4 Ways to Outsmart Supply Chain Challenges and Maximize Profitability
Since March 2020, the construction industry has dealt with one massive logistical headache after another. While crews scramble to meet deadlines with an immobilizing labor shortage, your average contractor has been forced to take on the role of part-time detective, searching for unavailable materials and navigating volatile prices.
The ongoing pandemic coupled with the constantly evolving war in Ukraine has stripped away any sense of predictability that contractors were able to tease out in the past. According to Market Watch, the supply chain currently is akin to a whack-a-mole, “where every time they find one thing that they fix, another [bottleneck] pops up.” With the shortage of materials comes massive increases in project costs. And when both the contractors and clients suffer, no one wins.
During the pandemic, extraordinary levels of demand wiped out inventories. Now, inventories can barely be restocked. Material costs reflect those shortages, increasing the price of building materials and supplies by 20% during the past year. For some companies, the supply chain breakdown is projecting losses that threaten to consume at least half a year’s profits.
And even when materials become available, the final piece of the supply chain puzzle is often missing – transportation and delivery. Gas prices have soared to dizzying heights, and the trucking industry is dealing with its own shortage of drivers.
For contractors, there’s little they can control at this time aside from their response. Given the past few years’ unthinkable global challenges, it’s time for the construction industry to rethink its strategy for navigating our current supply chain nightmares–and any unforeseen obstacles that lay ahead. Below are a few strategic opportunities to outsmart the global supply chain so you can stay on target and maintain profitability.
Improve Pre-Construction Planning to Avoid Hidden Costs
Material surplus and waste at the end of jobs are nothing new to the industry. Contractors chronically struggle with monitoring orders and confirming the materials actually get delivered. While spending the additional hours checking and rechecking orders, inventory, and deliveries is hardly the best way to utilize contractors’ billable hours, tough times call for strict measures.
Before the job kicks off, work with your office to create detailed estimates and bills of materials (BOM) for all the materials that must be purchased before the job. The sooner your team gets their ducts in a row, the more likely you will offset the consequences of significant supply chain delays. Buy in advance, and take advantage of discounts by buying in bulk. That way, your crew won’t get stuck depending on next-day orders, and your wallet won’t be saddled with a next-day surcharge.
Look Beyond Your Usual Vendors
In the construction industry, it’s fairly common for contractors to develop strong relationships with specific material vendors. Those rapports had traditionally served contractors well when prices were steady and predictable. The value of these relationships was dependability and no-nonsense communication. But today, with material prices fluctuating aggressively week by week and even day by day, you’re doing your organization a disservice by relying only on those relationships
Shop around for quotes while maintaining an open line with your usual vendors. You have a bottom line, and your team needs the right materials to be on the jobsite at the right time. This doesn’t mean you’ll be cutting ties with your existing vendors – but in the interim, developing the habit of shopping around will benefit you, your team, and your clients.
Rethink Your Contracts
As they say, the devil’s in the details. The devil’s often hiding in the small print of your company’s legal contracts regarding supply chain and materials procurement. Given the ongoing supply chain crisis, it’s critical to work with a legal team to ensure that your organization won’t be liable for delayed supplies, especially given the nature of construction where one trade’s work is dependent on another being completed. You may consider a No Damages for Delay clause but be mindful of including these, as a potential delay for your materials could shift the financial responsibility onto you.
Advocate for Our Industry
We can hardly avoid politics these days, whether on the job or when we clock out and turn on the TV. Given our current political and economic circumstances, it’s time to truly advocate for our industry’s needs. Lobby your national leaders to ease tariffs. Encourage local leaders to spread the word to career changers and recent graduates about the satisfying, specialized, and lucrative work you do. Organize regional programs and professional development opportunities for your industry’s workers.
It takes a resilient company to make it in the construction industry. While the reverberating effects of the global pandemic and war in Ukraine are certainly unprecedented, this isn’t the first time the industry has faced major supply chain challenges. With some creativity and pre-construction material planning, your team can build long-term resilience to defy and outsmart a broken supply chain.