Barratt's savings drive from suppliers reaches limit

21 January 2009

21 January 2009 | Jake Kanter

Barratt Homes is running out of opportunities to reduce costs because it has already squeezed its supply chain "substantially", according to the company's CEO.

Speaking during the housebuilder's trading update, chief executive Mark Clare said its suppliers are under so much pressure to pass on price reductions that savings on build costs and raw materials were drying up.

"I don't know how much more there is to get out of costs and I suspect there is a point where we will not be able to go much further," he said. "The procurement team are continuing to take prices down but there is a limit there because our supply chain is being squeezed substantially."

Clare also believed Barratt had pushed its local vendors into a position where they are not making any profit, but insisted the pressure on suppliers to drop prices would continue.

"The other big challenge is on local subcontractors, I suspect we're moving ours to zero margin already but the pressure continues," he said. "The procurement team have a task now to pull savings out of the build costs."

At the beginning of 2008, Barratt Homes demanded its suppliers reduce costs by 3 per cent on existing contracts, arguing it was normal business practice in a tight market (News, 31 January 2008).

SMjan2009

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