EP 147

Strategies for Improving Procurement: A Focus on the Relationship between Procurement and Commercial Departments. (EP 147)



This week, Paul is joined by Jon Watts, the Procurement and Supply Chain Director at Hayfield Homes.

In today’s conversation, Paul and Jon discuss the relationship between the Procurement and Commercial Departments, and Jon explains how he manages collaboration between the two at Hayfield Homes.

Across the episode, we discuss Jon’s unique approach to Supply Chain relationships, how his experience in the RAF shapes his approach to work and most importantly, the best tactics to maximise procurement returns in construction.


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Beyond margin – how QS KPIs can transform your construction business.


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Paul Heming: Hello, and welcome to episode 147 of the Own the Build podcast with me, Paul Heming. As we near episode 150, I just wanted to thank everyone for listening to the show. It’s so cool doing the show, honestly, even for a sad person like me to admit it. We’re in the top 2% of podcasts in the world. We’re often in Apple’s top 20 in the UK. And to think, we’re almost always talking about construction, law, procurement, and commercial tactics, who would’ve thought it would be so popular? But we’re doing that all because you guys are listening, and I get great joy whenever you guys reach out to me to say that you enjoy what we’re doing. Today, I am again sharing a link to the QSs KPIs eBook, which we chatted about last week with Chris. We got great feedback from that show. And if you want to think about how to get better value from your commercial team, you should definitely check it out. It’s in the show notes. Onto today’s show, and in the studio today, we are joined by John Watts, who is the procurement and supply chain director at Hayfield Homes. John is passionate about procurement, and as all of you listeners know, I might be a touch obsessed with it as well. John, welcome to the show. How’s it going?

John Watts: Yeah, very good mate. How are you?

Paul Heming: Pretty good, pretty good. I mean, I’m conflicted here because as everybody knows, well not everybody, but as some of the listeners will remember, I am sad enough to support a terrible football club named Birmingham City. And I’m even saddened to have invited an Aston Villa fan onto the show to have a conversation with me. So conflicting is an understatement.

John Watts: We’re going straight there. Are we?

Paul Heming: We are. We’ve got to get it out there early, haven’t we?

John Watts: I don’t think there’s a lot to say though. Is it?

Paul Heming: No, to be honest with you, I should really keep my mouth shut. And Chris, my business partner, who was on the show last week, sadly, is a Villa fan as well, although he keeps it to himself. So that’s two in two which is provocative to say the least. But anyway, we won’t talk football, which is probably a good thing for me. We’ll talk construction and procurement, mate. Just, I’ve given a bit of an introduction, obviously, procurement and supply chain director at Hayfield Homes. I know that your background is that you’re XRF, but just talk about your journey to where you are today in construction and your role today.

John Watts: I’d say background is RF. I left the RF and wasn’t sure what to do, where to go, how to earn money, kind of bobbed around a little bit. My dad worked for George Wimpy back in the day when it was George Wimpy. He’d worked for George Wimpy for about 30 years, 30 odd years. And he randomly happened to mention that they were searching for a trainee buyer. And at the time – Yeah, exactly. At the time, I thought, what’s trainee buyer? What do they buy?

Paul Heming: I’m good at buying stuff.

John Watts: Yeah, exactly. I’m good at spending money. I don’t know whether that obviously I’d kind of, you know, heard around what, like a quantity surveyor does a QSs, you know, but I’d never heard of a buyer, but I needed a job, so I went along to the interview, was pretty much offered the job there and then, and started life as a trainee buyer for Georgia Wimpy back in 2007, I want to say, it’s a while ago. And then my life, my career has been procurement. I’ve rose the ranks from like system from buyer to from training buyer to assistant buyer to buyer, and eventually into roles such as head of procurement, head of supply chain for SMEs, PLCs from contracting to partnership housing, to private house building to PRS, to high-rise.

Paul Heming: You’ve done it all.

John Watts: So there’s a wealth of experience there. Yeah, well, I’ve done it all, but probably not very long in each. But it varies experience. But yeah, definitely worthwhile. You know, I’ve took parts from each and have been able to apply those to where I am really and what I do.

Paul Heming: Amazing. And there’s a couple of things that stick out from that story, but I think the first bit echoes with my own experience in that, you came into the industry in 2007. That’s exactly the same time when I came into the industry.

John Watts: Great time.

Paul Heming: Yeah. Oh, fantastic. Financial crisis kind of time, wasn’t it?

