Carillion confirms plan to slash supply chain

Carillion, the construction and support services group, has confirmed it is planning to significantly reduce its supplier base from 25,000 companies to around 5,000.

It was reported yesterday that the company was cutting its supplier numbers as part of a drive to save £140m a year by 2013.

The plan, called Step Up, has already saved £42m and next month Carillion is moving to an electronic supplier invoicing system that will help it save a further £86m in 2011, the Sunday Telegraph said.

The company, which spends £3.5bn with suppliers each year, is also using electronic auctions for some products and services to select which of its existing suppliers remain preferred suppliers and is initially ranking suppliers on the percentage discounts they offer on volume contracts, the newspaper reported.

A spokesman for Carillion said the reports were broadly accurate and described the move as a “big opportunity” for the company.

“Moving to a system of preferred suppliers makes sense,” he said. “Our supply chain has grown over the years following Mowlem and Alfred McAlpine deals and it is clear we don’t need that many suppliers.”

While conceding that cost cutting was a factor, the spokesman insisted that the move was also intended to improve reliability and quality for clients.

“If you are buying pencils, clearly cost is the key factor, but with something like concrete is only makes up about 20% of the decision,” he said.