Nigel Swanton gives some advice on sharpening your procurement skills in a downturn
It may seem like a lifetime ago but only last year the construction industry was booming. Fantastic showpiece buildings appeared to be popping up across the country, and each new project was claimed to be better than the last.
Roll forward the clock 12 months and the changes are all too obvious to see. What began as a crisis in the financial sector has now infected the wider economy, and the government confirmed earlier this year that the UK is now officially in recession.
In construction this has meant that speculative projects have been delayed or shelved, and projects that are going ahead require an even higher degree of diligence to ensure that they are delivered on time and within budget to the client’s exact specification.
So how does this change in the economic climate affect the supply chain? The unfortunate downturn in the construction market means that suppliers and subcontractors are going even further to offer the keenest prices possible to safeguard their businesses and, therefore, buyers across the country should be rubbing their hands together with glee – or should they?
The strength of the euro against a rapidly weakening pound dictates that British companies are spending more to import the same product so, in real terms, their costs have increased. These increased costs have to be passed on somewhere and unfortunately a few unscrupulous businesses may see this as an opportunity to offer a product at a very good price that doesn’t quite meet the specification and client requirements. So buyers beware.
My role at m&e contractor ABS London is to ensure that not only is the company getting the best prices, but that it is also getting the best possible product and value for money to meet and exceed our clients’ expectations – this means not cutting corners.
So what is the solution? Options such as sourcing from the UK may seem appealing. However, not all items can be procured so close to home, and it is rare to find a manufacturer that does not import at least some of its component parts. I prefer to talk to my key suppliers and look to them as my best source of information.
We have set up key alliances with a number of leading manufacturers which enables us to offer extended warranties of up to five years on some of the equipment that we supply and install
Try and package up the project as early as possible so that fluctuating exchange rates do not impact on the commercial viability of the project further down the line. It is better to deliver a project on time and on budget than to gamble on squeezing that additional 1% commercial support at the risk of failing your client.
There are companies, however, that will look at the difficult market conditions as an opportunity to re-acquaint themselves with your business, and these should not be dismissed out of hand as they may be able to offer something to please everyone. Just make sure you read the small print.
Always remember those hidden extras like witness testing. There was a time when some people could stomach watching paint dry if it meant a free lunch in the Alps, but this is much less palatable now that margins are so tight, and although it may not be quite as scenic, witness testing just off the M1 is a lot more appealing to the wallet and could mean the difference between financial success or failure.
At ABS we have found that now, more than ever, a strong proven supply chain is key to our future success. We are working closely with all our key stakeholders to ensure that commercially we maintain a keen edge but also ensuring that our clients are still being delivered the high-quality product and service that they have come to expect from our business. Our long-standing preferred supplier agreements and business solution partnerships mean that we are dealing with companies that value the continued growth of our business as paramount to their future success.
We have set up key alliances with a number of leading manufacturers which enables us to offer extended warranties of up to five years on some of the equipment that we supply and install, and it is comforting for our clients to know that we can offer this additional support.
As the head of procurement for an m&e contractor, it is not normally in my interest to offer advice to other procurement professionals outside my own business, but in these testing times I think it makes sense to spread some goodwill. I will leave you with this final message: “If something looks too good to be true... then it probably is!”
Electrical and Mechanical Contractor
Nigel Swanton is head of procurement at ABS London