John Watts: Yeah, yeah.

Paul Heming: I have to say that, you know, my reflection on coming into the industry as a trainee QSs, you’re a trainee buyer at that time, was that it really gave focus and clarity to me. I felt like the, I was very fortunate with the managers that I had at the time and throughout, to be honest with you, but in giving me absolute clarity, and they were uber focused on getting everything spot on in that moment in time because it was such a sensitive period in the economy and the wider industry, etcetera. What are your reflections on joining the industry at that time?

John Watts: So I joined in January, 2007. So I had probably 12 months to 18 months experience before –

Paul Heming: I was October. So I was just right in the thick of it.

John Watts: Yeah. So there you go. So I had about, like I say, 12 months, 18 months of experience before really the, you know, the jungle drums started beating and you know, people started panicking, but like you, I had a really good mentor at the time. He was a very experienced and a very sarcastic Irishman. And he took me under his wing. He was a senior buyer, I think at the time, but got on really well with him. I think under the trainee program, trainees were safer and redundancy. So, you know, the immediate risk, you know, wasn’t there. And I knew it wasn’t there, but at the same time, the team around me was getting smaller and smaller. But like you said, it, I think it doubled down on my focus get my head down, work hard, learn, contribute. What can I do? There’s less people doing the jobs, therefore I need to step up.

Paul Heming: I was going to say, did that give you more exposure then as the team narrowed?

John Watts: It does. By default, it does. Yeah, exactly. By default it does. So, you know, I did 18 months at George Wimpy. I saw the Merge. Unfortunately, the merge, obviously with Taylor Woodrow at the time was just before the recession happened. So I was there through the merger, and I remember then being approached for an assistant buyer’s role. What led to me wanting to look elsewhere was I was actually offered promotion within Georgia Wimpy, or Taylor Wimpy, whatever you want to call it, which they then revoked because of the recession. And the fact that trainees were safe for residency, they kept me as a trainee. So it was a backhanded compliment, but I wanted the extra money and I wanted the company car that came with assistant buyer. So I quietly was starting to look elsewhere. And that’s when I moved, eventually moved to a small contracting firm. That was my first probably taste of construction and probably, you know, what I would call proper buying.

Paul Heming: And so just touching on that point, that’s really interesting. So for you, there is a distinction between house building and construction?

John Watts: Yeah, there is. I think your house building buyer or anybody that’s involved in house building, if their whole career is house building, then that’s all they know. They know how to build a house, they know the trades that it takes. I think it takes a different level, or not necessarily a different level, but a different approach to being in construction whereby you have to be more adaptable. You could be building something today and something completely different tomorrow. The different types of material, different types of building methods, dealing with external architects, dealing with details that aren’t yours, having to adhere to a very strict budget. Looking at VE, I think those types of activities are much more common in construction. And I think you need to be able to adapt, but you need to probably have much more of a wider knowledge in construction than you do in house building. But don’t get me wrong, there’s different skills you need in house building than construction. But I would probably say, and it’s probably controversial, but I would probably say that you could probably always do house building buying if you’ve been in construction, I think you’d struggle to do construction buying if you’ve always been in house building.

Paul Heming: Yeah, it’s a wider brief is what you’re saying, effectively in construction. I mean, my background is always construction by your definition. And we have clients in house building, and I know it’s kind of standard practice now, but I was initially quite surprised that some of our clients would have, they would be doing subcontract procurement supply and install, but they would be insisting on the purchase of materials via a pre-prescribed supplier at a pre-prescribed price, which the house builder themselves has effectively procured and agreed and negotiate those prices to obviously get those, the economies to scale. Because to me, that was, as a QSs at least, it made the ability to procure in a different way or in a unique way, packaged by package more difficult because you’ve already got pre-prescribed rates and material prices, if that makes sense. So I was surprised by that. So it’s definitely nuance, isn’t it? So Hayfield homes, and I’m going to sound ignorant here, but is that, are you considering yourselves construction or house building?

John Watts: I’d say we’re house building. There’s probably different categories of house builder out there, but yeah, ultimately, the products that we deliver is a house, albeit at the top end, it’s a premium house, which has different challenges to a house builder that’s delivering partnership housing or volume private housing. But ultimately, yes, we are a house builder and yeah, it is what it is.

Paul Heming: Do you feel that your experience in inverted commerce construction really helps you to deliver procurement where you are now in a better way?

