ERA market intelligence January 2017

Issue No. 17.1Insight and market analysis to achieve better value from suppliers
MARKET
INTELLIGENCE
We also look at attitudes to the cost/benefit
analysis of Britain’s decision to leave the EU,
and what strategies companies are adopting
to mitigate risk – and manage uncertainty
proactively.
When less than 60% of the respondents to
our survey had a CPO on the board of their
company, it’s no surprise that 99% think that the
function doesn’t have a high enough profile.
The majority of procurement professionals
surveyed felt that better education of the board
and other departments would help organisations
to realise that procurement can help to solve
some of their most pressing challenges.
In order to be heard, procurement leaders
need to shout louder. ERA MD Robert Allison
says, “Procurement managers need to initiate
different kinds of conversations within the
business. Squeezing costs is valuable – especially
as companies prepare for a post-Brexit world.
Yet if procurement is to truly prove its strategic
value, it needs to help make decisions, not just
be informed of them”.
Expense Reduction Analysts have teamed
up with CIPS again this year, to look at the
current state of the procurement world.
Our recent survey, co-authored with Supply
Management Insider, reveals a frustrated
procurement community who feel the
difference they can make and the influence
they can have within organisations, is still
being overlooked.
In a post-Brexit world and with Trump about
to take the presidential oath in the US, the
world – and UK organisations in particular –
faces an unpredictable future. Our White Paper
‘Managing Uncertainty’ lifts the lid on the
attitudes of the procurement community to
a range of issues.
Why is the voice of the procurement
department not being heard? Does the rest of
the company believe, as 94% of procurement
professionals seem to think, that more effective
procurement in all areas can have demonstrable
effect on bottom-line profit? If not, what can be
done to raise the profile of procurement?
WWW.EXPENSE-REDUCTION.CO.UK
To read the White Paper for free, please visit:
expense-reduction.co.uk/ManagingUncertainty
Managing Uncertainty
Why procurement can make a difference
in partnership with:

Facilities Management: transparency is key
by Ian Morrison
For years Facilities Managers (FMs) have
had to rely on the relationship with their
contractors to know what their assets are
doing and whether they are performing
effectively. It was often a case of ‘no news is
good news’ and if an asset didn’t fail,
then that in itself was a measure of success.
As equipment becomes more intelligent and
is connected to such technologies as energy
monitoring and building management systems,
it is becoming more and more essential that FMs
have the data they need to effectively manage
equipment performance.
Big data
On a practical basis, most FMs are faced with
a paucity of data about their estates and the
assets within. Asset lists and real-time data
are luxuries few have at their fingertips. Over
time and with the growth of the ‘Internet of
Things’ (a world of web-connected devices), the
problem of an acute lack of data transparency
will render the many advantages of smart data
useless, inevitably putting performance under
threat and driving up cost.
An acute lack of data also introduces risk to
the business, leading to an over-reliance on
contractors to know what is going on day-to-day.
Ultimately though, any potential risk rests with
the business itself and, when that can range
from non-compliance to asset failure, you begin
to understand why having that data accessible
internally is so important. Whilst offsetting the
risk to the contractor provides some comfort –
they can help when things go wrong – downtime
and compliance remain a major challenge for
all FMs.
Technological advances
Soon, ‘smart’ equipment will be able to self-
monitor and measure its own performance.
When properly integrated into other systems,
it will improve efficiencies, enhance service
quality and reduce operational costs.
An obvious benefit of these technological
advances is seen in, for example, condition
based maintenance. Here, by self-monitoring its
own performance, such a strategy becomes a
manageable, low-risk option. These techniques,
though currently deployed in some quarters,
do not enjoy universal support because they
are difficult to manage. The good news is these
barriers will become a thing of the past.
A further significant benefit will be optimising
equipment energy performance through the
integration of a number of systems to minimise
consumption. For example, FMs could adjust the
operating times of equipment when demand is
lower than normal.
