22 February 2008 | Paul Snell
Engineering and construction firms could save up to 30 per cent on what they currently pay for materials if they buy from low-cost country sources.
According to a report by professional services firm PricewaterhouseCoopers, the industry has fallen behind other sectors such as manufacturing and retail in the use of low-cost country sourcing (LCCS).
The study estimated that 10 per cent of a firm's procurement spend would be suitable for low-cost sourcing, including products such as flooring, plumbing, furniture and tools.
However it said products such as lumber, plate glass and plaster board were unsuitable, either because the saving was not worth it, or they were too fragile for long-distance shipment.
The firm also warned against using third-party intermediaries to deal with suppliers. "Cost transparency is critical to achieving dramatic cost reduction - therefore businesses should source directly from the manufacturer where possible," it said. "The use of intermediaries can erode potential savings to the extent where it is often more economical to retain the incumbent supplier."
The report advised companies looking to source abroad to set up a formal LCCS programme across the whole business, not just in procurement.