Rentokil Initial, parent company of City Link, has been criticised for its decision to blame an over-reliance on subcontractors for a large proportion of the £9.6m losses suffered by the firm.
It also took the opportunity to blame the previous management at City Link for it falling £10m short of its £70m cost-saving target. It holds its parcels arm responsible, owing to "delays in delivery savings arising from the use of subcontractors".
The parcel giant suffered an operating loss of £9.6m in 2010, compared to a £5.6m loss in 2009. Turnover also decreased to £335.5m from £353.1m in the same period.
"The operational management of the business was poor," Rentokill says, "evidenced by high usage of subcontractors, inadequate contingency planning to deal with extreme conditions and poor engagement of front line colleagues."
The recovery plan for City Link includes increasing the proportion of employed drivers from 50% to 75% and reducing reliance on ad-hoc subcontractors to under 5%.
John Manners-Bell, research analyst at Transport Intelligence, says he is not convinced that moving away from using subcontractors in a distribution model is always a profitable strategy for a firm.
"If you have a good management model in place, then the use of a subcontractor model can often pay dividends for an express delivery company, because you have the infrastructure to cope with peak times without the burden of fixed overheads," he says.
Ivor Skinner, MD at APC Overnight, says "there is always a requirement for subbies in the parcels sector". He adds that any subcontractors should be treated in the same way as employees are: assessed to ensure they are reputable and happy to work in line with a company's business ethos.
"Subcontractors need to be treated as a controlled resource. So rather than hundreds of ad-hoc subcontractors, it is more operationally efficient to work with a pool of trusted and reputable partners. If you don't have a solid subcontractor model, then something is wrong, because these models are essential for firms like us," Skinner says.
Manners-Bell adds: "In City Link's case, I think the management has broken down, rather than the subcontractor model."
Duncan Faithfull, City Link sales and marketing director, says: "We are committed to using our subcontractors, and we are not moving away from the subcontractor model. Instead we are aiming to increase operational efficiency so as to reduce the need for ad-hoc subcontractors."
The City Link recovery plan is being run by Alan Brown, Rentokil Initial CEO, who assumed day-to-day management responsibility of City Link, after its MD Stuart Godman resigned in December.