But unless presented effectively, big data has
the ability to get in the way of making the
right decisions. The right technologies can
make this manageable and, with the increasing
deployment of mobile technology, FM is
available everywhere and at any time. This can
make asset management virtually instantaneous
and reduce the impact of failures and downtime
to the business.
Decision making
Having the right supply partners who can
support these concepts is now crucial to a client
who is seeking to optimise asset performance.
Improving up-time and creating innovation
whilst driving down costs sounds like Utopia, but
having the right data, the right measures and
transparency of information at your fingertips
will help to achieve these objectives.
So it’s clear that when selecting a supply
partner and service delivery model, it is
important not just to consider today’s standard
FM requirements, but also how your business
will develop over time in the future.
Maintenance and asset optimisation need to be
considered over the longer term. FM budgets
are always tight; it is for precisely this reason
that procuring FM services should be managed
responsibly. It’s vital to take into account the
bigger picture; don’t just focus on the technical
delivery, but on all aspects of effective ongoing
asset management.
WWW.EXPENSE-REDUCTION.CO.UK WWW.EXPENSE-REDUCTION.CO.UK2 3
Market Intelligence Market IntelligenceIssue No. 17.1 Issue No. 17.1

Water: The market opens in April 2017
by Phil Howarth
April 2017 represents a significant milestone,
as the water market in England is deregulated.
What is happening?
Perhaps the best way to describe what is
happening is to look at the example set by
Scotland.
In 2008 the water market in Scotland was
deregulated. Scottish Water remained the
wholesaler – and created a retail arm of its
own (Business Stream) – whilst other businesses
were able to enter the market. These new
retailers add their own service elements to
the basic supply and market them to Scottish
businesses in competition with Business Stream.
Organisations then benefit from the ability to
shop around in the same way you can with Gas,
Electric & Telecoms.
In England, from April 2017 a similar breakup
of the market will take place, although the
picture looks more complicated with regional
monopolies of more than twenty different
companies. Whilst the physical supply of water
itself will remain unchanged, it’s the added
services that will be the main ‘difference’.
A major part of the work ERA undertake is a
full forensic audit of a client’s water accounts,
optimising tariffs, seeking out efficiencies,
providing monitoring & management and
recovering any historic over charging.
The opportunity that will be created by
deregulation should not be underestimated. A
process is about to take place that has already
seen manoeuvrings from some of the major
players:
• Severn Trent and United Utilities have joined
forces as ‘Water Plus’
• Southern Water is exiting and has sold its
books to Business Stream
• Thames Water is exiting and has sold its
books to Castle Water
• South West Water has acquired Sembcorp
• South Staffs has acquired Cambridge Water
By the time you read this, it’s likely other deals will
have been completed or are imminent as the market
rebalances.
What do I need to do?
From 1st April 2017 eligible non-household
customers will be able to choose who they buy
their water and sewerage services from. This
includes all eligible businesses whether large or
small. The change is driven by the Government’s
aim to introduce more competition into the
water industry in England.
How it works now
All businesses receive water and sewerage
services from their local supplier, who also
provides the customer service, making them
responsible for both wholesale and retail
services.
Wholesale services include:
• Water supply
• Removal and treatment of sewerage
Retail services include:
• Billing
• Meter reading
• Customer queries
How it will work after 1st April 2017
Businesses will be able to choose who supplies
their retail services for water, sewerage and
trade effluent.
Having a choice will mean you’ll be able to
consider the best services for your business,
which could include things like:
• Price (however ERA are currently predicting
only a 1% or 2% discount)
• Account consolidation (having one, instead of
multiple suppliers)
• E-billing
• Billing format (choosing suppliers who offer
‘spreadsheet’ billing)
• Contract or payment terms
• Customer service
Who are water retailers?
Retailers are companies that have been granted
a licence by the water regulator (OFWAT),
to provide retail services to non-household
customers.
What happens next?
In order to prepare for market opening, ERA
would recommend that data is collated as soon
as possible. This will allow analysis of current
spending and supply details are optimised
in readiness for when the market opens for
business on the 1st April 2017, putting you
in the best position to make the most of the
opportunity.

