Market Intelligence - Inflation Series - Second Winter Issue

2023 - Inflation Series

MarketINTEL Insight and market analysis to achieve better value from suppliers

Winter Issue 2

In this fourth and final edition of our Inflation Series, we delve into the persistent challenges affecting the UK economy.

Our ERA experts provide a comprehensive analysis of the current economic situation and its diverse impacts across various sectors. For insightful updates and strategies to uncover hidden value for your business, don’t miss our latest Winter issue, where we continue to offer the latest and most relevant economic insights.

WHAT’S INSIDE: Steering Through Change: The Future of UK Fleet Management

E-Commerce Evolution in an Uncertain Economy

By Charles Reid and James Dawson

– pages 2-3

Efficiency in the Face of Inflation: Lessons from MRO and Manufacturing Sectors

By Ian Morrison

– pages 4-5

by Sean Bingham

– pages 6-7

Charting the Course: Understanding UK Inflation in 2024 and Beyond – pages 8-9

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E-Commerce Evolution in an Uncertain Economy

By Charles Reid and James Dawson

We’ve observed a notable shift in parcel volumes this year, especially in areas like DIY, where we handle numerous projects. Carrier parcel volumes have dropped and interestingly, this decline has resulted in better service performance due to the reduced volume.

Even during high-volume events like Black Friday and Cyber Monday, the numbers have been unexpectedly low. For one of the largest networks, on Cyber Monday, where they anticipated 3.5 million parcels, only 2.1 million were processed. This trend isn’t limited; other major networks have seen drops in volumes being processed.

These changes can be attributed to wider economic factors, although foot fall on the High Street is up. With inflation and rising interest rates affecting consumer spending, we’re seeing a contraction in the market.

This situation is leading to an unusual pattern, where we might see a spike in activity in the final week of December, differing from the usual distribution of sales throughout November and early December.

It’s important to note, however, that the impact varies

across sectors. While our clients in the DIY sector have reported, as much as 40% decrease in sales compared to last year, our high-end apparel clients have experienced an increase in orders and volumes.

Despite a general downward trend where 2022 saw a 7% drop in domestic parcel volumes compared to 2021, these clients are exceptions. Initially, there was an expectation of a rebound in 2023, but various economic factors seem to be contributing to a continued decrease in overall volumes.

In response to these challenges, my team and I have focused on offering real value to our clients, beyond mere cost-cutting. We’ve effectively shielded our clients from the brunt of surcharge increases and managed to negotiate price hikes that are well below the current inflation rate. Our strategies have proven particularly

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beneficial in both parcel and palletised distribution.

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Service quality has also been a key focus. Last year, the combination of bad weather and Royal Mail strikes posed significant challenges, but we navigated these effectively, ensuring our clients didn’t suffer to much from service disruptions.

shifts to potential underinvestment, as suppliers lacking sufficient capital might struggle to maintain service standards. This situation opens doors for businesses to explore new and unique service offerings. The full impact of these changes on service levels and business opportunities remains to be seen.

Last year, we assisted a client in the fresh food sector during a particularly challenging period. Due to a combination of strikes and adverse weather conditions, service levels had plummeted to an unprecedented low, around 75 to 80% efficiency, which we hadn’t witnessed in our several decades in the industry. This all unfolded right after Black Friday, leading to a rapid decline in service quality.

Looking towards 2024, we anticipate further challenges due to the ongoing economic pressures. However, we also see this as an opportunity for businesses to explore new service offerings and adapt to these changing times. Our experience this year underscores the need for flexibility and strategic foresight in the ever-evolving world of e-commerce, especially in an uncertain economic climate.

However, we managed to bypass usual protocols to enact swift changes and support our client through these difficulties. As a result, we’ve seen improvements in service levels, particularly in the small parcel sector.

As for peak market times, they usually see the highest parcel volumes, and this year is no exception. However, from our perspective, while we’ve had a very successful year and maintained strong client relationships, we foresee 2024 presenting more challenges, especially regarding liquidity of businesses. Our clients, both existing and new, are increasingly focused on saving money. It’s a delicate balance.

Additionally, we’ve achieved significant progress in negotiating down potential double-digit price increases.

The drive for price hikes has intensified due to inflation, posing a substantial risk for 2024. The concern now

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Efficiency in the Face of Inflation: Lessons from MRO and Manufacturing Sectors

by Ian Morrison

As someone deeply immersed in the world of Maintenance, Repair, and Overhaul (MRO), I’ve observed firsthand the complex interplay between inflation and our industry. My experience has shown that the challenges we face in MRO mirror those in other sectors, like Facility Management (FM), but with some unique twists.

Efficiency plays a critical role in mitigating the impact of typical price inflation challenges. In an economic environment where prices are steadily rising, enhancing operational efficiency can be a key strategy for businesses to maintain profitability and competitiveness.

