In the most part, the harsh reality of structural steel contracting in the current climate is one of survival. This specialist sector is made up of numerous SMEs, all with excess capacity, scrapping for a depleted number of projects. It’s not uncommon to find 10 to 15 steel contractors bidding for an open tender, resulting in unsustainably low pricing levels.
So how are structural steel contractors coping in this environment? As you would expect, most have significantly reduced their capacity and associated overheads. However some have taken the further step of closing their fabrication facility and outsourcing. These firms have found that they are able to source the fabrication at lower costs than they were able to achieve with their own facility.
Is this indicative of a change in the structure of the steel contracting supply chain? Or is it merely a function of short term necessity?
Steel fabrication lines, as with many other manufacturing processes, benefit from highly automated equipment that delivers the highest levels of productivity and product quality. However, those that have made the investment in new lines are only able to realise these benefits with sufficient volume throughput.
Similarly, the requirements of clients and project teams increasingly relate to project management with the capability to positively influence all stages of the project cycle from design development through to site delivery. So in the future might there be a supply chain structure of ‘best in class’ steel contractors, focussed on project delivery, that are serviced by a tier of ‘best in class’ steel fabricators, focussed on manufacturing?
To become established, this model would need consideration and acceptance from both main contractors and trade bodies alike. Challenges would inevitably surround conventional thinking, relating to such topics as quality control and in-house capability. However, is this really such a radical departure? Isn’t it common practice for a significant proportion of fabrication to be outsourced to ‘other fabricators’ to smooth out peaks in demand or where elements are better suited to their manufacturing facility?
It could therefore be argued that those contractors that have recently taken the decision to close their fabrication facility and outsource are merely ‘coming out’. Time will show whether this proves to be a successful move to reposition themselves within the supply chain, or whether it is merely an attempt at short term survival!
Tags: contractors, fabrication, fabricators, outsourcing, steel