If the forthcoming 2017 Rating Revaluation
has seemed a bit abstract, the recent
publication of the draft Rating List for
England and Wales will make it appear much
more defined.
The List shows details about proposed rateable
values and it is up to ratepayers to check that
they are correct.
There is also a new appeals process in place.
It consists of three stages in England: ‘Check,
Challenge and Appeal’ - though the Scottish and
Welsh devolved administrations are considering
changes of their own.
Depending on your point of view
The Government sees this new process as a way
of simplifying the whole rating appeals system,
aiming to save local government substantial
sums of money.
That’s not how everybody sees it though. Some
businesses and rating agents are concerned
that the new system simply shifts the burden of
responsibility onto the shoulders of ratepayers.
Because of that, the new appeals system will
require more involvement from anyone wishing
to challenge their rateable values. Significant
evidence and proof will need to be provided for
their challenge to meet the stated criteria of
being both ‘meaningful’ and ‘complete’.
Disparity
For many businesses, the longer than usual gap
between rating revaluations has hit them hard,
leaving them facing big rate increases out of all
proportion to the actual economic climate. For
others, the revaluation is likely to be generous
as it seems that the new list is hallmarked by
some large disparities.
The 2017 Rating Revaluation does seek to
address this, but is being anticipated as the
most major shake-up of business rates in a
generation. The opportunity for businesses to
challenge their values has perhaps never been
greater.
So is it easy?
With a new system in place, there are still areas
where it is unclear to many ratepayers how the
new system will work. One of these areas is to
do with so-called ‘Transitional Arrangements’,
and in England there will be phasing of large
changes in liability in up to three bandings, both
upwards and downwards. Separate transitional
schemes for Scotland and Wales are also
being considered.
The new ‘Check, Challenge and Appeal’ process
is likely to be a challenge for everyone involved,
especially with the Valuation Office Agency
(VOA) reserving the right to take more time over
disclosing information. The process may also
require evidence, photographs and valuations
and perhaps even precedent and case law
where appropriate.
Whilst the stated aim of the gGvernment is
to simplify the process, the experience of
ratepayers and rating agents may well be
different – only time will tell.
Regardless of potential obstacles to a successful
rating appeal, it’s clear that now that the draft
Rating List is published, businesses need to
shift up a gear and get checking their details in
preparation for 2017.
You can see the draft Rating List at
www.tax.service.gov.uk/view-my-valuation
To get a better understanding of how it
financially impacts you, and how you can
mitigate it, please get in touch.
2017 Business Rates changes: how are they affecting you?
by Paul Ginness
WWW.EXPENSE-REDUCTION.CO.UK6
Market Intelligence Issue No. 17.1

‘Hybrid Mail’ is not a new concept and
adoption across the UK has been slow to take
hold, but the anecdotal evidence is that real
market traction is now taking place.
What is ‘Hybrid Mail’?
The term ‘hybrid’ comes from the fact that
the mail piece leaves the sender in electronic
format, yet the recipient receives a physical
letter, invoice or statement.
The hybrid mail provider typically maximises
the postal discounts available by using address
verification techniques and printing the
combined volumes of many organisations thus
avoiding the collection and sorting elements of
the Royal Mail’s processes.
In the UK, Ofcom - the mail market regulator
- introduced competition to the Royal Mail by
ensuring that competitors still had access to
the Royal Mail’s delivery network. The service
offered is known as Downstream Access (DSA)
and offers the carriers discounts of around 60%
on the cost of postage.
Most businesses don’t have the volumes or
frequency of their own mailings to meet the
entry requirements, which are normally a
minimum of 4,000 items in a single mailing.
These alternative carriers will offer varying
discounts to organisations and will collect filled
envelopes ready for dispatch, but even then
the volume requirements are very high, usually
500 items per working day. This in turn means
that for the vast majority of UK businesses the
discounts available for physical mail delivery are
simply not available.
Generating hybrid mail can be as simple as
installing a virtual printer driver, and they bring
substantially reduced costs (25-40% of total
mailing costs) to even small volume users.
