Major Steps to Manage Risks in Construction Supply Chain

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Sawai Jangid

Senior editor

Parul Saxena

Chief editor

Last updated: May 20, 2021

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Any business in any industry, however big or small, that involves creating products using resources, materials, finished goods or equipment will have a supply chain cycle in place. No supply chain can be invulnerable to risks and business owners grudgingly accept disruptions as an inevitability. 

Risks to supply chain can come in any form that may even be beyond human control- natural disasters, weather conditions unexpectedly turning for the worse, unanticipated shut-downs, supplier bankruptcy, resource availability and even unprecedented, unethical system hacks. These are just a few examples.

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Any of these risks or even a combination of them can cause supply chains to hit a wall. With complex, large-scale, investment-heavy and highly time-sensitive operations, the stakes are even higher for the construction industry.

The Current State of Affairs in the Construction Industry

Recently, you may have observed that a common consensus among everyone working in the construction industry is that the market has not been conducive for a while now. There are few buyers in a turbulent economy and heavy custom duty, taxes, tariffs and regulations have pushed the cost of materials to record heights.

Builders are struggling to complete their projects. Most projects are running delayed. The delays have pushed up prices which is further pushing away potential buyers and builders are sitting on a ton of inventory that is not moving fast enough.

Also, Read: How To Manage Project Planning Software Strategic Investments

The construction industry is struggling. However, we still see new projects coming up every other day. Builders continue to invest in projects in the hope of the economy turning around in the near future. They figure that people will never stop needing office spaces or dreaming of owning their own homes and that the bad economic conditions will eventually overturn.

In a nutshell, construction projects are hanging by a thread. Materials and resources cost way more than they ever did. However, construction activity still continues putting added pressure on the supply of materials, equipment, and even labor. There are few buyers in the market. Construction projects have always been time-sensitive, however, in the current scenario, they are more time-sensitive than ever. 

Construction Supply Chain

The construction business has suddenly become way riskier than before. We have already discussed why it has come to be so. However, another factor that has always contributed to making construction a risky undertaking is chronic supply chain threats. It is more important to control these threats today than it ever was. 

Threats to the construction supply chain usually come in the form of inefficient manual processes, endemic miscommunication, inaccuracies/inaccessibility of information. These threats to the construction supply chain cost the business much more than other factors that affect supply chain such as natural disasters etc. In other words, they can be controlled.

While manufacturing sectors usually have a stable production line and reliable supply chain partner relationships, the same can hardly be said for the construction industry. Every project comes with its own set of complexities.

The location that the project is situated in also adds to these complexities. More often than not, most projects require a completely new team of architects, construction firms, electricians, plumbers, suppliers, and subcontractors. This makes it much harder to manage professional relationships, unlike other industries.

A construction project requires so many elements. In a bid to procure these elements, construction firms have a host of suppliers and these suppliers may have their own subcontractors. While the builder may have entered into a solid and agreeable contract with the primary suppliers, there may a complex chain of contracts with subcontractors, secondary and tertiary suppliers that the builder may not even be aware of. 

Depending on the construction project, this may lead to a long chain of suppliers with very low visibility and therefore, a higher construction supply chain risk. If suppliers cannot deliver the right materials or equipment, on time, an entire project can be thrown off schedule, creating a series of production delays, loss of shareholder value, reduced sales, loss of market share and even damaged reputation. Sadly, this has become a common scenario in the construction industry today.

Businesses across various industries are beginning to explore options to facilitate pre-emptive planning, better communication and sharing of information, to have a better chance of survival in a competitive environment. Some of them are even using Blockchain to ensure better communication with their supply chain partners.

However, the construction industry is yet to hop on to the bandwagon and is lagging behind dangerously.

Steps to Manage Construction Supply Chain Risk

By setting up an internal team or working with specialized external experts, you can work towards a healthy construction supply chain. This will go a long way in safeguarding your construction business from supply chain risks. Here are some steps you can take to manage risk to the construction supply chain:

1. Build a contingency plan

You need to have a continuity plan in place to deal with unexpected issues, events and emergencies. These plans must be reviewed from time to time. Tackling construction supply chain issues must form a part of KPIs and any must be given adequate priority by business leadership during the planning phases of the project itself.

2. Run a background/reference check on your suppliers and subcontractors

check on your suppliers and subcontractors

You must work with suppliers and subcontractors only if they have a proven reputation for being stable. You must assess how their failure will impact your business. You must plan for their failure. You must have back-ups available in case of their failure.

3. Reassess your assumptions about available assets and capacity

It is natural to have assumptions about available assets and capacity, especially in areas like trucking and production, when you have been in business for a while. You could be working with a third-party provider, a logistics service provider or directly with carriers or production facilities. However, in every case, you must explore how your business can be affected if any of them experienced downtime, became unavailable or if you couldn’t afford them in the future.

4. Pay attention to workplace safety

Pay attention to workplace safety

Construction sites are prone to accidents. These accidents result in downtime, require extensive reporting and can have considerable cost implications. By optimizing workplace safety, you can avoid the hassle, create a safer work environment and make your project more viable. Develop careful safety procedures and ensure that they are followed systematically.

5. Take a closer look at your raw material sources

One of the most important elements of any business is its raw material. Insure and ensure your sources of raw material. You must have a plan of action in place if your supplier fails to deliver your raw material in the right amount and also on time. Your procurement department must explore best practices to stay on top of such situations. They could look into ordering and storing products that can be used in such an event.

6. It’s better to overcommunicate than under-communicate

communication

Work towards fostering better relationships and building an environment that encourages communication. You may look into using tools that help you automate business transactions, track their progress, conduct analytics to facilitate better decisions- in other words, eliminate operational inefficiencies. 

7. Create a single source of truth

Invest in a system that connects your contractors, subcontractors, and suppliers on one platform. This system must act as a centralized source of information for all of them. There are various construction site software solutions that you can use for the same. They must have real-time visibility and access to the same information as a result of this system. This will go a long way in eliminating any kind of miscommunication.

Technology in Construction Management:

Construction supply chain management may not be easy. Fortunately, technology in the form of construction management software can come to the rescue. Virtual reality in construction is slowly but surely making its way into the mainstream not just to improve customer experience but to also streamline collaboration in the construction supply chain. There are a variety of cutting-edge construction management software solutions available in the market today. Take the time to understand the ins and outs of construction software and choose one that best suits your business.

Conclusion

For sustained success, construction companies must proactively assess chronic and acute construction supply chain risks and work towards containing them. Should they fail to do so, the consequences could be disastrous, especially since construction projects involve so many complex financial arrangements. 

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Sawailal Jangid is a Content Analyst at SotwareSuggest. He does researches and analyzes software to educate and advice to the business managers to streamline their business. In his spare time, he loves to do sports activities.

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