John Watts: Yeah, I think what you’ve got to look at is, yes, we’re a house builder, but we’re an SME, and I think that’s where the two worlds do collide in a positive way my experience in contracting and that world definitely supports and aids my ability to add value to an SME house builder. I think if you were to look at a procurement role in a large volume house builder, it’d probably be slightly different. But yeah, for me, specifically what I like about contracting or construction, I can apply a lot easier and a lot more naturally in an SME house builder. Yes, we’re a house builder, but we’re very much probably contracted contracting lead house builder.

Paul Heming: Yeah, no, that makes sense. And it’s a lot less prescriptive with those kind of deals in place with some of the larger suppliers, I guess, as I was kind of referring to before. Interesting. And we’re going to get into the detail a lot now, John, but the spark for today’s conversation was a conversation that you and I had, and that was focused on like, the difference in mentality, almost. You’re smiling and smirking at me. The difference in mentality between how a quantity surveyor perceives procurement and how a buyer perceives procurement and almost that collaboration or sometimes lack of collaboration between the two departments who should be so intrinsically linked, but maybe in some cases, I’ve worked at companies where not necessarily felt like partners in the truest sense. So that’s what I wanted to talk to you about today. And I guess just to kick start that conversation, when we first spoke, you said procurement and quantity setting are similar, but totally different. Just describe what you mean by that.

John Watts: Look, they’re both commercial function ultimately. One just happens to operate predominantly in a subcontract arena and one operates in a material. Well, if you want to add it in material and plant arena, you know, your surveyor technically is responsible for 80% of a project cost, and the buyer is responsible for 20% of a project cost of superstructure build costs. So they are very similar. They both operate in the commercial field. They both contribute to the same outcome. They are both reporting in the same way, just on slightly different things. They have common goals, but just probably different approaches. You know, ultimately, that’s probably the simplest way to explain it. I came up through the ranks really very much thinking that buying was a poor relation to surveying. You know, surveyor is effectively a budget owner. They control the cost, they report on the cost, they sit in the monthly cost meetings, whereas the buyer very rarely does that, especially at junior buyer, junior level. They effectively report into the surveyor and surveyor then owns the budget for a project. And whilst I understand that, I think what that has instilled in me is effectively an underdog mentality. I have always tried to champion the role of a buyer or a procurement professional the value that we can bring or add to the team and to really try and promote what we can do that surveyors potentially probably aren’t prioritizing or aren’t focused on. You know, buyers by nature are very detailed people we have to be, we have to examine the specifications. We have to examine whether something will work, whether it’s compliant with another element. Surveyors generally rely on trades or subcontractors probably to do that for them.

Paul Heming: it’s different, isn’t it? Yeah.

John Watts: Yeah. It is. Therefore, surveyors are very much cost led. You send that to tender. They do the comparison, they look at the bottom line, they negotiate and they place an order. Buyers do a lot of that, but they also interrogate specification. They spec interrogate detail. They VE and they have to do that on their own accord rather than relying on a trade that’s technically an expert in their field to do it.

Paul Heming: Yeah. I think that’s really fair actually, to be honest with you. I mean, I think there’ll be a few, there’ll be a few Birmingham City fans listening, thinking Aston Villa fan with an underdog mentality. You winding me up, and there’ll be a few, there’ll be a few quantity survey assistant thinking we are very detailed in terms of how we go through the specification, etcetera. But I do see what you are saying there about a slight difference in our mentality cause often we are trying to best attribute risk to appropriate parties, etcetera, where you get perhaps less into the detail of the specification on certain packages than perhaps a buyer would. In terms of the core differences, the way I kind of see it with my QSs glasses on is that a QSs, as you said, is driven typically by a project budget and a project outcome where a buyer is not so driven or measured on a project outcome. And I always thought that the primary difference between the two departments was that we couldn’t ever really zoom out, but you could zoom out and say right, we’re speaking to this supplier on 10 different projects, but I only really care about one. So how do you actually see the difference and how do you see the two working together? Cause I often felt like, not that I didn’t care, but it wasn’t my job to zoom out and try and work out what the other eight QSs were busy doing. So, what’s your view on that?