Hybrid mail therefore gives the potential for
organisations to link their output transactional
mail from ERP or other Accounting Systems, to
create a truly integrated approach. Similarly,
letters, invoices and statements will tend to be
produced as Word or PDF documents meaning
that hybrid mail printer drivers will be able to
read these documents ‘out of the box’.
The transition from physical mail to hybrid mail
is seamless and can often lead to payments
being received more quickly; particularly if all
items are transmitted solely by email.
Some hybrid mail providers will combine a
secure email with a physical ‘fall back’ by
means of the sender being alerted to any emails
that are not opened within an agreed number of
days, thus ensuring delivery of the item by one
medium or the other, therefore giving clients
the best of both worlds.
Our postal expert is well versed in the
technology, so we are well placed to advise –
always with an emphasis, as ever – on reducing
your overall outgoings, and embracing new ways
of doing things.
‘Hybrid Mail’ may be one the best cost saving ideas for your
organisation that you have never heard of
by Zoe Willis

Are your food costs rising? What can you do about it?
by Chris Wardle FIH MCIPS
My food prices are changing. What’s going on?
You may have had notification from your food
supplier/s that prices are changing. Although
some items will reduce in price, the common
theme is that you will have been paying more
for certain items since Nov 2016.
Why is this so?
Save for a few volatile lines, food prices have
been pretty static across the board for the last
3 or 4 years. For the past 2 years or so, the
Consumer Price Index (CPI) for foodstuffs has
shown either minor decreases or little change in
prices compared to those of 12 months previous,
which has been great for budgets and planning
purposes.
But things are changing and perhaps came to
wider public attention in October when the
‘Marmitegate’ or ‘Marmageddon’ row saw
stocks of the popular/unpopular (delete as
appropriate) spread run low in Tesco. This was
due to the producer Unilever imposing a 10%
price hike across its range due to the slump
in the value of the Sterling caused by Brexit.
Though now resolved, Tesco’s chairman John
Allan warned that food inflation could reach 3%.
Currency fluctuations have had a 13% adverse
impact on the US Dollar and the Euro. This
influence of the sudden change in currency
value has immediate and severe implications
for the UK foodservice market. Suppliers are
working to help mitigate a proportion of the
adverse impact. However, it is unlikely that this
will stretch to all commodities. In addition,
a weaker Sterling is likely to increase exports,
impact crop quality and quantity.
• Fuelled by population and economic
growth, global utilisation of vegetable oils is
expected to expand further. Rapeseed and
Sunflower prices have jumped significantly
following the EU Referendum with currency
pressures taking their toll. This is unlikely to
change short-term.
• Meat: Increased exports to Asia have seen
supply within EU markets, for beef and pork,
impact on price.
• Trade news for 2016 for salmon has so far
been dominated by reports of a massive algal
bloom in southern Chile that had killed some
27 million fish. This has been compounded by
an expected drop in production in Norway,
where growth is currently limited by sea lice
issues. This is pushing up the already high
Norwegian prices even further.
(Source: Brakes report Oct 16)
Can you do anything about it?
If your budget is anything more than £50k
per annum then you will likely be aware of
price increases and your suppliers should have
informed you of impending changes. Some of
these changes will be significant and we have
seen examples of dairy lines increasing by 40%.
Larger suppliers such as Brakes and Bidvest
have resisted the urge to impose a blanket
percentage increase across their ranges,
choosing instead to delay the normal Sep/
Oct price reviews for a few weeks to review
external influences such as those described.
Price changes have been passed on to
consumers, though not fully.
For example, we noted price increases on
certain cheese products of around 9% in the EU,
whereas an average of 6% is what we are seeing
from UK suppliers.
Smaller, less ‘corporate’ suppliers may well use
the various factors that have impacted food
prices to their own advantage. We have come
across a handful of instances where blanket
increases were suggested to clients. When we
have challenged these on their behalf, a more
focused and less ‘shotgun’ approach to price
hiking has resulted, affecting fewer lines and to
a lesser degree.