Navigating Price Inflation and Supply Shortages In today’s economic climate, two main challenges stand out: price inflation and supply shortages. These twin pressures are reshaping how we approach MRO. Price inflation is a ubiquitous concern, affecting everything from the cost of raw materials to final

product prices. Meanwhile, supply shortages compel us to explore alternative products and suppliers, often at a premium.

The Client’s Dilemma in Adaptation In dealing with these challenges, our clients often find themselves in a bind. For example, when considering alternative products such as lubricants, a rigorous approval process is necessary. This can be a lengthy and costly endeavor, requiring scientific validation and compatibility trials. Such complexities underscore the intricate balance we must strike in our response to inflation.

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Embracing Efficiency Amidst Economic Pressure Despite the inescapable impact of inflation, I believe that efficiency is our most potent tool in combating its effects. In my work, I’ve implemented strategies from machine tool optimisation to vendor managed inventory and line-side stock holding to streamline operations. These tactics not only address inflation’s direct impacts but also enhance overall efficiency.

A case in point was our project with an aircraft maintenance firm where we introduced mobile vending machines. This innovation drastically cut down on wasted time and boosted productivity, illustrating how thoughtful resource management can yield significant benefits. A further example is where by changing tooling we reduced the time to manufacture parts by 32%, whilst reducing to cost of the tooling too.

The Wider Manufacturing Perspective Expanding the lens to the manufacturing sector, the effects of inflation are equally pronounced.

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Manufacturers are squeezed between rising input costs and the need to competitively price their products. The solution, I’ve found, lies in operational efficiency. It’s about more than just controlling material costs; it encompasses every aspect of the manufacturing process.

How ERA can help My experiences in MRO during these inflationary times have reaffirmed my belief in the power of efficiency and strategic resource management. These principles are crucial not just for weathering the current economic storm but also for maintaining a competitive edge in an ever-evolving market landscape.

I pride myself on being able to communicate with suppliers on equal terms, challenging their margins, assumptions, and contracts to ensure they present the most fitting and valuable solutions. Get in touch today.

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Steering Through Change: The Future of UK Fleet Management

by Sean Bingham

The world of fleet management in the UK is poised for significant changes in the coming years. I recently discussed this topic, shedding light on the upcoming legislative shifts that will redefine the landscape.

1. Zero Emission Vehicle Mandate: The UK government has set a Zero Emissions Vehicle mandate containing targets for EV sales that motor manufacturers must meet from 2024 until the ban on petrol and diesel vehicles in 2035. In 2024, OEMs will be required to sell at least 22% of car EVs and 10% of van EVs within their UK sales. This rises in stages to 80% of volume for cars and 70% for vans by 2030 and 100% by 2035. Failure to hit the target will result in a £15,000 fine for every car and £9,000 fine for every van that doesn’t comply. From 2025 the fine for vans increases to £18,000.

OEMs can bank overachievement of targets in one year against achievement of targets in subsequent years or they can also buy excess target from other manufacturers (up to a total of 75% of their target, this falls to 25% from 2026).

Potentially the ZEV mandate may restrict the numbers of non-EV sales a manufacturer will make in the UK depending on its EV sales. This could mean fleets find access to non-EVs is reduced leading to supply problems as well as decreases in discounts available. This could significantly impact the cost of leasing non-EV models depending on the manufacturer, creating a challenging market for fleets. This is especially the case for vans where EV sales are particularly low and where early EV van models suffer from usability issues due to range and payload capability. Van fleets may find access to their preferred product particularly challenging and costly, especially in the short to medium term.

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2. WLTP Adjustments:

3. Road Fund Licence Changes:

The World Light Vehicle Test Harmonisation Protocols (WLTP) is set to undergo changes. The current test favours plug-in hybrids due to their small battery sizes and perceived efficiency.

However, the reality is very different, with much lower mpg’s and significantly higher CO2 emissions than reported. When these changes are implemented (thought to be circa 2025) the benefit in kind tax for plug-in hybrids will undoubtably increase substantially – potentially 3-fold.

In 2025, we’ll see the introduction of road fund licence car tax for electric vehicles, which is currently free.

Additionally, the expensive car supplement, applicable to cars with a retail price of £40,000 or more, will also be introduced for electric cars registered from April 2025. Given that a significant portion of electric cars sold in the UK exceed this price, this could lead to an increase of around £600 per annum from year two operation of the car.

Should these changes be implemented, they would significantly affect CO2 emissions and the Benefit-inKind (BIK) tax on these vehicles. For instance, in the tax year 2027/28, a PHEV is presently subject to a BIK rate of 5% to 17%. However, this rate could increase to 24%-26% using the private electric only usage data, and even to 37% based on the fleet electric only usage figures.

