This article is part of a blog series on supply chain issues. The impact of COVID-19 as well as the war in Ukraine on the supply chain in the construction industry, are still very much felt in 2024. Inflation is high, and the industry is experiencing a lack of resources both in terms of labor and material.
To develop your supply chain processes and systems you will need to invest both time and money, but the Return On Investment (ROI) will be extremely high.
Let us talk about the benefits and challenges inherent to the supply chain and how to overcome potential issues.
What are the most important benefits of an efficient supply chain? Let us find out below.
Suppliers are looking for high margins to be added to manufacturing costs. Unfortunately, the construction industry runs on low budgets and thin margins. So, it cannot accept more than 25% markups for raw materials and retail prices.
When negotiating with your suppliers you should make sure that they will be flexible, in addition to expecting low prices.
For example, they should be ready to accept your temporary cash flow difficulties, keeping the relationship going in tough economic times, or assume the risk of currency fluctuations if they are abroad.
ISO 19650 recommended processes should be included in your Building Information Modeling (BIM) templates and adopted by your suppliers, so you can anticipate and resolve quality control problems quickly.
For example, it is easier and better to accept a small delay from the supplier, whilst the supplier fixes the problem rather than fully rejecting a whole defective batch of materials. Trusting your supplier is essential to keep your relationships going.
Logistics prices are already high and will continue to rise. This will harm your margins and will disrupt your flow of goods.
You should run with a small number of logistics specialists to reduce your distribution costs and improve the flow of your goods. Look for storage and shipping aggregators to improve your cash flow and increase your profits.
Keeping a lean inventory would optimize your supply and lower storage and security costs. You will then shift the distribution responsibilities to the suppliers, which will mitigate the risk of potential shocks in the supply chain.
To avoid expensive mistakes and reworks, your supply chain management system should detect and fix defects early. To achieve that, the software should give you visibility through the whole supply chain process from product development to demand and supply.
We have already mentioned that you should trust your suppliers. Trust is earned through long-term and efficient relationships. Good relationships will help you to improve your cash flow management, maintain an excellent quality level, and keep your inventory under control. You will be able to lower your costs, generate high revenues, and maximize your liquidity.
To be agile, you need to continuously unravel new opportunities. For example, in the 10 months ending November 2022, inflation slowed in the construction industry from 30% to 3% according to the Bureau of Labor Statistics in the USA. One of our clients, who had a great supply chain management system in place, spotted very early the opportunity to optimize inventories that were losing a great deal of their value. They managed to find a win-win solution with their suppliers. The producer bought the goods back from our client at a discounted price and made a reasonable margin re-selling them on the market.
Modern technologies like mobile phone apps, conferencing platforms, and shared dashboards help you to stay in contact with your project team, including your suppliers. Using such technologies will also allow you to collect real-time data to populate metrics that will help you manage your stock levels efficiently, track distribution channels, monitor project performance, and put in place contingency plans to enable you to seize opportunities as they appear.
For quite a while now, we have been hearing in the press that supply chain and labor shortages are ingrained in the construction industry. If it had been possible to bring a quick fix to these issues it would have been done by now.
In a previous article, we looked at how to fix the labor shortages so let us now show you how to solve supply chain issues to overcome their associated challenges.
Disruption in supply chains is part of day-to-day life but it has never been looked at seriously. Global events like the pandemic shutdown and the conflict in Ukraine, unfortunately, did not help. Nevertheless, they sent a wake-up call to the industry questioning the just-in-time models and the offshore manufacturing schemes.
Just-in-time models were used extensively, to save costs, before these events. It means that we were used to getting goods just when they were needed. But the just-in-time system could not react and adjust quickly enough during the pandemic.
In the extended periods of shutdown, construction companies did not have enough redundancy to compensate for the lack of materials getting out of the logistics systems. To face this type of crisis, it is critical to adapt the just-in-time system.
Before 2020, manufacturing was moved to countries where labor wages were low to save money. Only assembly was done in developed countries.
Geopolitics issues in the Panama and Suez canals prevented goods from being shipped regularly and led to logistics issues that delayed projects, negatively impacting their margins.
The combination of these two issues impacted the construction industry badly, and in 2024 we are still experiencing difficulties procuring the resources required to build assets.