But what is acceptable; what does ‘good’
pricing look like?
This is a tricky question and one that will
likely take some time and effort for most
organisations to answer, if they have the
necessary expertise to do so.
Our advice would be to shop around; Local and
Regional suppliers may be able to do better
deals on certain items than national suppliers.
If you have the resource to broker such deals
then it can be worthwhile, though don’t forget
that ordering, receiving, putting away and
processing small orders from several suppliers
constitutes hidden cost. You may save a few
pounds on goods, but if it has taken half a day a
week to achieve does it make economic sense to
do so? And if you don’t have the internal expert
resource to review food pricing for you, perhaps
now is the time to contact ERA to see if we
can help.
with the resulting rise in demand narrowing the
pricing gap still further.
Other issues have also contributed to changing
food prices. Dairy prices, especially butter
and milk, dropped sharply 2 years ago when
EU quotas were abolished for milk, which in
turn led to supply outstripping demand when
farmers chose to produce more milk than they
were previously permitted. This trend is now
reversing due to a global shortage. Years of low
prices forced UK farmers to buy poor quality
feed, yielding lower volumes and some chose
not to replace their herds when they would
previously have done so. Staying with dairy,
butter production is dependent on cream, which
has soared in price recently. It goes without
saying that suppliers pass on these increases in
raw goods to consumers.
But it isn’t just Brexit and currency issues
affecting food prices. Other influences are as
follows:
• Key vegetable growing areas in France,
Belgium and Holland have been adversely
affected by heavy rains and floods. This
subsequent limiting of crops, quality and
yields looks likely to create one of the worst
harvests in recent years.
• A difficult position for potatoes and
especially chips currently exists, with
currency issues and wet weather in northern
Europe applying inflationary pressures.
Heavy rain and the resulting flooding have
been reported at some of the main growing
regions in Europe, with the potential to truly

Applying the Pareto Principle
by Robert Stearn
The Pareto Principle, also known as the 80/20
rule, is a classic. And these things become so
for a reason, as noted management guru Peter
Drucker observes “There is nothing quite
so useless, as doing with great efficiency,
something that should not be done at all”.
The principle states that by and large 20% of the
cause produces 80% of the consequence.
This observation was originally the result of
Italian economist Pareto noticing in 1906 that
80% of Italy’s land was owned by 20% of the
population. He then carried out surveys on
a variety of other countries and found to his
surprise that a similar distribution applied.
As he and others later discovered, the principle
has a certain universality which can be applied
in almost any context. It is a powerful,
fundamental principle of life – and of
working smart.
So what else can you use Pareto to illustrate?
Well, for example, in business it’s generally true
to say that 80% of the results come from 20% of
effort, or that the top 20% of your customers
will account for 80% of your profit.
Consider applying the 80/20 rule to the
information you receive: perhaps 20% is useful,
whereas 80% is not. The key to efficiency – and
success – is to identify and focus on that 20%
and ignore or remove the rest completely; it’s
wasted effort.
The same is true of time expended for results
achieved. Think of the benefits you could enjoy
if you apply the Pareto Principle to your time
management and your personal and business
productivity.
Typically a business will try to squeeze every
last drop out of each opportunity, to go ‘100%
all-out’, without consideration of the impact on
time, productivity and wastage.
Simple, time-efficient businesses recognise
that it is fundamentally inefficient to go for the
‘whole pie’ when you can get the majority of
results for the minority of effort.
Safe in the knowledge that your efforts are
not going to waste, you can concentrate on
what wins you customers – and then enjoy the
success.
Most businesses are not brave enough – or
innovative enough – to pursue such a strategy,
but you can’t argue with the logic.
Concentrate on the 20% that produces the 80%
of benefit.
You can look at it another way; spend 80% of
your time working on the 20% that really gets
you results. In this way you can work more
efficiently, ensuring that – to continue the
metaphor – you spend 80% of your time servicing
that 20% of clients that produce 80% of your
profit.
