Managing Risks in Supply Chains

As government seeks to commission services and goods on a larger scale, charities need to adapt to this new landscape. Often a financial lead or prime (commercial organisation) is used to manage cash-flow, overall delivery and infrastructure headline risks of a large government contract, and/or commissioners can go through a consortia integrator (like 3SC) to sub-contract in a wide third sector supply chain to achieve delivery outcomes. This form of commissioning will increase across many sectors such as employment, education or health. No one charity or third sector organisation will likely have the skills and capabilities to do this all on its own, so the future is likely to see increasing movement towards specialisation through integrated supply chains.

3SC has a lot of experience in building supply chains, or as we prefer to call them ‘supply-consortia’, when bidding for public sector contracts. Over the last 2 years 3SC, as a core Purple Futures member[1], has been delivering complex supply chains in the Ministry of Justice’s (MoJ) modernisation of Probation Services.

Our experience tells us there are a number of things that third sector organisations can do to help reduce risk in designing their supply chains. Firstly, a clear due diligence process that says why and how an organisation can join the supply chain and what is expected. Secondly, planning with a provider A and a provider B for all service areas so if A defaults then B can pick up the performance. Thirdly, providing contracts that are sized appropriately to the organisations in the supply chain and are neither too large nor small. Fourthly, laying out a clear performance threshold and when an improvement plan would apply, for how long before it is lifted and executed. Finally, you should only pass down risks, for example through Payment by Results frameworks, if suppliers can handle it.

Once you have supply chains up and running, make sure you have market stewardship rules and process that stipulates outcomes, the form of contract and broad contract values. All organisations, even those in from the charity sector, must compete with an awareness of rewards and risks. Proper due diligence processes are essential to that. Specify that each consortium member has to operate in an integrated way to avoid ‘serial inefficiency’ and start to do parallel working so service users get what they need from a range of providers in a seamless, simultaneous, joined up way ‘one-stop-shopping’. Assess, and develop it necessary, your ICT systems with an eye on performance management so that you can reassure commissioners about success and agree plans to capture the data-proof of outcome delivery. This will avoid the risk of commissioners deeming your organisation to be in breach of contract.

You should also consider if the consortium should be a loose arrangement or formally set up as a special purpose vehicle. If you want to win future competition a more formal agreement may be needed and preferred for contract management reasons. It can also help to reduce risks by sharing liabilities across the supply chain. Planning service users’ flows and pathways for services is important, so that you can meet outcomes at all points of the service contract. This will help you identify the challenges in the supply-consortia and where extra monitoring may be necessary.

Ultimately, you need to consider whole-system change and linkage across tall service areas being delivered such as social care, health, housing, and employment and avoid duplication. 3SC has a lot of experience in this area and we are happy to share that with other third sector organisations. The commission landscape is changing and most charities involved in service delivery will be part of supply-consortia in the future, managing risks is a critical part of that process.