Pre-fabrication and modular building systems are accelerating their development to mitigate these risks.
We also see a lot of governments like the USA and Canada implementing new policies to bring back manufacturing in their countries. These solutions, when fully implemented, will help to prevent global problems.
Customer needs are continuously and rapidly evolving, putting a lot of pressure on supply chain management. The lack of visibility in the global supply chain creates management headaches. For example, dealing with the ramifications of global issues requires adequate automated management systems and risk management tools to help you run your supply chain properly.
You should set up the right Key Performance Indicators (KPIs) like risk/agility instead of using traditional cost, service, and quality KPIs, to get the right visibility to manage your flow of goods. This will avoid increasingly unexpected demand and limited logistics capacity delaying your projects, and rising prices eroding your margins.
According to a 2023 report, from QBE Business Insurance with Oxford Economics and Control Risks in the UK construction sector supply chains continue to be disruptive and the limited easy access to materials leads to prices increasing.
Andy Kane, construction portfolio manager at QBE, said:
There are steps that construction industry leaders can take to lower their supply chain risk. This includes shifting away from the "just in time" supply chain model we have witnessed in recent years to a "just in case" supply chain.
Some of the statistics in the report show that most companies in the construction industry already have taken actions to mitigate the risks by:
Unfortunately, 18% had taken no action.
What else can be done?
Real-time data clarity and consolidating supply and equipment data in your supply chain will help you to make quicker, adequate project decisions, and increase your customer satisfaction and profitability.
For example, a platform like Procore could provide visibility and analytics across the supply chain
Supply chain visibility can help you control your waste by spotting overspending areas, pinpointing inefficiencies in your processes, freeing up cash flow, and increasing your bottom line.
For instance, using a platform like Plannerly can help you bridge the gap between BIM and supply chain execution. In the plan module, you can drag and drop from hundreds of free BEP templates to quickly create and agree on your BIM standards, processes, and contracts.
Putting in place best practices in your supply chain management will produce better project outcomes for your contractors, vendors, and owners. This will make them happy, and they will recommend you to future potential customers. Word-of-mouth marketing is your best sales tool.
There is a multitude of stakeholders in the supply chain (suppliers, contractors, and subcontractors), and they need to work well together for your projects to be successful.
It would be interesting to evaluate your potential suppliers and partners using templates to appraise the quality of their products or services.
Your supplier management system could analyze and record vendor information. Defining your supplier requirements and standards in your templates to assess if the potential appointee is a good fit for your organization would be a great idea.
Establishing clear collaboration and communication rules where everyone can understand, and relay information will help you to resolve or avoid potential costly reworks.
The system you operate might allow you to know if the materials are available and where they are positioned in the chain. This could help you anticipate potential or expected issues to evaluate the impact of potential changes in pricing or lead times on your profitability and delivery commitments.
To build agility in your supply chain you may want to set goals that will be understood by your organization in its entirety.
You will need to change your paradigm, adopt innovative technologies and tools, streamline your processes, and develop a risk management system including agility KPIs and traditional KPIs.
A great supply chain management system will help you to:
You will have to overcome important challenges like dealing with high risks of long stoppages due to extended delivery and labor shortages. Implementing a simple expenditure management system could be daunting. Improving collaboration between the various teams, and coordinating data transfer across the supply chain is crucial.
Inflation could lead to extremely soaring prices making it difficult to forecast demand and freight issues accurately. You also will have to monitor the pace of introducing recent technologies in your processes.
Best practices are difficult to implement as work gets in the way, and they are never created. As a result, there are people solving problems that others have already solved.
Driving Vision's BIM expertise diagnostic looks at how you can eliminate waste (time and material) and improve your margins and the quality of the information provided during the design and construction phases. A Driving Vision expert will conduct the interviews online and will issue a report and discuss our findings with you. Together we will decide the best way to implement the solutions at your pace and according to your budget.
Implementing BIM can be daunting, but Driving Vision is here to help you at the pace you are comfortable with. Get started by getting in touch now
We simplify the difficult and automate the mundane for an affordable fee
We become your BIM coordinator & Tech support for an affordable fee
We give you access to our CAD licenses for an affordable fee
We introduce you to our cloud technology and proprietary immersive technology for an affordable fee