‘You win some, you lose some’ is no way to run a
successful business, but armed with knowledge
of the Pareto Principle, you can work the system
to your benefit. It’s not just about working
smarter – it’s about working smarter on the right
things that will get you the best results.
To put this on the context of organisational
costs, the reality is that most organisations
don’t rigorously manage up to 20% of their costs
– and those suppliers – more than once every
few years. To most businesses, concentrating
on that 80% of the costs – typically the costs of
goods for resale or the cost of manufacture –
makes sense.
It’s where the skills of the procurement team
they have – if they have one – lie, and it’s
certainly the right approach to focus on the
largest costs where you can make the most
difference. Letting the other 20% ‘tick over’
becomes an inevitability borne of a lack of time,
resource and knowledge.
By focusing on the 80%, the 20% is neglected,
and for most organisations 20% of the cost is still
a significant sum. Utilising external resource
to apply focus to that 20% - typically a range
of indirect costs such as IT & Comms, Facilities
Management, Fuel, Insurance, Office Supplies,
Print & Copiers, Utilities and Waste – can bring
tangible benefits.

The path to world-class procurement
by Karnjit Cooner
Any size of organisation, from an SME (or
a school!) without a procurement team, to
large multinationals with dedicated staff, can
make the transition to having a world-class
procurement function.
Since all businesses exist to make profit, it
stands to reason that this applies to your
suppliers too.
Contracts are often written specifically to
crank up margin over time and finance and
procurement directors often lack the time,
the expertise and the knowledge required to
prevent suppliers from generating maximum
income from their account. In our experience,
it’s either that – or a misplaced belief that they
are already paying the best price they can –
that prevents organisations from tackling these
issues, and that can lead to significant sums of
money leaking out of the business unnecessarily.
Generally, suppliers base the price you are
offered on the opportunity in front of them on
the given day and, of course, their objective
is to maximise their margin. Their sales
people are, on average, better trained, better
resourced and better incentivised – as well as
being given more freedom to do that - than
your ‘buyers’ are. And the inverted commas are
because the majority of people purchasing on
behalf of organisations aren’t trained buyers
at all. Add to that the fact that the suppliers
understand their own industry better than you
do and it can start to sound like an uneven
playing field.
In our experience it most certainly is.
It’s therefore important to remember that the
path to procurement enlightenment starts with
a single step; improving your procurement
incrementally can be a good way of breaking the
task down into more manageable chunks, and
there are benefits along the way.
Our five-step programme can lead you from a
place of ‘transactional procurement’ to ‘world-
class’ by targeting ten key attributes.
Effective procurement of the full range of goods
and services you buy in to run your business has
some tangible effects:
• Lower operating costs
• Financial savings
• Budget recovered to be redeployed
elsewhere
• Increased shareholder value
More results-oriented procurement strategies
can be really effective in times of economic
strain.
Economic challenges can mean finding effective
new sources of revenue is an imperative. Where
better to look, than trying to keep more of
the money you earn and pay less to suppliers
in the first place? As more uncertainty looms,
risk increases and organisations come under
competitive pressure to look at innovative ways
to secure growth and control cost.
Sales vs. Procurement
It’s an old debate in procurement circles, but
the argument about who can add the most
value, Sales or Procurement, is an interesting
one. Our recent survey with CIPS demonstrated
that a huge majority of procurement
professionals believe that more investment
in their department will generate tangible
improvements to bottom line profit. A simple
20% reduction in cost – about our average saving
– across the board on an organisation’s indirect
costs can yield the same enhancement to profit
as would be generated by growing the entire
company by 20%... and it’s a far easier process.
This can help to establish a baseline for your
organisation to begin making improvements
from. It also establishes a pathway, enabling
organisations to see where improvements need
to be made and where the opportunity for
improved effectiveness and efficiency exist.
There are a huge number of tangible benefits to
undertaking a programme of work such as this
one. Proactive management of both process and
cost allows organisations to realise immediate
upfront cost savings by procuring items, services
and contracts at the best price available.