John Watts: It’s a weird one. You know, I’ve worked in places where surveyors were responsible for both subcontractor material procurement, they didn’t have a buying team as such I was in a supply chain role effectively then rather than a procurement role. And even then though, it is evident that there’s no real appetite to really understand material cost. It basically is a case of race to the bottom line with material. It’s get number of quotes in place, the order, the cheapest, worry about it later. Whereas actually that company now have actually flipped that. And they’ve actually introduced a buying team and they are now doing material procurement through buying team.

Paul Heming: Why have they done that?

John Watts: Because they’ve recognized that actually there’s value to be had by people that specialize in material procurement. You know, so much so that it supports an overhead to do that. You know, so if you look at that and you think, right, an overhead of a team of two to three is circa a 100 to 150K I’ve got to cover that overhead before actually we start adding value. And that company have done that knowing that, and they are now adding value.

Paul Heming: Because there is a specific difference in the skillset for material procurement.

John Watts: Oh, yeah. I think it just comes down to, like I say, I think it comes down to how we approach negotiation and how we approach detail. Look, I’m not saying that all surveyors are the same. They’re not. There are clearly surveyors out there that are detailed and go into the nth degree and examine a scope of works. But in large, I think especially probably in the younger, in the junior ranks, if you like, the surveyors typically are, they send out inquiry, they get a number of quotes in, they do a quick checklist comparison, and it’s place the order. They rely on a set of preambles and a scope of works that are predetermined, pre-agreed, predefined. The specification that goes into subcontract packages is already pre-agreed anyway from someone in procurement.

Paul Heming: Or by the client. The architect has said, this is the spec and you can’t change it.

John Watts: Exactly. Whereas I think a buyer, in theory there are less suppliers out there than there are subcontractors so I can move from company to company, no matter where I am geographically and probably use the same supplier base. Whereas subcontract is very much regionalized, and that’s obviously cause of the labor. So a surveyor could move from one region to another and have to establish relationships with a completely different supply chain. Whereas I can move from company to company, two different ends of the country that, and probably –

Paul Heming: That goes to that take a step back, have a bit more strategic long-term view of almost like the market that you are operating in, right? As a buyer, which whether it’s because it’s regionalized and you might bounce to different areas, or if it’s just, it’s also projects as well, right? You, you’re on one for two years, and then, so you don’t have that longer term view. So I think that makes sense of a difference.

John Watts: I think, like I say, surveyors generally are project based. You know, surveyor would probably have one to two projects to manage. A buyer probably has four or five projects to manage, but they’re not as involved in that project, you know? So hence why they can obviously accommodate more. And like you say, buyers probably have to, by default have to take a slightly bigger picture view on can we leverage greater commercial opportunity by negotiating multiple projects at once? Whereas if you are a project surveyor, like I say, you are very much probably tunnel vision. It’s now reminded you are thinking about your project and your projects alone. But as you obviously raise rise through the ranks and your commercial managers who are commercial directors, they’re thinking bigger picture. So they’re saying, oh, actually you’ve got a project over there, you’ve got a project over there, let’s see if we can get some commercial leverage. But your surveyor who’s on that site isn’t thinking that.

Paul Heming: Yeah, it’s very different, isn’t it? And you’re absolutely right about, as you go through the ranks, and there’s so many questions that kind of spring to mind off the back of what we’ve just discussed, is like a foundation. And I want to talk to you about how SMEs can use buyers alongside QSs, how you collaborate with the commercial department to make sure you get those economies of scale. But we will do that right after this break.
[Inaudible] maybe Villa fans aren’t all bad. You’ve got my attention here, John, I’m interested, I’m interested. So I think the thing that I want to just go back to that you said in the first half, so there’ll be lots of SMEs listening to this, whether they’re developers, house builders, main contractors, they’ll be listening to this and think, okay, one point was quite interesting to me specifically that you said about, I forget the name of the company or the company that you were exemplifying where they said, we didn’t have a buying department, now we have a buying department, a 100-120K on the overheads added each year. But we’ve done it because there is absolute clear and obvious value to be extracted from that. And I think certainly some of the SMEs that I have spoken to in the past might not feel they have the scale to command like, great savings through economies of scale or even like that strategic look ahead of, okay, I’m delivering 35 units this year, we deliver 45, I’ve got this in my pipeline next year. Because of that sporadic nature or planning things take a long time, perhaps not being as strategic as they could be with the buying department. What do you guys do to really add that value?

