONS said there was a 42% risk of "some or all duties and tasks being automated". The ONS described this as medium risk. Purchasing managers and directors were found to be at 30% risk of automation, which was categorised as low risk.

And a key story on savings this month was that the NHS saved an estimated £1m through the Northern Ambulance Alliance's joint procurement of a fleet management system.

The Northern Ambulance Alliance (NAA) entered into a five-year contract with Civica Tranman, a fleet management software provider, to replace three fleet management systems with one. Advanced data collection and analysis would contribute to reduced vehicle costs.

The NAA – formed of North West Ambulance Service (NWAS), Yorkshire Ambulance Service, and the North East Ambulance Service (NEAS), with East Midlands Ambulance Service as an associate member – collaborated to identify cost-saving opportunities and innovative ways to streamline processes.

April

The High Court ruled in favour of chicken catchers who were subjected to a “gruelling and exploitative work regime” by bosses.

The group of Lithuanian men worked as chicken catchers on farms across Britain for DJ Houghton Catching Services, which supplied Noble Foods, owner of the Happy Egg brand.

The judge supported the workers' claim against DJ Houghton, director Darrell Houghton and company secretary Jackie Judge. They were found liable for a series of contractual and statutory breaches under the Agricultural Wages Act 1948 and the related Agricultural Wages Orders. Their gangmasters licence was revoked.

During an earlier hearing the workers presented evidence of unlawful treatment reflective of modern slavery, including withheld wages, failure to pay minimum wages, and unsanitary and inadequate living facilities, said law firm Leigh Day, acting for the claimants.

The court, upholding an application for summary judgement, found the workers were made to work long shifts without rest, sleeping in the back of a mini bus between farms, and were intimidated by an “enforcer”.

April also saw small business commissioner Paul Uppal accuse Holland & Barrett of having a “purposeful culture of poor payment practices”.

Uppal, who has since stepped down from the role, published a report into poor payment practices displayed by Holland & Barrett, following a late payment complaint from a small business in December 2018.  

A London-based technology consultancy submitted an invoice for £15,000 to the retailer for work it had completed on a search engine optimisation project, with agreed payment terms of 30 days. The firm contacted Holland & Barrett when the payment was not received.

After the complaint was raised with the commissioner, Holland & Barrett “refused to discuss the details of the delay” despite contacting the retailer’s procurement team and chief financial officer, Uppal said.

He added: “Holland & Barrett’s refusal to cooperate with my investigation, as well as their published poor payment practices, says to me that this is a company that doesn’t care about its suppliers or take prompt payment seriously.”

This was the month where John Lewis Partnership (JLP) revealed it was going through a process of vetting all suppliers on ethical issues such as slavery and the environment.

Todd Bradley-Cole, partner and senior manager CSR procurement at JLP, told a European conference that all the company’s thousands of suppliers would be required to take part in a qualification process or face removal.

He said drivers included GDPR data rules, and JLP not knowing which suppliers were holding personal information, and the Modern Slavery Act, but the company was taking the opportunity to go further.

Bradley-Cole said they had “big spend, lots of suppliers but we didn’t know if they were all complying with the law or whether they were capable of going beyond the law”.

May

SM revealed this month that Daimler had no idea how North Korean leader Kim Yong Un had obtained the luxury carmaker’s limousines.

Kim had been pictured using the luxury vehicles at various summits, including Pyongyang, North Korea, in September 2018; Beijing, China, in January 2019; Hanoi, Vietnam, in March 2019; and Vladivostok, Russia, in April 2019.

The sale of limousines and other luxury goods is banned under UN sanctions intended to pressure the regime into giving up its nuclear ambitions. Daimler said it had had no business connections with North Korea for more than 15 years and it “strictly complies with EU and US embargoes”.

Luxury goods exported to North Korea between 2015 and 2017 were valued at up to $5.1bn and involved up to 90 countries, according to non-profit C4ADS. To bypass bans, products pass through countries with little or no luxury goods controls, such as China, which is the top luxury goods exporter to North Korea by value. 

The progress of electric vehicles was revealed in a news item that Volkswagen agreed to invest almost €1bn to build its own battery factory in Germany.

The carmaker said it would be launching almost 70 new electric models over the next 10 years and this would increase demand for batteries to more than 300 gigawatt hours a year.

As part of its battery strategy, the company signed a memorandum of understanding with China-based Ganfeng Lithium to secure the supply lithium, the main component in batteries, for the next 10 years.

VW’s electrification strategy means around a quarter of the vehicles it sells in 2025, around 22m, will be powered by electricity.

In another key story this month, the failure of two satellite missions was attributed to bad parts received from a supplier which had routinely falsified data, said a National Aeronautics and Space Administration (NASA) report.

In a report investigating the Taurus T8 and T9 rocket failures in 2009 and 2011, NASA claimed the missions failed because a single frangible joint supplied by SAPA Profiles Inc (SPI), had not completely separated as required.

The rockets had been carrying satellites to collect vital data on the earth’s climate but both missions failed to reach orbit, resulting in a break-up of the rockets when re-entering the earth’s atmosphere with pieces dispersed in the Pacific Ocean, near Antarctica.

The combined cost of both failed missions was in excess of $700m, NASA said.

June

A dramatic digital transformation programme with “impressive tangible results” netted the top prize for petrochemicals firm SABIC at the CIPS Middle East SM Awards 2019.

As well as taking home the overall award, SABIC won category awards for Most Improved Procurement Operation – Step Change and Best Process Improvement Initiative at the H-Hotel Dubai.

The company, headquartered in Saudi Arabia, went from having very little automation to 1m core procure-to-pay automated transactions for around 180,000 low-value spot-buy items in just a few years. 

June also saw JCB divulge that getting your master data right wis critical to any digital transformation.

Rob Metcalf, group purchase manager – systems at JCB, told SM a project to overhaul the collection and storage of data would lead to better quality products and cost savings. It was already producing market insights that were helping procurement and other parts of the business.

“We are still on a journey with this, but if you are not getting master data right – the boring elements – anything else you do will always be flawed,” he said.

Metcalf said JCB embarked on a journey in 2017 to improve data processes because the team couldn’t easily answer basic questions about suppliers and their performance.

JCB has a global direct procurement spend of £2.5bn and indirect spending of “a few hundred million”. Manufacturing takes place in the UK and India, including 50,000 parts from around 2,000 suppliers.

And, concluding the first part of this annual review, is the second annual list of the most influential people in procurement, which was revealed by CIPS and SM in June. The 2019 Procurement Power List was announced at an exclusive event at Sea Containers in London.

The list recognises leaders who are pushing forward procurement and supply chain strategy and making a positive contribution to the reputation of the profession, through value generated for their own organisations and work to raise the profile of the profession more widely.

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