A construction supply chain is a series of organisations that produce and distribute goods, materials, and services that are needed for construction projects. These organisations include manufacturers, distributors, wholesalers and retailers.
Construction supply chains are complex in nature because they deal with many different types of materials and services including building materials, tools, equipment and other supplies. This interconnected web of organisations coming together to deliver a construction project makes construction supply chains vulnerable to risks and disruptions.
Construction businesses are increasingly becoming aware of the importance of de-risking their supply chain. By taking a proactive approach to construction management and supply chain management, they can better manage risk while gaining greater efficiency in how they operate.
One way construction businesses are de-risking their supply chain is through improved procurement processes. This involves understanding supplier capabilities, negotiating contracts that specify quality standards, setting up regular reviews of performance, and having contingency plans in place for unexpected scenarios. By ensuring that all suppliers meet certain criteria before entering into agreements, construction companies can secure reliable partners who will deliver consistent results on time and within budget.
Another important factor for reducing risk in the construction supply chain is data analysis. By gathering and analysing data related to construction projects, companies can spot trends and identify areas where there may be potential delays or cost overruns. This allows them to make informed decisions on how best to proceed with a project, enabling them to adjust accordingly if an issue arises.
So, how are construction businesses adapting to the increased risk of supply chain disruptions – and how are construction managers around the globe mitigating the risks in their own supply chains?
1. Diversifying materials, services, and suppliers
While material shortages have always been a challenge, the disruption of global supply chains during the COVID-19 pandemic has tremendously increased this risk in the construction industry. By having multiple sources for each material, service, or supplier, construction managers can help ensure continuity of supply, thereby reducing the risk of projects getting stalled due to the non-availability or delayed delivery of construction materials.Construction businesses can diversify their materials, services and suppliers to mitigate risk in the construction supply chain. By leveraging the power of construction management and supply chain management practices, businesses can gain a better understanding of their supply chain needs and create robust strategies for improving materials, services and supplier sourcing.
Diversifying materials can help reduce reliance on a single supplier or material. It is advisable to explore alternative materials and suppliers that can provide better quality, cost-efficiency, sustainability, and overall performance of the end product. Additionally, businesses should take into consideration the geographic location of their suppliers when determining which materials to use in order to reduce lead times and transportation costs.
Construction managers building resilient supply chains in 2023 are putting processes in place for identifying alternative suppliers who can step in when there is a disruption in their primary supply chain. Having more than one alternative supplier for each material, service, or part is key to avoiding any potential disruption that will hurt operations.
One of the challenges to diversifying sourcing for construction companies is the investment required in building supply chain resilience. While big companies have been able to get better deals with their suppliers while diversifying their sourcing, this has the potential to remain a challenge for small construction companies.
2. Reducing supply chain risk through collaboration
Supply chain collaboration is a critical part of any construction business’s risk management strategy.
Collaboration between supply chain partners can reduce the likelihood of a disruption to service, and it can also help construction managers to get back up and running faster if a disruption does occur. Construction companies are increasingly opting to collaborate with their suppliers as an additional layer of defence against supply chain risks, such as subpar materials or late deliveries.
In addition to safeguarding the bottom line, supply chain collaboration is helping construction managers to identify opportunities for cost savings that may not have been apparent otherwise. One way this happens is by identifying under-utilised resources—for example, excess inventory—and then using them more effectively across multiple projects simultaneously. Collaboration also helps construction managers to align their delivery schedules so they don’t overload any one area at any given time. This way construction managers spread out their workload evenly over time while still meeting deadlines at each location (which means no bottlenecks). In a research study, improved supply chain collaboration was used to implement innovation strategies across the construction supply chain.
Construction businesses can significantly reduce supply chain risks through collaboration. By working together, construction managers and suppliers can create a much smoother supply chain management process that reduces the chances of unexpected delays or disruptions.
To ensure the success of construction supply chain collaborations, it is important for construction companies to identify potential risks in advance and develop strategies for managing those risks. This includes reviewing supply chain contracts, understanding supplier capabilities and performance history, developing a plan for obtaining new supplies in case of disruption and setting up a system for tracking deliveries. Additionally, construction businesses should encourage open communication between suppliers and customers to ensure that both parties are able to cooperate when unexpected issues arise.
3. Using data to manage supply chain risk
To manage the risk of supply chain disruption, more construction managers are looking into data-driven supply chain management and digital transformation. With the increased use of construction management software, many construction companies have a treasure trove of data that could provide insights into their operation and areas of improvement. In light of recent supply chain disruptions, more construction companies are starting data exploration projects that would enable them to manage the supply chain risk better.
A few examples of data-based risk management that businesses are incorporating around the world:
Retailers are increasingly using predictive analytics platforms that predict when products will be in demand and send alerts before things run out. While such practices are not common in the construction industry yet, more construction managers are looking into similar use cases in their supply chain.
A study by researchers at Hanyang University, South Korea demonstrated the use of machine learning algorithms to predict when buildings will need repairs so they can proactively schedule maintenance work before problems occur.
More construction managers are using data to identify and manage risks in the supply chain. For example, data is being used for:
- Identifying the high-risk suppliers and products that are most likely to disrupt business operations.
- Monitoring the supplier performance levels based on their performance metrics (e.g., late deliveries or low-quality product) over time, so there is a clearer view of their risk profile
- Finding new suppliers who may be better suited for the needs of current suppliers are not meeting their expectations
Overall, effective communication is essential when it comes to de-risking supply chains in the construction industry. By establishing clear lines of communication between all stakeholders involved in the project – from suppliers, subcontractors and vendors to clients and project managers – construction businesses can ensure that everyone is up-to-date on any changes or issues that arise throughout the process. This helps avoid costly miscommunications that could lead to disruptions and unforeseen expenses down the line.
By investing time and resources into de-risking their supply chain, construction businesses can gain improved efficiency, cost savings and better outcomes for all stakeholders. In today’s competitive construction market, taking proactive steps to reduce risk is essential for staying ahead of the curve.
By diversifying material sourcing, improving internal and external staff collaboration, and using data to identify and manage risks, construction managers around the world can make their supply chains more resilient.
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