Construction Contractors – Are you Feeling the Squeeze?
There’s a new phrase being bandied about by politicians – it’s the “squeezed middle” – a term used to describe the millions of people in the UK who are suffering rising prices combined with a relative decline in real wages. This is something that many of us in the construction industry will relate to as we still struggle to overcome the financial difficulties brought about by the financial crisis, followed by the economic uncertainty that rolled in hot on the heels of the Brexit vote last year. Although the recession started nearly ten years ago and the economy has since recovered, the knock on effects are still being felt by businesses here in the UK.
Business owners, especially those in the construction industry, often get caught in the middle between supplies and customers, with pressure coming from each side. When it comes to supplies, although core product prices may have remained largely unaffected, the price of some materials have shot up and availability has been stretched, with supply lead times of up to six months in some cases. There are times when contractors and business owners just cannot source materials fast enough which can lead to delays while customers put us under pressure to increase capacity, get the job done quickly and at a competitive price. This is the “squeeze”, customer demand increasing faster than the ability to supply.
With growing demand, the availability of materials has created a “bullwhip” effect in the supply chain and the further you are from the whip handle in the supply chain, the greater the detrimental effect can be. The most effective method of counteracting the “squeeze” is to improve communication with all parties involved in a project.
Some of the small to medium construction company owners and managers are finding that, whereas in the past the procurement of materials typically took up about 5% of their work time, it’s now gone up to between 10% and 25%. This is because they need to spend so much time communicating with suppliers about their production schedules and allocating slots of the materials necessary for the project. In cases where build schedules move or suppliers produce less than forecast, this creates additional work with even more time being spent on sourcing supplies in a bid to get the right materials on site at the right time.
Some business owners find that they are having to make commitments to buy materials at a much earlier stage in the project build programme than they had to in the past which adds further financial complications to the job.
We’re also at the mercy of wildly fluctuating exchange rates right now. Sterling has decreased in value since the Brexit vote and supplies that need to be imported from overseas have caused additional expenses on many project.
We’re still facing difficult times in the construction industry here in the UK and with so much political uncertainty right now, that’s a situation that’s likely to continue. As business owners, managers and contractors in the UK’s construction industry, we’ll need to carry on being flexible for some time to come.