Why pay more for your building materials? Sonia Soltani discovered one company that is buying from abroad, slashing prices and passing the savings on to some very happy customers
Contractor Simons Group has found a way to convince supermarkets and chain stores that it can provide them with building products for as little as one-third of the price of traditional suppliers. And, aptly enough, the inspiration for this offer is taken from the clients themselves: if retailers are able to make big savings on clothes and household goods through buying products from the cheapest suppliers in far-flung destinations, why can't contractors do the same?
In September 2004, Simons set up a subsidiary called Simons Global Product Sourcing, a joint venture with an outsourcing company called Breakthrough. The idea is to offer what Paul Hodgkinson, Simons Group's chief executive, describes as a club, whereby companies sign up to cover the initially higher costs but can make substantial savings further down the line. The company puts in combined orders for its clients, so when any specify products, they get them at a lower cost because all are sourced from the same supplier and shipped as a sole order. So far, the venture has knocked more than two-thirds off the cost of fabricated metalwork and halved prices of flooring, street furniture and displays. They have also persuaded some high-profile companies to sign up, including Tesco, Debenhams, Next, House of Fraser and Somerfield.
Hodgkinson says that each firm pays a fee to join the scheme. "This covers the cost of overheads that we need to put forward to set the business up. The fee varies between projects, but the average is £30,000."
He admits that it has been difficult to convince long-standing clients that the benefits were worth the investment. That's why the package includes a safety net. "We made the joining fee more palatable by offering a guarantee that if we don't deliver the savings, we'll give the joining fee back." The gamble seems to be paying off - no joining fee has been reclaimed so far, he adds.
At the moment the global sourcing venture is supplying products in the following categories: lighting, flooring, racking, cable, power distribution, street furniture, architectural metalwork, building management systems, signage, sprinklers, visual display, lifts, escalators, chillers, generators, steel and air-handling units.
It does take time to put in place supplier agreements, as John Wheaton, managing director of Breakthrough, explains: "The 14 people at Breakthrough have been involved in long-term sourcing and have built up relationships with manufacturers offshore. It is expensive to set up such an enterprise. There are many difficult contractual issues since we have to deal with letters of credit, currency - things nobody wants to be bothered with."
Deliveries usually take up to eight weeks since most products come from China, South-east Asia, and India. These lead times are longer by a couple of weeks than most suppliers operating in the UK. It would be hard to make such high savings with shorter lead times, Wheaton admits. However, clients are ready to wait if the benefits are big enough. Ian Callaghan is construction and development director at Somerfield, one of Simons' existing clients. He says: "There's a balance to be struck between finishing a job on time and getting better value for money. Having a lead time of eight weeks is not a problem for us because we have a rolling programme, so we plan the works according to deliveries and we're able to accommodate different lead times. If we need something earlier, we can just go elsewhere."
Simons is working on two stores and it expects to save as much as £1m on lifts, elevators, flooring, cables, heating and ventilation
But the venture also deals with companies in Europe and the UK - to the surprise of some of its clients. Somerfield has been sourcing products for the supermarket's rolling programme of refurbishment, refitting more than 100 stores in the past six months. Callaghan says: "The most surprising was a UK-produced stainless steel protection bollard for a fridge cabinet. Simons' price was enormously cheaper than our previous supplier."
Simons is also working with House of Fraser on two new stores in Belfast and High Wycombe and it expects to save as much as £1m on lifts, elevators, flooring, cables, heating and ventilation products. If all goes according to plan, it could be involved in eight House of Fraser projects, estimated at £20m each, over the next five years.
But Peter Horrix, director of store development, says that sourcing building products in this way is unprecendented and does mean radical changes. "There are high risks as we're disrupting our existing supply chain in the UK. I need reassurance from Breakthrough that the countries they are sourcing from meet our prequalification standards."
Wheaton confirms that quality is a concern of all Simons GPS clients, and he is keen to emphasise that the company does not deal with any supplier that does not meet European standards, and intends to set up long-term agreements with both manufacturers and clients.
So far, Wheaton says, the enterprise has yet to make a profit, and for this he turns to another tenet of the retail trade - pile it high and sell it cheap. "We'll have to scale up to get the kind of money we want to make," he says. The company is in talks with Boots, Asda and Sainsbury's, and Hodgkinson is confident that once projects for the individual clients get into full flow, profits will be higher. For now though, he is aware that securing future business is dependent on fulfilling the promises it has made to clients. As Horrix at House of Fraser says: "It's quite a surprise to be able to apply the same methods the retailer uses to buy clothes to the construction industry. Now they have to prove they can deliver what they said they could."