The impact of inflation across the construction supply chain fuelled by energy increases has led one of the UK’s largest buying groups to call for “realism” in pricing negotiations. The Office for Budget Responsibility (OBR) is forecasting an inflation peak of 9% this year which is driving material costs up along the length of the construction supply chain.
Whilst able to accept reasonable cost pressure, National Buying Group (NBG) is increasingly concerned that price changes must be justified and be proportionate with transparent detail to support any changes.
Nick Oates, Managing Director at National Buying Group says the market is difficult for everyone: “We understand this is a very challenging market and that is being reflected in our negotiations. However, there is a real danger that if prices increase too much, we will impact demand from the end consumer, which could ultimately kill the market. We need to spread the inflationary impact across the supply chain.”
For the merchant, passing price increases on to the end user is increasingly more challenging, because they must also factor in the greatly increased cost of delivery onto any product price changes, says Nick. “Merchants are arguably the most vulnerable portion of the supply chain to this ‘double squeeze’ from both material and fuel pricing. In effect, merchants must find an extra circa 5% on top of the increase in material prices to cover the cost of delivery.”
Nick says suppliers to the merchant sector can help in two ways – by looking at their stock levels and asking for “realistic” price increases. “We’re asking Suppliers to be reasonable about when they ask for price increases. If a Supplier is sitting on many months of stock, there is no need to ask for a price increase today.
“Secondly, prices need to be more dynamic and reactive to commodity price changes. When commodity prices come down, Suppliers need to react as quickly as when they go up. That is only fair.”
He concluded: “NBG and its Partners have always prided themselves on building strong relationships with their Suppliers. We understand that suppliers cannot absorb all the increase in cost and a proportion needs to be passed on, but independent merchants are also being impacted and their margins eroded by the cost of delivery, so we must take a longer-term balanced view.”