Material costs are on the up but housing associations can secure better deals from the supply chain if they know how
If ever there’s a time to really get to grips with understanding your supply chain, this is it. Brexit, a weak pound and concerns about labour shortages have created a climate of uncertainty in the construction industry. But one thing is certain - costs are rising.
Intelligence gathered by Procurement for Housing (PfH) shows there has been inflation throughout the supply chain with average materials price increase proposals of 6-9% - compared with 2-5% in the previous quarter.
This is backed up by evidence from the Federation of Master Builders, which recently reported that building firms expect to see their costs rise by up to 15% this year.
Indeed, latest data from Markit and the Chartered Institute of Procurement & Supply (CIPS) shows construction costs are at an eight-and-half-year high and the weak sterling exchange rate against the US dollar and euro has led to higher materials prices.
Price increases should not be accepted at face value and should be challenged by working more intelligently and collaboratively with supply chain partners
PfH works with 850 social landlords across the UK, many of which have major development and stock refurbishment programmes. The sector has plenty to worry about - from ongoing welfare reform to cuts in social rent - but what’s clear from the conversations I have with landlords is that the rising cost of materials is a growing concern.
Whether you’re a housing association or a private developer, there are steps that can be taken. Price increases should not be accepted at face value and should be challenged by working more intelligently andcollaboratively with supply chain partners.
Never underestimate the influence of buying power. Aggregating your spend to secure better deals, for example by working collaboratively through frameworks, can be part of a highly effective strategy.
Regularly review and benchmark prices against those of other suppliers and challenge suppliers to justify future increases - for example, proof further down the supply chain from manufacturers providing evidence of higher costs for raw materials.
This isn’t about squeezing suppliers in the hope of forcing them to absorb genuine price rises. They aren’t manufacturers and will be as affected by volatility in the market place as you are.
It’s about protecting yourself from having to bear the brunt of the ‘Brexit effect’ by paying extra as a result of perceived risks that may not actually materialise.
Those armed with a deeper knowledge of the markets they are purchasing from will be in a far stronger bargaining position. Where are items manufactured, what exchange rate risks does that present, could they be replaced with UK manufacturers rather than imported in order to eliminate that uncertainty?
It’s about protecting yourself from having to bear the brunt of the ‘Brexit effect’ by paying extra as a result of perceived risks that may not actually materialise
The same goes for understanding what’s happening in markets for the raw materials found in everything from white goods to heating systems to doors and windows. The copper market is particularly volatile (prices have gone up by 20% in the last year), so could plastic piping be a more cost effective alternative?
A robust approach to procurement will involve regular dialogue with the supply chain - particularly high value suppliers - to build long-term relationships and trust so that you’re able to work through issues.
For example, if a supplier proposes a 10% price rise and your market research indicates their costs have risen by 10%, it’s clear they are passing on the whole cost. It places you in a stronger position to argue that the additional cost should be shared.
This depth of category expertise may need to be bought in, but it’s part and parcel of ensuring businesses have a clear and comprehensive view of the supply chain and it ultimately helps to manage and control future costs at a time of great uncertainty.
Mike Williams is relationship manager (asset management) at Procurement for Housing (PfH)