the PeoPle - OPERC - Off-highway Plant and Equipment Research ...

Birmingham City University, recently
began a research study to investigate
how the wider economic climate may
be affecting construction and its
associated supply chain structures.
The initial phase of their work has
conducted interviews among a sample
of key supply chain stakeholders;
mainly across SMEs who employ
off-highway plant and equipment
assets in their business activities.
The aim of these interviews was to
identify what participants perceive
as the main enablers, barriers and
themes relating to construction and its
supply chains at the moment. While
the study is in its embryonic stages,
this short article sets about highlighting
some of the early findings of the work.
In particular, for the benefit of PEP
readers, those relating to plant and
equipment supply chain players.
The principal themes highlighted
by initial analysis of the interviews
conducted as part of the research study
are: changing supply chain relationships;
pricing pressures and other financial
issues; pressures on project programme
timing; changing clients’ roles; and
negative forces acting on health and
safety. These evolving key themes are
each now briefly discussed in turn.
changing
relationships
Many of those within subcontract
supply organisations
(such as specialist trades and
operator/plant suppliers) feel that
former supply chains have been
eroded, or in the extreme, have
broken down altogether. One
interviewee commented on how
much effort their company had
put into forging good links with
clients such as main contractors
over recent years by way of,
for example, entering into
partnering or preferred supplier
relationships. For many, these
relationships have unfortunately
gone and it is broadly felt that the
emphasis is now almost entirely
on cost at the expense of all else,
including possible fragmentation
or erosion of business-tobusiness
relationships.
One research participant
explained that in tendering for a
particular contract, his company
had expended a lot of time and
resources assessing how to
best approach the job, which
people to assign to it and what
plant they should use, taking
account of the nature of the work
and the risks they expected to
encounter. He said that he had
trimmed everything to the bone
without compromising quality
or encouraging hazardous
working and yet, the client
simply came back and said “I
want a 10% reduction in cost”.
It was concluded that: “...after
you’ve trimmed everything else,
the only thing left is to reduce the
programme time, which creates
even greater pressures on site
and encourages corners to be
cut. Quality and safety have to
be affected”. The situation was
summed up succinctly by another
interviewee who said: “It seems
the former supply chains, the
former relationships, have gone...
it’s back to the bad old days. It’s
all now simply down to price”.
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Pricing pressures and
other financial issues
Previous examples highlighted reinforce
the downward pressures on pricing and
the cutthroat competition between supply
chain members. Many of those interviewed
stated that they knew work was being
priced at cost with “...no allowance for plant
operator, plant cost or fuel”. Effectively,
the plant and equipment component of
some bids is subsidising other costs of
the work package being tendered for, to
try and secure the contract. For many
firms at the moment, turnover, survival,
ability to pay the VAT and such factors
are all more important than profit.
Of particular interest is an evolving subtheme
which concerns the role of the
Banks and the longevity of ‘troubled’ firms.
It was felt by some that Banks are letting
companies continue to trade, where in the
past they may have ‘pulled the rug’ from
beneath them. The main reason for this is
felt to be a reluctance on the Banks’ part
to add ever more bad debt or bad news to
their books, combined with an attitude of
‘turnover is turnover’ regardless of margin.
The perception is that the Banks are happy
to continue giving time to firms that secure
work, without considering whether that work
is profitable: “The firm comes to the Bank
and says, look we’ve got an order for £2M,
but the bank doesn’t know if the tender
price should realistically be £2.5 or £2.6M”.
As a consequence of this behaviour, the
ongoing survival of some firms who are
‘buying work’ is actually helping to continue
suppression of the market. In effect, the
slightly artificial higher level of supply (than
has typically previously been witnessed in
recessionary times) is adding downward
pressure on pricing levels. One respondent
summed this up by saying “...I am amazed
that at least 50% more companies
haven’t gone bust than have done”.
From a more positive perspective, one
participant did highlight that the continuing
pressure to trim business operating
costs and overheads, has forced them
to look hard at how they might innovate
to help achieve this. In this instance, the
company had done so by introducing an
IT system to more efficiently administer
operations and keep stricter tabs on
ordering, buying and cost control per-se.
April 2011
27