8 ways construction businesses can proactively manage their supply chains
November 1, 2023
Both global and national supply chains received much attention during the pandemic. Slowdowns and choke points have become relatively less common since, but that hasn’t stopped “supply chain issues” from being a commonly heard refrain in the construction industry.
As you’re no doubt aware, shortages or delays of materials and equipment can have devastating effects on project scheduling and progress. That’s why it’s critical for contractors to proactively manage their supply chains. Here are eight strategies to consider:
1. Develop and maintain strong supplier relationships. This is a good business practice in general but especially critical during challenging times. Reach out regularly and keep the lines of communication open so you’ll learn about potentially troublesome developments and have time to plan for shortages. Establish a strong payment history — including early payments, if possible — to nurture goodwill.
2. Be transparent with customers. Another way to build goodwill and head off discord is to inform project owners when you encounter difficulty procuring materials or equipment. Ideally, you should have already addressed the possibility of supply chain issues during bidding and preconstruction.
3. Put an expiration date on your bids. Keeping bids open for a relatively short period — for example, 30 days — can help protect you against unexpected shortages and price increases. You can always extend the time, provided you confirm the availability of materials and equipment.
4. Negotiate contractual protections. If possible, protect yourself by making start or completion dates contingent on delivery of materials and availability of equipment.
5. Order in advance. If you anticipate that materials or equipment will be hard to come by, consider ordering them in bulk ahead of time. Granted, doing so will affect your cash flow and could result in added costs (off-site storage, for instance).
However, acting ahead might help you avoid sudden shortages while locking in current prices. Determine whether you can negotiate contracts that provide for early release of funds to make advance purchases when necessary.
6. Diversify your “portfolio.” Investors reduce risk by diversifying their portfolios. Similarly, construction companies can reduce their risks by diversifying their supply chains — that is, developing a mix of suppliers of different sizes and in different geographical regions.
Doing so can mitigate the risk that comes from doing business with only one supplier or very few. If a natural disaster, political instability or economic factors disrupt a supplier’s ability to meet your needs, others can step in and minimize the negative impact.
7. Have a Plan B (and C). Develop contingency plans in the event of materials or equipment shortages. For example, explore a relationship with another construction company in which you might be able to buy some of their stockpiled supplies or borrow equipment. Another idea is to investigate whether design changes may allow you to use more readily available materials or equipment.
8. Consider supply chain management software. Given the complexity and risks associated with today’s supply chains, look into using supply chain management software to automate and enhance the process. These solutions can help you evaluate suppliers, spot potential vulnerabilities, track shipments and even model “what if” scenarios to develop the contingency plans mentioned above.
Before you buy such software, however, let us help you evaluate the costs vs. benefits. We can also assist your construction company in quantifying and analyzing its overall supply chain costs.
© 2023
