Collective purchasing power: Why there’s strength in numbers

Posted on 15 Jun 2022 by The Manufacturer

With energy prices spiralling upwards at an alarming rate of knots, industry is desperately searching for elusive ways to minimise the financial burden. Control Energy Costs’ Liam Conway explains why the answer could well lie in ‘collective’ purchasing power.

Businesses could be forgiven for thinking someone has it in for them.

A global pandemic that emerged out of nowhere put industry on the backfoot for two years and then, just as things were looking brighter, management teams were playing the delicate balancing act of meeting demand with supply chain disruption and missing components.

And still potentially the biggest hurdle is yet to come, with the unprecedented rise in energy prices leaving many companies with their heads in their hands. It’s not difficult to see why.

A recent survey by Make UK, the organisation which champions engineering and manufacturing, found that 17% of manufacturers have had to ‘temporarily halt production of products that are energy intensive to fabricate’ this year.

The latest estimate is that gas prices have risen 59-fold since May 2020, whilst oil prices are at a seven-year high, making it increasingly costly for manufacturers of all sizes to maintain their production levels.

Russia’s ongoing invasion of Ukraine is only going to make matters worse, but there are some solutions to help minimise the rise in costs if you are prepared to be creative.

Control Energy Costs’ Liam Conway says energy suppliers will simply not entertain the idea of offering a flexible contract to a standalone client, but they might to a super user – a collection of firms together under one framework. Credit: Control Energy Costs

“There used to be an old adage that there is strength in numbers, and this is certainly what we’re seeing in the energy purchasing marketplace,” explained Liam Conway of Control Energy Costs, one of the UK’s leading utilities management specialists.

The experienced Head of Sales admits he has never seen six months like it and companies are increasingly reluctant to sign a fixed contract that ‘locks in and compounds’ the metaphoric increases.

“Flexible contracts are the alternative and certainly something industry – regardless of size of company – should be considering now. It could literally mean the difference between keeping production going or not.”

Purchasing energy in this way has historically been the preserve of large clients, who would tend to consume more than 10,000,000 kWh per annum and thus require a more sophisticated buying strategy.

Energy suppliers will simply not entertain the idea of offering a flexible contract to a standalone client using less than that 10million threshold meaning a different approach is required to take advantage of this method.

“A way around this is to group lots of firms together under one framework so, in essence, we create one super user. We can then make lots of smaller purchases over time when the market looks the most attractive to do so. It also means customers don’t have to fix their energy prices on any one given day,” added Liam.

“In our opinion, the flexible contract will give management teams the ability to ride out the current situation and give them the breathing space to find a far better and more cost-effective longer-term plan.”

This approach is not new, in fact Control Energy Costs launched the ‘Wholesale Market Access’ basket in 2018 to offer this very method within a collective agreement.

It has proved successful for those involved, but the number of organisations wanting to take part has increased by 50% in the last six months and Control Energy Costs now has more than 50 companies involved in the framework with more waiting to join.

Recent sign-ups include global manufacturers, SMEs and construction businesses, who have – on average – seen a 150% rise in energy prices on what they were paying in 2021.

“It’s easy to take part,” pointed out Liam. “Our Flexible Purchasing team will liaise with the business to gain a thorough understanding of your current issues, desired strategy, budget, value at risk and future objectives.

“This consultation process helps determine what the firm needs now and what they may need in the future across both fixed and flexible purchasing options.”

He continued: “Even for businesses who might not have renewals due for a few years, they should still explore the flexible contract now, given it should be part of a long-term strategy.

“A word of caution, however. It is important that management teams understand the product and how it works, as they will see variations month-to-month, and this can be unsettling if they have not been told to expect it.”

Discussions around the rise in energy prices being just short-term pain is way off the mark according to Liam.

He points out that the UK was seeing all-time high wholesale costs before the Ukraine Russia conflict began and that the market will continue to be volatile in the coming years, with an even closer reliance on geopolitical influence than ever before.

Liam said: “We all want the war to end tomorrow, but even if we wake up in the morning and there’s news of a peace deal, it will not return energy prices to what they were. Companies will have to brace themselves that this could be the ‘new norm’ for years to come and explore more creatives ways they can offset some of the cost rises.”

Skymark Packaging International's Scunthorpe facility is now 100% powered by renewable electricity

Skymark Packaging International’s Scunthorpe facility is now 100% powered by renewable electricity. Credit: Skymark

Packaging a Flexible approach to growth and innovation

Skymark Packaging International, a leading manufacturer of innovative packaging solutions, is one of the firms benefitting from a Flexible purchasing agreement arranged by Control Energy Costs.

The company has used this approach to forward purchase its entire energy allocation until 2026 and this is helping shield it from the escalating price rises threatening to bring industry’s emergence from the lockdown to a halt.

This is translating into the management being able to offer its global client base – spanning converter films, food, healthcare and pet foods – smaller price rises and, importantly, allowing it to invest millions of pounds into developing new sustainable packaging in the form of SYMONO, SKYMONO P and SKYPAPR.

John Turner, Managing Director at Skymark Packaging International, commented: “Our production measures are very energy intensive, so we have always looked at ways where we could minimise costs or invest in technology that is more efficient.

“Part of this process was working with experts to explore different ways of managing our energy and this was really frustrating until we started to work with Control Energy Costs.”

He went on to add: “CEC took time to drill down on our operations and explore what techniques it could use to offer us a more sustainable strategy and this led to us adopting a Flexible purchasing approach to gas and electricity some five years ago.

“This was one of the best decisions we’ve ever made and helped us consolidate all of our manufacturing operations on our site in Scunthorpe, whilst also supporting our growth plans going forward.”

Skymark Packaging International, which celebrates 35 years in business in 2022, has also made a big step towards its SME Climate Commitment to halve its carbon emissions by 2030 and to be Net Zero by 2050.

As part of its SKYGREEN agenda, its Scunthorpe facility is now 100% powered by renewable electricity backed by Renewable Energy Guarantees of Origins and the next actions will be to install solar panels, battery storage and heat recovery systems.