This article is part of a blog series on the supply chain in the construction industry, exploring how it can be improved to overcome today's pitfalls.

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 very high.

In this article, we will explore the benefits and challenges inherent to the supply chain and how to overcome potential issues.

Benefits of efficient supply chain management systems

Here are the most important benefits of an efficient supply chain:

Fluid collaboration with suppliers

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, in addition to expecting low prices, make sure that they will be flexible.

For example, they should be ready to:

• accept temporary cash flow difficulties to keep the relationship going in an economic crisis
• assume the risk of currency fluctuations if they are abroad

Good quality control

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.

Streamlined flow of goods

Logistics prices are already high and will continue to rise. It will have a negative impact on your margins and it will disrupt the 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. This will improve your cash flow and increase your profits. Look for storage and shipping aggregators.

Low inventory and overhead costs

Having optimum inventories, and lowering storage and security costs will help you to keep a lean inventory by:

• shifting the distribution responsibilities to the suppliers
• mitigating potential shocks in the supply chain.

Risk mitigation

To avoid expensive mistakes and reworks, your supply chain management system should detect and fix defects early. The system should give you visibility through the whole supply chain process:

• product development
• demand planning
• supply planning
• sourcing and procurement
• manufacturing
• logistics and distribution.
  

Cash flow managed with care

We have already mentioned that you should trust your suppliers. Trust is earned through long-term and efficient relationships. You will then be able to improve your cash flow management by:

• maintaining strict quality and inventory control
• lowering your costs
• generating high revenues
• maximizing your liquidity.

An energetic organization

To be agile, you will need to unravel new opportunities. For example, inflation is slowing in the construction industry from 30% to 3% in the 10 months ending November 2022 according to the Bureau of Labor Statistics in the USA. With a great supply chain management system in place, you could have started very early to seize the opportunity to optimize inventories that were losing a great deal of their value. Working with your suppliers could have led to a win-win situation, they could have bought the goods back from you at a low discount and still make a reasonable margin re-selling them on the market.

Visibility thanks to real-time data analytics

New technologies help you to keep perpetual contact with your project team, including your suppliers:

• mobile phone apps
• conferencing platforms
• shared dashboards.

The use of real-time data metrics can help you to:

• manage stock levels efficiently
• track distribution channels
• monitor project performance
• put in place contingency plans to enable you to seize opportunities as they appear.

Challenges faced in construction supply chain management

Was the supply chain misguided?

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’s now have a look at the supply chain issues and how to mitigate the risks.

Disruption in supply chains is part of day-to-day life and it has never been looked at seriously.

Global events like the pandemic shutdown and the conflict in Ukraine, unfortunately, did not help. But they sent a wake-up call to the industry which manifested in two ways:

• just in time models
• offshore manufacturing

Just-in-time models were used extensively, mainly 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 long 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 adapting the just-in-time system is critical.

We moved manufacturing to countries where labor wages are low to save money. Only assembly was done in developed countries. Geopolitics issues since 2020, prevented goods to be manufactured and led to logistics issues that delayed projects negatively impacting project margins.

The combination of these two issues impacted the construction industry badly, and in 2023 we are still experiencing difficulties to procure the resources required to build assets.

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.

Major challenges in the supply chain

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 like:

• dealing with the ramifications of global supply chains, a complex issue that requires adequate automated management systems
• lack of risk management tools preventing the supply chain from running properly
• having the wrong KPI in place, like risk/agility instead of using traditional KPIs of cost, service, and quality does not provide the right visibility to manage the flow of goods
• increasingly unexpected demand and limited logistics capacity risks delays and rising prices

How to overcome the challenges?

According to a new report, Supply Chains and the UK Construction Sector from QBE Business Insurance with Oxford Economics and Control Risks, the geopolitics outlook for the UK construction industry in 2023 continues to be disruptive and has limited easy access to materials so their prices will increase.

Andy Kane, construction portfolio manager at QBE, said:

There are steps that construction industry leaders can take in order 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:

• diversifying supply chains (42%)
• holding greater stocks of important materials (31%)
• establishing robust monitoring systems of stocks and suppliers (23%)
• nearshoring (17%)
• 18% had taken no action.

What else can be done?

Better clarity

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. Procore could provide visibility and analytics across the supply chain

Solid cost control

Supply chain visibility helps you control your waste as you can:

• spot overspending areas
• pinpoint inefficiencies in your processes
• free up cash flow
• increase your bottom line.

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.

Get more projects in the pipeline

Best practices in supply chain management, produce better project outcomes for 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.

Appoint the right organizations

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. You should:

• evaluate potential suppliers and partners using templates to appraise the quality of their products or services
• use a supplier management system to analyze and record vendor information.

With Plannerly you can use templates that define your supplier requirements and standards to assess if the potential appointee will be a good fit.

Collaboration processes

Establishing clear collaboration and communication rules where everyone can understand and relay information will help you to resolve or avoid potential costly reworks. The process could be as follows:

• knowing if the materials are available and their position in the chain
• anticipating potential or expected issues
• evaluating the impact of potential changes in pricing or lead times on your profitability and delivery commitments.

In Conclusion

To build agility in your supply chain you need to set goals that will be understood by your organization in its entirety. You will need to change your paradigm, adopt new technologies and tools, streamline your processes, and develop a risk management system including agility KPIs and traditional KPIs.

Here are the major benefits of great supply chain management systems:

• a fluid collaboration with suppliers
• good quality control
• optimization of goods flow
• low inventory and overhead costs
• risk mitigation
• carefully managed cash flow
• an agile organization
• visibility thanks to real-time data analytics

Here are the most important challenges:

• high risks
• long stoppages due to long delivery and labor shortages
• expenditure management
• a poor collaboration between the various teams
• data transfer is not in sync across the supply chain
• inflation leads to very high prices
• difficult demand forecasting
• rate of introduction to new technologies
• freight issues.

Most firms intend to establish their best practices, but work gets in the way and they are never created. £220 million are wasted per year in the UK. 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 at 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