This case study focusses on an insurance client that had a large multi-site postage spend across transactional and direct mail. The supply chain consisted of Royal Mail, a direct relationship with a downstream access provider and a direct mail provider who was invoicing the client separately but using the same downstream access provider as the client. In addition to the complexity within the supply chain, there was no clear postal policy in place. Furthermore, postage wasn’t being charged VAT free in certain circumstances which it should have been, postage rates on downstream access mail were not being applied consistently and the postage from the downstream access providers was not being procured competitively. In summary, there were many opportunities to improve the postage spend category and make significant savings by taking both tactical ‘quick win’ savings and more strategic and significant long-term savings.
The client was a large, multi-site insurance provider. Over the years the postal market has evolved, and it can be seen as a very complex area at times given the amount of choice available in this market. Coupled with this there were numerous stakeholders within the client’s business managing different types of postal spend with different suppliers. There was an opportunity to review this spend and make a significant impact but only if the postage spend could be reviewed centrally. With this in mind, the client engaged us to deliver this project.
As detailed above there were many challenges in this category and one of these was a real gap of any relevant management information. The client was unable to confirm the profile of mail being sent (size/weight), the volume of mail being sent and the associated costs of postage for all of the client’s locations.
Based upon the challenges identified above it was clear that a very detailed category review was required to conclude with a postal supply chain being appointed (Royal Mail and one other) based upon the optimum postal solution available from the marketplace.
The size of the challenge was no surprise to the client but whilst they were aware of the problem, they had limited capacity and expertise in this spend area to impact rapid results.
- Complex supply chain with variable costs
- Lack of postal strategy and spend control
- Value for money not being attained in this budget area
- Inconsistent prices being charged and not VAT efficient
- Lack of data available to conduct the review
From the initiation of this project, once the challenges were fully understood, the strategy became clear. Challenge everything and ensure we conclude with a postal supply chain based upon clear logic with offers the best service and value for money.
Given that the client would also have a high dependency on the selected supplier and they work in a regulated environment, business continuity and risk management were both firmly on their agenda when they embarked on this review.
A very rigorous data gathering process was undertaken initially which became invaluable as it clearly detailed the current services received and associated costs.
It was also key that we engaged the postal supplier market ahead of any tender process to ensure we collaborated with them fully. The clear benefit of this was that we facilitated a process for the suppliers to input in terms of the strategic direction of the review and how they would develop a solution for our challenges.
Once we concluded the pre-tender meetings, we established a clear sourcing strategy and then embarked on the tender process to deliver this. Ahead of the tender we fully researched the supplier market to ensure all key suppliers were included in the process.
Aside from drafting the tender, we also facilitated all supplier discussions and presentations and led the commercial negotiations and contract discussions.
- Implement a dual source supply chain
- Ensure the direct mail postage is on the clients account
- Remove mark-up opportunity from the direct mail provider
- Ensure all spend is consolidated where possible to leverage discounts
- Become VAT efficient
Following a comprehensive tender process, the category solution agreed with the client was to award a 2-year contract to a leading downstream access provider whilst continuing to use the most efficient tariff with Royal Mail for 1st class postage requirements.
This strategy delivered unit price savings from the downstream access supplier market in excess of £100k per annum through extensive negotiations. No changes were made in terms of reducing the delivery of any mail to achieve these cost savings.
In addition, a further £40k per annum was identified by changing to a more VAT efficient tariff with Royal Mail on the 1st class mail.
Finally, a further £150k saving per annum was identified by moving 1st class mail to the downstream access provider. This was certainly not seen as a compromise by the client but more a realisation that the mail being sent 1st class didn’t need to. I feel based on our experience that this presents a saving opportunity in the majority of businesses.
Aside from cost savings, a new downstream access provider was introduced who has since enhanced the savings identified by further optimising how the client is producing mail. The client sees these savings at the start of the journey which many more savings being possible through the use of hybrid mail and a transition to more digital customer communications.
- Award a 2-year contract to a leading downstream access provider
- Partnered with a provider who could deliver ongoing improvements
- Optimal postage solution delivering value for money
- Sustainable cost savings of £290k per annum
The success of this review has been based upon the way in which the client and ourselves have worked together as a team. This is always a fundamental part of how we work to ensure collaboration is maximised. The client was open to challenging the current approach from the initiation of the review and this allowed us to explore and present back every option available.
Aside from the significant benefits mentioned in the solutions section of the case study we also led the review of the supplier contract to ensure that all commitments made by the supplier were captured including the service specification, the service level agreement, and the key performance indicators and costs.
The cost savings are clearly impressive and could only be achieved so quickly by having a very experienced knowledge of this category area and by working so closely with the client.
Whilst a £290k annual saving was implemented this should increase further as the account transitions from a tactically led view to a strategic account focussing on the bigger opportunities.
- Sustainable and significant cost savings
- New, highly motivated postal supply partner
- Optimised usage of 1st class postage
- Selection of partner who could deliver further cost savings