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Skanska is latest contractor to trim suppliers

Skanska has become the third major contractor to reveal plans to cut back its supply chain in a bid to cut costs.

Chief executive Mike Putnam told NCE that the firm was cutting back on the number of suppliers it uses for commodity purchases but that subcontractors and designers are safe.

“We are taking a more co-ordinated approach and using fewer suppliers,” he said. “In today’s environment, why go buy commodities from lots of people when you can save on transaction costs by buying from fewer?”

Skanska’s move follows those of Carillion and Balfour Beatty. Carillion is slashing its supplier base from 25,000 to just 5,000 to save £140M a year by 2013. Balfour Beatty is cutting the number of suppliers it works with from 27,000 to 10,000 (News last week).

Carillion and Balfour Beatty have also acquired consultancy skills in recent years to further boost their internal capabilities. Putnam ruled this out at Skanska.

“We have some internal specialist design skills, but we have no plans to go and do what some of our competitors have done,” he said. “We prefer linking up with some of our suppliers on an integrated basis.”

Putnam was speaking as Skanska announced its results for the year ending 31 December 2010.

Revenue was £1.3bn, down 17% on 2009. Putnam said the fall reflected the recession in the market.

Operating income was £38M and operting margins were 3%, an increase on that reported at the end of 2009.

But Putnam admitted that Skanska would be unlikely to maintain that this year, with pressure from clients to cut costs.

“We are not doing anything daft and we are not going to buy work. But we are operating in a market that is in a difficult place.

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