John Watts: Well, firstly, there’s different ways to attribute value. You know, if you look at pans on the bottom line, savings if you like, that’s a no brainer. Ultimately, a buyer’s natural remit is to save money, is to contribute cost savings. So that’s to negotiate most favorable terms with suppliers for a project or multiple projects. That will generate savings, that will generate value, that should cover your buyer’s salary. The added value elements really come with relationships that they have with supply chain, with suppliers, with the manufacturers and the relationships that they gain with your wider team. You know, your site management, your commercial team, your finance team, your sales team. You know, in my experience, buying reach is all sorts of different things because we’re involved in a lot of different things. But in terms of adding value, my relationship with supplier means that I can get a delivery tomorrow rather than next week. My relationship with supplier means that I will take precedence over a different company. My relationship with supplier means that if I really need a favor on a price, they’ll give me an extra discount. And then when you start to factor in those little things that all add up program delivery, LEDs, delay to CML, those all incur costs. And if we can mitigate that by ensuring that we can guarantee delivery, we can control supply that we can control the cost of that supply, and on top of that, we can deliver the savings that just come with pure material negotiation. And by default, then if you achieve a saving on one site, you can retrospectively go and request that saving on previous sites or sites that are already live orders that are already placed. Because I’m not tied into a fixed term contract, it’s a fluid arrangement. And then you start to look forward and you think, actually, what do we need to do then to secure pricing certainty? And that’s then around forward looking future pipeline visibility, talking to the supply chain, giving people opportunities of preferred status. You know, it’s a really wooly term, but ultimately offering someone ability to be number one and number two on your supply chain, making sure that they get 50% of our work, upcoming work means that they can then forecast that their cash flow and their, they’re obviously cash protection.

Paul Heming: So interesting. Honestly, John, the reason you have hit the nail on the absolute head here. I’d mentioned at the top of the show, episode 146 last week, the episode was titled “Why QSs Needs More Than Margin as Their KPI.” And we talked about it extensively. I’ve written an eBook, which said in the show notes, right? And the defacto KPI for a QSs is what’s the margin? You said it at the top of the show, like what’s the budget on your project? Have you hit it? Have you betted it? Is it making money? That’s it. But what you’ve just talked about, there is a whole range of alternative, different like measurables where you can see what a buyer is bringing to you. And it should almost be a QSs can’t touch all of them. I mean, you talked about favorable terms for suppliers, relationship, delivery times, you talked about preferred status in terms of building that longer term relationship. You talked about pipeline and visibility, that is something which so many main contractors are not doing for their subcontractors, which they really should be doing. And we’ve seen more and more main contractors starting to do that, give visibility, give preferred status, like bringing them almost into the supply chain. And in so doing, getting all those other benefits that you get with favorable terms, price, delivery, etcetera. And it’s so interesting that you are saying that, and we’ve sat down here on the premise of what’s the difference between a QSs and a buyer. And last week talked about why QS needs to be measured on a wider basis. And what you are saying is that effectively you and your team as a procurement team, you have like a wider view of KPIs and what success is.

John Watts: Yeah, I mean, that don’t get me wrong. You know, that is driven by me. And you know, I’m not saying that all buying teams do that. I’m not saying all buyers are the same just like I’m saying, they’re not all survey surveyors are the same. You know, there are good surveyors, there are bad surveyors, there’s good buyers, there’s bad buyers. It’s just the nature of the course. You know, a good balanced team is made up of a balanced team. It’s exactly that. You know, people that are driven that want to do more, that want to progress, that want to have further exposure, people that are just content in their role, and they just want to do a good job and go home at the end of the day and people that are probably up and coming. So, you need a balanced team and you need different types of approaches within that team. But ultimately a buying team is managed by a line manager, effectively me, I’m driving that strategy, I’m pushing the team to do better. I’m pushing the team to think outside the box and to consider different factors and to work more closely with your surveyors and your commercial team, work more closely with your site teams, you know, how can we add value?

Paul Heming: What does that look like? You say, work more closely with you, say with your surveying your commercial team, the site team, operational team? How do you integrate the two so that it’s working fantastically well?

John Watts: You know, I’m lucky really that, hayfield, early on, we split the commercial and procurement department and I was brought in effectively reporting into a commercial director, and then literally probably within –

Paul Heming: You said, I’m not having any of this. This is nonsense.

John Watts: Yeah, this is not happening. But quite quickly they recognized that there’s value to be had in someone effectively driving procurement independently. And that’s what we did. We split the departments and it has been a massive success. You know, I’m not confined by commercial strategy or what their long-term strategy is.

