Rok falls despite buyer success

23 December 2010

4 January 2010 | Angeline Albert

Buyers at building firm Rok were on track to save £5 million in 2010, but this success could not save the company, which entered administration last November.

A senior Rok employee said the fall was hard to bear amid such progress.

A key achievement of the procurement team was its ability to end rogue purchasing in local business units. The local divisions had been sourcing goods and services independently and had not been following the buying team’s processes. This had resulted in money being wasted in previous years.

In 2005 purchasers had been carrying out administration tasks but the buying team decided to hire admin staff to carry out this work. The number of buyers fell from 59 to 31 as a result and the team’s running costs dropped by 60 per cent.

Back in November 2008, however, Rok issued its first profit warning. In July 2009, it increased its payment time to subcontractors from 30 to 60 days to improve cash flow and, as a result, the company was placed in the Forum of Private Business’s “Hall of Shame” for late payment.

A former worker said: “The decision to extend subcontractors’ payment terms was taken higher up, but my view was that it would put subcontractors in a position where they couldn’t work with Rok. [Other] suppliers’ terms were unaffected.”

In August 2010 the firm issued a profit warning in relation to its plumbing, heating and electrical business, which was not performing as previously reported.

That month, 75 per cent of its 50 key suppliers were hit by Rok’s lack of cash and they soon downgraded the company’s credit rating. From August buyers were on the back foot in supplier negotiations because vendors were wary about getting paid.

The ex-employee added: “Rok’s issue was its inability to get cash in from clients and this responsibility lay with local business units.”    

Around 25 procurement workers were made redundant at the firm. The remaining six were retained by the KPMG administration.   

A former senior procurement team member confirmed cash-flow problems dated back more than 18 months, but said the procurement function was highly skilled and respected. The team had developed a more sophisticated approach to supplier relationships, but the economic climate meant cost reduction became a greater priority.

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