Procurement Maturity Assessment
An ERA procurement expert can begin to make
an assessment of where your purchasing is at
currently, by assessing your current level of
maturity across a range of attributes:
Transactional
Procurement
Reactive
Contracts
Proactive
Category
Commercial
Leadership
World-Class
Five steps to ‘world-class’ procurement
Strategy & Organisation
Category Management
People, Resource & Skills
KPIs, Opportunity
Assessments, Saving
Targets, Performance
Management
Business Engagement &
Functional Effectiveness
Supplier Relationship
Management
Measurement, Policies,
Controls & Compliance,
Corporate and Social
Responsibility
Strategic Sourcing
Purchase to Pay
Systems, Data & Metrics
Procurement attributes

Stephen Whitlam from our Payments Team
explains a key market change and how
businesses can manage its potential impact.
Most businesses are aware that during 2015
there were dramatic changes in Merchant
Acquirer interchange costs for personal card
transactions. The cost for credit cards fell
significantly from between 0.8% to 1.5% by value
to a common level of 0.3%.
Visa debit cards, though, saw a move from circa
8p per transaction to 0.2% by value plus 1p. The
impact of this on high-value transactions – those
greater than around £240 or so – was mitigated
by a cap of 50p (£1 for non-secure transactions).
Whilst every acquirer adapted to the changes
differently, it is fair to say that there was no
particular disruption. This was because at a very
broad level, the cost decreases the acquirers
enjoyed on their credit cards activity offset
any increases in debit card costs. All were
addressing the issue at varying paces, or had
plans to do so by the end of 2017.
September 2016: the cat amongst the pigeons!
Visa dropped the debit card interchange cap
of 50p (as well as the 1p per transaction
addition) which suddenly increased the cost
burden where there are high value debit card
transactions. This has fallen at a time when the
acquirers were beginning to see the benefits of
investment in their own IT, which helps more
readily identify the profitability of accounts in
much more dynamic ways than was previously
available.
So we are now seeing clients receive
notifications of significant changes in their card
costs. Particularly those on blended rather than
cost-plus charging arrangements. This is not just
those who have high value transactions by the
way; the IT investments have enabled a wider
concentration of effort.
Are increases in costs justified?
The simple answer is that without an
understanding of a business’ transaction mix,
it is difficult to know. Everyone would accept
and understand that a supplier has to maintain
an adequate margin... but is the proposed
margin fair and competitive?
ERA’s Payments Team recommends a process of
quantifying volumes and average transaction
scale for each card type commonly used, and
then calculating both the pre-September 2016
and proposed margins. It is then a judgment
call as to whether the change between the two
justifies challenge and – importantly – whether
the ongoing margin is fair and competitive.
The Payments Team is happy to discuss helping
any client through this activity. Either in whole
or with specific elements. We have a detailed
knowledge of current acquirer procedures and
strategies.
Card costs for high value transactions
by Stephen Whitlam & Paul Davidson

The impact of the decision to leave the EU
last summer is still largely to be felt but, as
the March deadline set by Prime Minister May
approaches, the consequences for Distribution
could be costly for your customers, as well as
for you.
2016 might be over and done with, but the
decisions made during that strangest of
years will have a lasting impact. A scarcely
believing media woke to Brexit Britain, and
the US followed that up with the election of
Celebrity Apprentice presenter Donald Trump
in November. Leicester City won the premier
league and the year was scattered with
loss... David Bowie, Prince, Leonard Cohen,
Mohammed Ali, Gene Wilder, Alan Rickman,
Terry Wogan, Victoria Wood, Caroline Ahern
and EU citizenship.
A Brexit plan is slated to be in place by March
and with it the subsequent evocation of Article
50. We’re careering down the hill toward a
negotiation with former friends not likely to
give us an easy ride; ‘pour encourager les
autres’. For international distribution and
logistics, the effects are – like for most other
things in these negotiation – yet to be known.
A soft Brexit could perhaps lead to a way of
remaining, as is the case currently, in the EU
customs union. Currently, there are no customs
fees levied on goods import and exporting
between EU member states, and a common
tariff applied to goods coming in from outside.
