Construction workflows can’t move forward if building materials are in short supply. Effective supply chain management involves partnering with engineers and architects during the design phase to prevent them from choosing materials that are likely to be in short supply, building in backup material options, and using just-in-time delivery solutions to minimize inventory costs.
Costs
The pandemic has wreaked havoc on building materials supply chains, driving up project costs and affecting companies from contractors to insurers. Until the shortages are over, contractors should take steps to manage costs. According to Pardis Pishdad-Bozorgi of the School of Building Construction at Georgia Tech, a few ways to minimize these effects include collaboration with engineers and architects during the design phase to avoid selecting materials that may not be available when it is time to mobilize and procure, ordering long-lead items early to lock in prices, communicating with suppliers about project timelines and paying on time to keep the momentum going.
Although the overall price rates of building materials have stabilized since the height of the crisis, prices remain high for some heavy side items like steel mill products and plastic piping. The rise in price is caused by a combination of factors, including raw material scarcity, increased demand due to the housing boom and a drop in labor availability. Other factors include changing tariffs for materials that are imported, natural disasters that impact production and shipping capabilities, and the dwindling inventory of certain materials.
Despite the current challenges, many builders are developing proactive plans for procurement that include evaluating their existing vendors and considering new options. These plans can help them reduce their costs and stay on budget. However, these plans can be difficult to implement without adequate communication and collaboration between all stakeholders.
Availability
Before the pandemic, contractors could purchase most materials on relatively short notice. But now, due to national shortages and additional overseas supply chain issues compounded by production setbacks and shipping challenges, the availability of materials is much more volatile.
These factors, coupled with rising prices and inflation, are pushing construction materials to the edge of affordability. Thankfully, there are steps you can take to mitigate these challenges and ensure your project remains on schedule.
One of the best ways to manage this volatility is by establishing resilient supply chains that can quickly adapt to changing conditions. This means evaluating current and alternative material sources, developing flexible procurement procedures, and working with suppliers to find solutions that meet your needs without impacting cost or efficiency.
Another key is having visibility into pricing and lead times, which are influenced by a variety of factors. This can help you determine if a product is truly on backorder or if there’s an unexpected delay. It’s also a good idea to communicate changes in pricing or lead times with your team so that everyone is on the same page. This can be accomplished with a robust management platform that provides transparency, collaboration, and automation. This type of tool can help you identify and connect with new supplier partners and leverage purchasing programs to improve purchasing power.
Lead-times
Common construction materials that were readily available prior to the pandemic have now become hard to find and are subject to long lead-times. This can cause significant problems for contractors trying to maintain project budgets and schedules. Some recommendations to mitigate this include communicating project timelines with suppliers, ordering locally if possible and paying suppliers on time. In addition, some contractors may want to explore material substitutions to avoid the risk of delay and cost overruns due to supply disruption.
In addition, a lack of supplies has also resulted in higher pricing for building materials and equipment. Several factors have contributed to these price increases, including longer material lead times and supply chain constraints. The pandemic was a major contributor, as production came to a halt and production has been difficult to restart. Additionally, the global economy and events in Eastern Europe have impacted prices as well.
Another important factor is the ability to effectively manage inventory, which includes implementing strong supply chain resilience strategies. This can be as simple as maintaining redundancies with multiple vendors and/or maintaining low capacity utilization, but it could also involve a structural change such as redesigning a supply chain to optimize delivery flows without increasing overall costs. Regardless, it is critical to have an effective strategy in place in order to manage price increases and longer material lead times.
Collaboration
Construction is one of the most inefficient industries in terms of supply chain management. A single day’s delay in materials can cost hundreds of thousands of dollars in underutilized equipment and lost productivity. In order to reduce these costs, companies must work together to ensure that building material supplies are available on time and at the right price.
A strong supply chain is critical to the success of any project, but construction projects are often the most difficult to manage because of the complexity of the materials needed and the demands of the timelines. To ensure that the project stays on schedule, contractors must be able to collaborate with engineers and architects during the design phase to avoid selecting materials that will become unavailable or expensive. In addition, they must work with suppliers to explore substitutions and secure necessary materials in advance.
Supplier collaboration can increase productivity by providing businesses with a greater ability to manage inventory and forecasting, enabling them to optimize their performance and profitability. Moreover, it can help improve efficiency and lower costs by eliminating unnecessary expenses. For example, using digital tools can streamline documentation processes and allow builders to track inventory in real-time.
However, to achieve the benefits of collaboration, it is important for businesses to have clear goals in mind. This will help them communicate with potential partners and set the parameters for their cooperation. It will also enable them to be upfront with their requirements and expectations, which will foster a culture of trust.