The world as you know it looks drastically different than it did only four years ago. Since 2020, numerous industries have changed operations to fit the pandemic and supply chain issues. Three years into these crises may cause you to ask if hope is in sight.
How can construction companies manage today’s supply chain struggles? When can businesses expect a reprieve from the rising costs?
What Caused Supply Chain Struggles in Construction?
First came the COVID-19 pandemic. In April 2020 alone, the building sector lost nearly one million jobs due to temporary suspensions in many areas. Many construction companies were hurting due to employees who left during The Great Resignation and never returned.
The pandemic caused supply chain disruptions and backlogs for construction businesses worldwide. Lead times increased sharply and rising demand has strained many companies struggling to keep up. In early 2022, Russia’s invasion of Ukraine exacerbated supply chain problems by reducing the oil supply and raising fuel costs. The U.S. gets 30% of its platinum and 13% of its titanium from Russia, so the war has significantly affected access to these metals necessary in construction.
What Is the Outlook for the Supply Chain?
There is room for hope — although relief may take a while. In April 2022, Associated Builders and Contractors (ABC) announced construction employment exceeded pre-pandemic levels after two years. However, there is still a labor shortage companies need to reckon with. ABC says the building sector needs to add about 546,000 workers to meet construction demands in 2023. Continued labor shortages will likely keep project timelines longer than anticipated.
Another factor construction businesses have to deal with is price increases. Materials like steel, lumber and oil rose sharply in cost in 2021 and 2022 and haven’t decreased much. For example, Associated General Contractors of America data shows steel mill products’ prices rose by 128% in 2021 and fell by 29.8% in 2022. A 30% decrease is noticeable, but the costs are still far ahead of where they were before the pandemic.
Inflation has reached levels comparable to where they were 40 years ago. However, expect inflation to taper off as worldwide economic growth slows. The International Monetary Fund (IMF) projects global growth will fall from 3.4% in 2022 to 2.9% in 2023. The IMF — an arm of the United Nations — says global inflation will decrease from 8.8% last year to about 6.6% in 2023 before dipping to 4.3% in 2024.
How Can Construction Companies Improve Their Supply Chain?
The supply chain for construction is recovering slowly. Many businesses and contractors are still struggling with inflation as prices remain above pre-pandemic levels. These three strategies show how companies in the building sector can improve their supply chain.
Challenging economic times require creative solutions. One strategy your construction business can use to combat supply chain issues is finding sustainability. Using environmentally friendly practices can save money and make your business more attractive to clients. The building sector can start by thinking outside the box regarding the materials used in construction projects.
Construction businesses can save money with sustainable practices such as:
- Waste reduction: Waste is a significant problem on construction sites. The European Union says construction produces over one-third of its waste. You can reduce waste by recycling and reusing materials whenever possible. Less waste means lower landfill and waste removal expenses.
- Government incentives: Construction companies can use government incentives to save money on their projects. For instance, the U.S. has the Rural Energy for America Program. Here, businesses can apply for grants to fund renewable energy projects. You can use the funds to purchase and install solar pumps, insulation and high-efficiency HVAC systems.
- Water conservation: Conserving water allows construction companies to save money and be more environmentally conscious. You can lower water bills on the job site by installing low-flow faucets and automatic shut-off valves. Use intelligent monitoring systems to see how much and where you use the most water. These systems will notify where leaks and inefficiencies occur.
Other cost-saving opportunities arise with the materials you use in construction. Modern technology has created numerous possibilities for sustainable and affordable building materials. For example, look at high-performance concrete (HPC). This upgraded version uses additives to strengthen the concrete while reducing its weight. HPC improves sustainability because it’s more durable and requires less maintenance once installed.
Technology has also allowed construction companies to review their operations and find ways to make workdays more efficient. You can see critical improvements with building information modeling (BIM) software. BIM programs allow you to see projects in 3D and examine structures in great detail.
Using BIM programs streamlines communications because project managers, engineers, stakeholders and other involved parties can see the model together. They allow everyone to sign approval inside the program, reducing the wait times for everybody to examine the project. BIM software also improves safety by using data to ensure everything runs smoothly and no contractor is in harm’s way with the buildings.
For example, BIM has safety analysis tools to find hazards. The software visualizes the entire project and helps architects understand the structure before anyone sees the site. Another example is clash detection. BIM allows you to coordinate building systems and ensure no clashing among the mechanical and electrical components. Addressing these problems prevents accidents when work begins.
Supply Chain Management Systems
One way to deal directly with supply chains is to use supply chain management systems. These programs take advantage of automation. Artificial intelligence can optimize your day-to-day operations by streamlining your workflow without requiring humans. In the big picture, these systems track industry trends and show you what cost-effective solutions are on the market, which is helpful in adverse economic times.
Supply chain management systems have become essential in construction. You can use this software for these daily tasks:
- Inventory management: You can improve your inventory management with supply chain management systems. The software tracks your inventory and shows their locations and demand. Seeing this data helps you decide on stocking and procurement. Increasing visibility in your inventory reduces waste and saves money.
- Supplier management: Suppliers are a significant part of your supply chain. Use management systems to track all your options based on their pricing, reliability, quality and sustainability. Comparing these factors gives you a better idea of what companies you want to work with.
- Transportation management: Getting heavy equipment to and from the job site can be challenging. Supply chain management systems simplify transportation by optimizing routes and monitoring delivery schedules. Improving these factors enhances your efficiency and ensures you meet deadlines.
Supply chain disruptions have led to longer lead times and forced businesses to reconsider their sourcing strategies. A direct way to cut lead time is to shorten your supply chain. Using local suppliers can save days or weeks compared to international suppliers who may face delays with shipping. Domestic suppliers also save money because global companies may face high tariffs and other geopolitical issues.
Local suppliers can also positively affect your environmental impact because you require less travel to source materials. However, they do have some drawbacks. For example, a local business might have different resources than an international supplier. Therefore, they’re less efficient and could be outdated on the newest technology. Weigh these considerations when selecting suppliers on the market.
Improving Supply Chains in Uncertain Times
The past three years have been a whirlwind for the construction industry, so the next few years will be critical for the future of the building sector. Inflation has hit construction hard, so companies should focus on strategies to improve their supply chain. Finding sustainability, utilizing technology and reconsidering sourcing are a few ways to prepare during uncertain times.
Rose Morrison is the managing editor of Renovated.com, and has over 5 years of writing experience in the industry. Her work has been featured on The National Association of Realtors, the American Society of Home Inspectors, and other reputable publications. For more from Rose, you can follow her on Twitter.