However, when it comes to non-EU countries
– including some European neighbours such
as Norway and Switzerland – and every other
country, dependency and territory in the world
– duties and fees are applied. Post-Brexit,
that will apply to all trade with our European
partners as well. And we’ve become heavily
reliant on these relationships, since more than
half of our exports go to current EU countries.
There is also a knock-on effect for your
customers. A customer in Spain taking in
your goods will, under the potential new
circumstances, have to pay custom fees in
their country to do so. It is going to cost you
to import goods and it’s going to cost your
customers buying your exported goods as well.
What might that look like in practice?
Pre-Brexit:
1. You buy a product from a marketplace like
Amazon/Ebay/Rakuten/Wayfair. You may not
know where that product is being shipped
from. If it comes from an EU country like
Spain, then you currently don’t pay any
duty, or customs declaration surcharges. If
it comes from a non-EU country you will be
required to pay UK import duty and customs
declaration surcharges. You may have already
experienced this.
2. You sell a product to a company in Spain.
Currently neither you nor the recipient in
Spain pays any duty or customs declaration
surcharges when it is imported to Spain.
Post-Brexit:
1. You buy a product from a marketplace like
Amazon/Ebay/Rakuten/Wayfair. You may not
know where that product is being shipped
from. If it comes from an EU country like
Spain, then you will have to pay UK import
duty, and customs declaration surcharges
applicable.
2. You sell a product to a company in Spain.
The Spanish recipient will have to pay any
Spanish import duty and customs declaration
surcharges when it is imported to Spain.
To get a better understanding of how these
changes might impact you, and how best to plan
ahead, please get in touch.
EU Distribution: what’s changed?
by Simon Perkins

Ofcom finally enforces legal split of BT & Openreach
by Pritesh Patel
On 29th November Ofcom announced it is
proceeding with a formal legal notification
to separate the Openreach division from BT
Group. The former manages the majority of
the UK telephony and data network, which
telecoms suppliers (BT, Sky, TalkTalk, Daisy,
et al) then resell on to businesses
and consumers.
This comes after the Telecoms regulator had
requested that BT Group split their operations
into two legally-distinct companies back in
July 2016. Following Ofcom’s intervention in
July, Mike McTighe was announced as the first
Chairman of BT’s local fixed network business.
Having previously served as an Ofcom board
member for eight years, it was seen as a move
by BT to meet Ofcom’s concerns. However
Ofcom has stated that this was insufficient.
The introduction of legal proceedings will
require the telecoms giant to remove all
affiliations between the two entities, with two
separate boards and a chairperson with no BT
connections. The move comes amid demands
from other telecoms suppliers to remove the
BT Group monopoly over services. Currently
BT wholesale offers infrastructure to BT and
competitors equally, yet still oversees control of
Openreach finances.
So what impact will these changes have on
businesses? Theoretically lower lead times
on repairs and an increased investment in
infrastructure (one of Ofcom’s aims for the
split is to increase the amount of Full Fibre
Broadband use across the network). The result
of this would be less downtime and improved
service levels. This, coupled with an ability to
operate on higher network speeds ultimately
translates to greater productivity for businesses.
However, it is not all plain sailing. Despite major
operators pushing for a total separation of
the two entities, Ofcom have made clear that
ownership of Openreach will still be retained by
BT, over concerns of pension disruption. Despite
opposition from rivals, Ofcom has stated that a
‘legal separation’ will still achieve the desired
improvements without the lengthy process of
pushing for a true split.
What short term effects can we expect to see?
Ultimately few, as Ofcom must first seek EU
approval to enforce the separation. This is a
relatively drawn-out process that may take
months, adding to the frustration of rival
operators and businesses currently suffering
from Openreach delays.
Effective project management through industry
knowledge and sourcing the right technology
partner can help to minimise Openreach’s
shortcomings in service, something which ERA’s
Communications Team is well accustomed in
dealing with.
WWW.EXPENSE-REDUCTION.CO.UK

ERA market intelligence January 2017

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ERA market intelligence January 2017