Paul Heming: What’s the difference though? Like, what was it that changed? Like what was it that freed you up to make better decisions for the company?

John Watts: t’s just different priorities, you know. A commercial director’s same as a QS to a buyer, commercial director’s priorities are different to a procurement director’s priorities. We both, like I say, have the same goal. We just approach it in a slightly different way. And we have different element, different priorities within that, and we support the business in different ways. You know, we absolutely, and I’m not going to say their names because it’ll blow smoke up the us but we’ve got such a close team at commercial level that me and the commercial director, and we’ve also got a pre-con director who’s commercially focused, and we operate almost like a three-headed dragon. You know? We overlap.

Paul Heming: Scary.

John Watts: Yeah. Well, we overlap. We intertwine, we challenge each other, but ultimately beneath it all, we are supporting each other to achieve the same goal. You know, we may not have come across that way sometimes to our teams because we challenge them in different ways, but ultimately at our level, we absolutely are driving in the same direction. And I think that’s key is we have to have the same ultimate goal. You can have people that don’t, and then that’s when it just doesn’t work.

Paul Heming: And what is your ultimate like, strategic goal right now that you all three of you are looking at and facing? Like, how do you know it’s that you’re aligned on it?

John Watts: I don’t think there’s a fixed goal. It is ultimately to be successful and to drive the performance of the business to drive improvement, to drive efficiency, to improve our cash position, to improve our P&L position, to support the business, be the best that it can be. You know, and we are fortunate enough in an SME that we have, we directly contribute towards that. And I think that is one of the big benefits of an SME is that we feel we directly contribute and we can feel what that contribution does. And it’s real time. It’s not 12 minutes down the line, it’s now. And I think that only works though, when you’ve got a cohesive and collaborative team. And we’ve done a lot of work there’s been a lot of pain. We’ve challenged each other, but all for the common goal. And that is set by our boss, our line manager, our CEO, our MD, whichever way you want to call it, they set the goal of the business, they set the culture of the business, and we have to adapt and maneuver within that.

Paul Heming: Yeah. No, I mean, it makes perfect sense. And I’m going to ask you a question here, which I think I probably shouldn’t because I know the answer. Going back to almost, it is for SMEs absolutely abundantly clear to have a commercial department. It’s a known thing. You talked about that example earlier of a company where it was all done and all procurement was done under the commercial department. They split added X hundred K or whatever to their overhead, but did it for the right decision for the greater good, I should say. What is your advice to people listening to this show who would not have that separation between procurement and commercials you have? Like should it be something they should be focused on and why?

John Watts: That’s a difficult one. You know, every business is different.

Paul Heming: Yeah, of course.

John Watts: And they approach things in different ways. I honestly think it probably does depend on the size of the business to whether they can accommodate the overhead to begin with. I think that’s key, because that’s a commitment the business needs to make before they start to see the benefit. Ultimately, there are benefits. It’s proven. That’s why most construction businesses or house building businesses have a survey, have a surveying team and a buying team. You know, it’s also workload driven. You know, we have different skills, different attributes, but like I said, we all have the same common goal, and that’s project delivery. You know, whether that’s at site level, whether that’s at business plan level, whether that’s at wherever else, it’s the same common goal. And that’s to deliver. So do SMEs need to separate? No, they don’t. It’s down to the individual SME or the individual business to understand what value separating can offer. I’m not going to sit here and try and change their mind. You know, people are sitting in the ways, what I would say is people probably don’t understand what a well-run procurement team can offer. And because for so long, procurement comes under the commercial banner, and I think, that’s as black and white as I can be.

Paul Heming: Yeah. And I think you’re absolutely right there. And this show we’re recording it, it’s Q4 2023. Can you take me inside kind of like the thinking and the conversations that you will be having? Now, you talked about with your material suppliers, with all of your suppliers, with your supply chain, generally you are talking in the long term, John, like you’re giving them that forecast, that pipeline, and you are talking to them about what 2024 means for them. What 2025, 2026 means for them in a relationship with you. How do you cultivate that long term relationship so that when the S hits the fan, you can pick up the phone and say, come on, help me out on this one. Like, what are you doing? Because not everyone is doing it. And it’s a skill that can be learned, I think?