As we navigate these changes, the importance of staying informed and prepared cannot be overstated.

The fleet management landscape is shifting rapidly, and those who adapt will lead the way into a more sustainable and efficient future.

Understanding the landscape of these changes is key to staying ahead. If you’re curious about how Expense Reduction Analysts (ERA) could help your business navigate this evolving territory, I encourage you to reach out today.

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Charting the Course: Understanding UK Inflation in 2024 and Beyond Throughout our inflation series of Market Intelligence, each insight has offered sector-specific insights, highlighting challenges and adaptations in response to these economic conditions.

From the telecoms sector grappling with cost increases to the automotive industry facing supply shortages, each narrative underscores the farreaching impact of inflation. Some articles also delve into banking behaviour changes, e-commerce evolution, and the intricacies of industries like packaging and fleet management. Additionally, it addresses the ripple effects in insurance premiums, managed print services, supplier markets, and the medical gas industry, painting a comprehensive picture of the UK market’s response to economic strain.

A quick overview: The UK is facing significant inflationary challenges, impacting various sectors. Telecommunications, grappling with rising operational costs, must balance

profitability and quality service, while packaging sees fluctuating demand and price shifts. The automotive sector suffers from supply shortages, escalating costs, and lease challenges. Consumer behaviour changes influence the banking sector, and e-commerce evolves amid reduced parcel volumes and shifting market dynamics. The manufacturing and fleet management sectors adjust to cost pressures, whereas insurance faces premium hikes.

Managed print services struggle with interest rate rises and inflation. Supplier markets confront cost surges and service alterations, and sea freight costs remain unpredictable. Facilities management battles labour shortages and regulatory changes. R&D tax credit guidance revision introduces new complexities for claimants. Lastly, the medical gas industry faces increased production costs and market prices,

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influenced by energy costs and healthcare financing.

The effects of inflation can be highly diverse, varying significantly across different industries. This variability underscores the importance of staying informed and proactive in managing its impact, rather than being overwhelmed by the challenges it presents.

Shifting from Gloom to Growth: Amidst the challenging landscape of UK inflation, ERA offers a beacon of hope. Our expertise in cost management and strategic procurement empowers businesses to navigate economic volatility with confidence. By conducting thorough analyses of spending patterns and implementing effective monitoring systems, ERA experts uncover valuable costsaving opportunities. Our approach not only ensures financial savings but also maintains high-quality goods and services. In this inflationary environment, ERA’s guidance is instrumental for businesses to thrive and sustain growth, transforming economic challenges into opportunities for strategic advancement.

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Looking ahead to 2024, the UK’s inflation landscape is expected to evolve, influenced by current economic policies, global market trends, and domestic fiscal measures. Analysts anticipate a gradual stabilization as government and central bank interventions take effect. However, uncertainties in global markets, including geopolitical tensions and supply chain disruptions, could impact this trajectory.

Businesses and consumers are likely to continue adapting to these changing economic conditions, with a focus on cost-efficiency and strategic planning. ERA’s role in helping companies navigate this landscape will be crucial, offering expertise in cost management and resource optimisation amidst fluctuating economic conditions.

ERA will continue to provide you with the latest market trends and insights on economic strains throughout 2024, ensuring you stay well-informed and ahead in your industry.

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Interested in discovering how ERA can benefit your business?

Reach out for an initial conversation. We’re ready to provide detailed information and answer any questions, helping you understand the value ERA can bring to your organization. Contact us today to start exploring the possibilities.

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2023 - Inflation Series

MarketINTEL Insight and market analysis to achieve better value from suppliers

Winter Issue 2

“

The specialists from Expense Reduction Analysts have ensured that we are buying from the right people and have negotiated with suppliers – notably BT – on our behalf. The great thing about Expense Reduction Analysts is that the suppliers recognise their name, understand that they need to give us best value and know that their ongoing charges will be analysed. It gives me great peace of mind that they are checking our bills in such detail.”

CHRIS COXON, FINANCE DIRECTOR, ARUN ESTATES

“

Moving all of our archived files to a new supplier isn’t something we entered into lightly.

Fortunately we were in the expert hands of Peter Lee who took us through the process step by step. We’re very pleased with the savings ERA has achieved, and the lack of in contract withdrawal charges ensures we can actively manage our archive without worrying about the cost of doing so.”

JOANNE COCOZZA, PRACTICE MANAGER, LAWRENCE STEPHENS SOLICITORS

“

Expense Reduction Analysts provided comprehensive reports that were easy to understand and, post implementation, produced regular management information that evidenced the project results. Not only have they delivered value for money, but also they have saved me a lot of time.”

JOHN CHAPMAN, PURCHASING MANAGER, UNIVERSITY OF HULL

To find out more, visit expensereduction.com