Value – within the construction industry it’s a word not used enough.
We hear “lowest price”, “cheapest” often, but we never really hear “value”, or better yet “added value”.
My own experiences are still that of hearing quantity surveyors and buyers who have risen through the ranks, believing value is getting the lowest possible price. Not just that, but on a need-by-need basis (job by job).
We are experiencing extremely volatile times in pricing and supply assurance with building materials. For example, many buyers have seen timber rise by up to 47% in the last year, with many other materials following the same trajectory.
So, to mitigate these risks, what are construction buyers doing? Sadly, it seems the focus is still on getting the lowest price and “beating” suppliers down on price. The same way it has been done for decades. And, in the main, controversially speaking here, by procurement staff who are not qualified in procurement and have likely come from another role within the organisation.
So how have they learned? Who have they learned from? Why is that way of working the right way? Is it the right way? Simply, no it's not.
It's time for procurement in construction (and I don’t mean large infrastructure projects, for they do have more procurement awareness – I am talking housing developers, smaller building organisations) to realise the benefits of qualifications and the skillsets that it brings. In the main, that skillset being the ability to recognise the word that started this article, value.
But what is value and how does it help to offset this pricing volatility? Well, value is perception.
Value to a traditional, transactional construction buyer is lowest price paid. But value to the site manager could be the product turning up on time, to the quality needed. Which means no programme delay is caused and the costs associated with that.
To the customer care department, it could be the products are chosen that don’t cause issues with customers (in turn leading to less defects).
To the marketing department it could be that a local SME was used, which in turn they can use in social value reporting, which may help to win future bids as part of scoring criteria.
As you can see, value is perception.
I ask this: how much extra would you pay for a defect-free, on-time, high quality delivery that also had marketable benefits?
This is something that is not considered enough in construction procurement. All this value can help mitigate the increasing costs, if understood. Much of it would need to come from a mentality not usually understood in the industry, so here is the controversial statement number two.
We need to stop asking for multiple quotes.
Yes, I am serious. An experienced skilled procurement employee will know how to identify the strategic suppliers that are critical in delivering value to the business. From whom, they will be able to come up with a strategy to develop the partnership with that supplier for significant long-term gain.
Those who know will understand my equation below for value adding strategic supplier management:
Those who don’t…well good luck with your “three quotes, buy cheapest”.
☛ Tim Young is regional procurement manager at Lovell