John Watts: Time. You know, relationships aren’t formed overnight. Someone once asked me in an interview years ago, what’s the most important thing in your role? And without hesitation, my answer is relationship. That above all else is why I can command the position that I can command. It’s why that I add the value that I add, is that over time I’ve cultivated relationships, I’ve nurtured relationships to the point where I can pick up the phone to someone that I haven’t spoke to in a year, and they will support me in whatever I need to do.

Paul Heming: Why? Is it trust? What have you done to get there?

John Watts: It’s trust. It’s do what you say you’re going to do. It’s support. It’s a mutual understanding. You know, we need supply chain as much as they need us and I think that’s important. I don’t sit on this side of the fence and think, I don’t demand, it’s very much a collaborative approach. It has to be. Ultimately, we all want to get paid and we all want to go home and we all want to spend money and do –

Paul Heming: Business to [inaudible] profit, right?

John Watts: Yeah, exactly. And we need every part of the supply chain to do that. You know, don’t get me wrong, I’m not going to sit here and say that I’ve ceded relationships with every single supplier out there cause I haven’t and that’s just not how it works. You generate a supply chain based on shared experience and good experiences, bad experiences, challenging experiences. So those that you have a good experience with, you generally will take with you and you’ll think, actually, that supplier was great for me on that last site. That supply gave me a great price and a great service, I’m going to take them to my next site. And then as you move through the ranks, it’s actually, should we think about using that supply across all our sites, what benefit will that give me? Oh, actually, yes, that’ll give me that a bit of a saving, but it’ll also give us this and it’ll give them a bit more, it’ll give us them more revenue and it’ll give them more visibility of pipeline and they can commit more deliveries to us or more stock to us. And we can harness that relationship to then when if we are in a tight situation, we can pull on that relationship and we can almost use relationship demand, preferential treatment, shall I say?

Paul Heming: Cause you’ve earned it.

John Watts: Because we’ve earned it. Yeah. But it goes both ways. You know, we have good markets, bad markets. You know, we have markets where through covid where supply went through the window, lead times went out the window. We were very much in the hands of the supplier. They basically could almost charge us anything they wanted and tell us when they would deliver it. It was almost took outta our hands. So it’s only the relationship that we have with certain suppliers that enables us to have some cost control and some visibility and some commitment to supply. Same with subcontractors. It’s giving them visibility and pipeline, and therefore they’re able to obviously plan their overhead, their labor, their commitment to cash.

Paul Heming: Do you do that in a different way? Because I think that’s sometimes where it’s quite difficult for, or sometimes we’ve been parroting on this show specifically about the word relationship and like the simplicity of build a relationship with your subcontractors. But I do think there’s a nuance between build a relationship with a supplier and build a relationship with a subcontractor personally. How do you think there is?

John Watts: Yeah, I mean, from my side, I approach it a little bit differently. You know, I touched on earlier around the 80/20 rule. You know, 80% of spend is in a subcontract package, 20% is direct material purchase. But if you examine that 80%, probably 40% of that spend is controlled by product or price or service, which I manage. You know? So indirectly, I manage 60% of our spend. So my relationship actually indirectly you know, has to be with subcontractors. You know, they know because we’ve tried to implement the relationship is that they know if they’ve got an issue with a manufacturer or a supplier or a product or a spec, they come to me, I support them. Absolutely a hundred percent support them. If they need help, I’m there. If they can’t get hold of a product and it’s going to jeopardize our CML, what’s my priority, the CML or the fact that they can’t hold the product, get the product, this is CML. So, I will go and sort that out for ’em and they know that they can come to me. I’ll sort that out. And don’t get me wrong, there’s times where subcontractors aren’t very good at scheduling, but in the background, I’m giving the manufacturer visibility and pipeline of our work, make sure that they’ve got stock available, make sure that they can service our contracts so that we potentially can mitigate the risk around poor subcontract management.

Paul Heming: I mean, you’re making it abundantly clear the importance of the procurement and supply chain leadership alongside the commercial department. It makes absolute complete and utter sense. Just turning to the point of pipeline for subcontractors, is your process for explaining the pipeline, your future pipeline to subcontractors in any way different to how you do it with suppliers?

