Global sourcing seems the most prudent procurement strategy for construction businesses amid red-hot inflation. By harnessing regional efficiencies in the production of raw materials they can shield themselves from rising prices and control their cash flow with confidence – or can they? The old saying “buy cheap, buy twice” springs to mind. And what about fractured supply chains in the wake of the pandemic?
Let’s drill into some of the main reasons why global sourcing might lead to costly challenges further down the line.
Ideally, you want to guarantee that your suppliers have the necessary quality control measures in place in both their supply chain and production processes. However, evaluating the quality of products manufactured by global suppliers is challenging, to say the least.
A reliance on different technical or industrial standards, which may or may not meet UK requirements, can result in the production of inferior products overseas. Take the production of steel for example. This labour-intensive raw material is manufactured in China at a low cost but often contains impurities as a result. Meanwhile, British-made steel – often considered the best in the world – is produced using exacting standards and quality materials that make it more durable and, therefore, more cost-effective in the long term.
Even if you receive a sample product from a potential overseas supplier that appears to meet your quality control requirements, the bulk delivery often fails to match up – leaving you with raw materials that don’t meet your standards.
Leaving lead times at the mercy of international supply chains can result in lengthy delays – a challenge that has been exacerbated by the pandemic. This seismic event has created ongoing weakness throughout these vital networks that the world takes for granted – and the result has been challenging for the construction industry: shortages of key raw materials, order backlogs, delivery delays, and a spike in raw material prices.
Whereas materials produced in the UK rely on robust domestic supply chains – and the benefits are compelling: faster lead times, more environmentally sustainable, greater quality control, and reduced cost.
Businesses that adopt a global sourcing procurement strategy expose themselves to currency risk. The value of the pound against other currencies is constantly changing – not just daily but by the minute – under the influence of economic and political variables. Even slight fluctuations in the exchange rate can make a huge difference to the price of your globally sourced products when the time comes to pay for them.
Take the pound’s recent performance against the dollar, for example. Over the last 12 months, GBP/USD fell almost 30% to all-time lows of near parity amid UK political turmoil and a highly aggressive US central bank. Bad news for construction companies that must settle invoices with US-based suppliers.
Don’t rush into sourcing materials overseas because the price tag is tempting. Be mindful that a lack of quality control can leave you lumbered with inferior products that might be delayed anyway due to supply chain bottlenecks – extending lead times and driving up costs.
British products might be more expensive, but you can guarantee their quality, their delivery, and their price. This will save you time and money in the long run – and reinforce your reputation.