John Watts: It is, but purely going back to my point about regionalization. If you’re looking enough to work for a contractor house builder that very, has a very small or core patch say West Midlands, yeah. Then yeah, absolutely. You can talk to your supply chain, your supply chain around visibility pipeline because you know that 90% of that supply chain could operate in that patch. So you can pre-negotiate, you can leverage commercial opportunity, you can talk about projects that are coming down the pipeline. If you are working for a business that has a wider geographical patch or is a regionalized business, then you almost have many supply chains. So therefore you have less pipeline or less visibility or less ability to leverage that commercial opportunity purely just because you haven’t got that to offer. The difference there with obviously material and supply is that I will have probably the same supplier of doors, for instance, across all my sites, no matter where the site is, but I will probably have 4, 5, 6 different carpenters and that’s the difference ultimately. So your large volume house builders will have a regional office. That regional office will have a core supply chain, and they will talk to that supply chain about pipeline visibility because they know in that region, they only operate within say, 50 mile radius of the office. Whereas your large contractors or small SME developers, we are an SME house builder or developer, we don’t classify ourself as regional, but we operate probably across the entire Middle England. So, we have mini supply chains, and within those mini supply chains, we have conversations around projects and pipeline, but it’s nowhere near probably to the extent that a large Harrisburg or large contractor that is geographically focused in one region will have.

Paul Heming: Yeah. But still the critical point being that you are cultivating a relationship by explaining to whichever, if it’s a mini region, if it’s the full supply chain, you are cultivating that relationship by explaining the pipeline talking regularly. And that’s the critical thing, right?

John Watts: It is, but that comes at different stages of where you are as a business. You know, in early conception, you probably go to your tried and test it until you can’t use them anymore or until you’ve overused them or until they let you down, and then you start to explore and then, or you get another project that’s out of patch and you have to start a new relationship. But obviously, the more established you become, repeat business is absolutely key. You know, collaboration is key, but you know, it’s the journey of a growing business. You’ll lose some, you gain some, but along the way, as long as you have kind of a core supply chain that knows you, supports you, you know them, they know what we expect. We know what we can expect from them. You know, you can operate efficiently, but collaboration, repeat work, pipeline, ultimately that enables us to deliver better quality, deliver on time, maximize our profit, you know. It’s basics, but it’s not always achievable.

Paul Heming: Yeah, yeah. No, I completely agree with you. So I think we’re very aligned in terms of mentality here, John, the people, the guys listening will be for sure taking something from us and thinking about how to adapt. My final question for you is about, like I said, it’s December, 2023. What are your plans for, like, how are you planning, I guess, for 2024?

John Watts: I’m just playing, I’m just playing for a better 2024 than the 2023, I think. It’s a tough one, isn’t it? You know, the market is tough. Especially in house building. You know, we focused on driving efficiency without jeopardizing quality. If I look at my team, I’m looking at how I could develop my team. How can we do better? What can we do? How can we improve efficiency? How can we support the business better? How can we support our site teams better? Can we explore new technology? Can we explore different ways of building modern methods of construction, for instance, or component construction? Can we be innovative in different ways? And also how can we navigate the challenges of building regulation changes? How can we become more sustainable in our procurement and how can our homes become more sustainable with also the customer in mind?

Paul Heming: There’s a lot in play then.

John Watts: Yeah, it is.

Paul Heming: Always.

John Watts: Yeah, there is. Exactly. It’s not a simple answer. To be honest, if you ask me what I’m hoping for realistically for 24, I just want to make sure that we do the best that we can do, that we deliver. We thrive eventually ultimately the market will pick up. And I want my team to be at the forefront of that and I want them to be recognized in what they do and how they deliver, how they contribute to the business. And when we sit here potentially at the end of 24 and businesses booming hopefully, then they should have that recognition.

Paul Heming: Yeah, absolutely. And maybe you’ve just given us the excuse to come back here and reflect in December 2024 when we can look back, see what happened.

John Watts: 12 months later, yeah.

Paul Heming: But all jokes aside, John, it’s been absolutely amazing talking to you about this and it fits so well with almost our core beliefs as a business at C-link, our beliefs in terms of what we’ve been talking about most recently on this show last week. And I think there’s a huge amount to take away. So despite being an Aston Villa fan, I will extend my gratitude for you coming on the show, mate, and I will be putting your details, Hayfield Homes details in the show notes and yeah, thanks for coming on the show, mate.

John Watts: No, thank you for having me. It’s been good.

Paul Heming: Awesome. And guys, don’t forget, there’s that eBook for you guys to download on QS KPIs, which touching on John’s point, I think is absolutely relevant today. I will be back next week. Until then, have a good one.

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