The construction industry is struggling with a foundational challenge: It has never been harder to build, but easier to secure a job. It’s a disconnect for those in the profession who can recall past years in which securing materials was easy but signing project contracts took more effort. The script has most certainly been flipped.
The core of the construction business includes buyers and supply chain managers whose lives have been upended because of manufacturing, shipping and delivery delays. These critical team members, responsible for the procurement of our building materials, spend their days pushing back on unit pricing, inventory availability and delivery dates — in search of desired products in the correct quantities to deliver to jobsites when they are needed.
Now, when picking up the phone to obtain product, the push back has become a brick wall without any give. Manufacturers, distributors and dealers are all working to minimize operational costs and maximize production capacity, while leaning into their preferred relationships. But what if your construction operation isn’t on the preferred list? How can your team improve its circumstances to gain better pricing, greater access to inventory and on-time delivery during the worst supply chain crisis to date?
Have you ever sent someone to the store to purchase a requested item only to have them return with something different than what you sent them to buy? Maybe they picked out the wrong color or size, or simply the wrong item. Having been burned more than once, I make it a priority to check materials on every jobsite, frequently finding that what is on-site doesn’t match the job specifications, are incompatible with other products, or are the wrong size, color or texture. The situation is beyond frustrating because it hobbles the project timeline and obviously comes with financial cost.
Interestingly, we do not typically assess the skill set of team members who order materials because many believe it’s a simple, straightforward task. Now, courtesy of the delays outlined above, building material procurement is an ever-changing puzzle — with buyers attempting to match what is required on-site with what is readily available.
The solution to this ongoing pain point is logical. By communicating stock keeping units (SKUs) and date-needed information to manufacturers and distributors, you can make supply chain channels more efficient. What is required is an increase in order-fulfillment lead times to 30, 60 or even 90 days. Providing advanced SKUs and date-needed data gives suppliers more chances to take costs out of day-to-day operations. Manufacturers, for example, can lengthen a product manufacturing run to meet a larger quantity of product knowing the resulting inventory won’t sit on a shelf. If your crews consistently use the same materials, share that information with suppliers so they’ll be able to order larger quantities and have them on hand when you need them. It will cost them less, too.
Train Your Shoppers
In the past, material procurement was typically assigned to an entry level team member, but these days it is necessary for buyers to have a strong understanding of supply chain impact on construction operations. Those responsible for materials purchasing now require training on how to purchase the correct products at the best price and get them delivered to a jobsite at the right time because it is no longer intuitive.
Imagine what it must be like for a restaurant chef preparing meals on a busy Saturday night. Orders quickly fill the board, a few of which include menu substitutions, adding more time to prepare as well as a focus shift. Reading a meal ticket may not seem complicated for a trained cook, but substitutions require changes in preparation and add more time. If a cook misses a customer’s request for substitution, the entree will likely get sent back to be redone, further backing up the kitchen. Missing tiny details can add extra minutes and set in motion a disruptive force that will negatively impact the entire restaurant and upset its patrons.
Material buyers who understand the manufacturing and distribution process are much like trained chefs. Armed with knowledge, buyers can ask better questions and prepare for moments where substitutions may be necessary. For example, I enjoy tracking commodities such as oil, gypsum, steel, copper and cement, all of which affect the price and availability of building materials. Understanding commodity pricing increases and decreases can help forecast individual product price changes before your business’ invoices are impacted and help your buying team to execute a more effective procurement strategy. For example, if oil prices go up, the pricing structure around various building and construction materials such as roof shingles, toilet seats, paint and other products too will inevitably tick up. Training buyers to watch for some of these subtle markers will encourage them to perhaps purchase a larger quantity while current prices are lower, to avoid future cost increases. A few of my favorite commodity sources include the Producer Price Index and the U.S. Energy Information Administration.
Question the Benefit of Warehousing
There is plenty of debate about whether contractors warehousing inventory is smart given initial cash outlay. Driven by ongoing supply chain strain, a small percentage of distributors are investing in more warehouse space and bigger yards, to inventory greater quantities of products for their customers. By contrast, those same distributors contended with serious profit losses in 2008 due to an inability to sell inventory overages. Many would now welcome those overages given how little they are able to deliver due to supply chain hiccups.
There has been a loss of faith in the supply chain’s ability to meet construction schedule demands. That loss of faith has not only made suppliers and distributors gun shy, but it has also forced some contractors to use business capital and personnel to lease their own warehouse space to store consistently used product and material inventory. Although a warehouse provides a storage buffer, it also adds expenses such as warehouse lease, inventory capital, personnel, equipment, technology to manage the inventory and the regularly overlooked cost of shrinkage (products lost through theft or damage). Training warehouse personnel can also be more daunting than training a buyer.
Although warehousing is an option, I tend to champion stronger ties with suppliers and dealers. These organizations already have the personnel, inventory management systems and insurance in place. Right now, dealers impacted by supply chain strain have avoided onboarding new customers, with some hanging a sign above the order desk that reads, “No New Friends.” Your business likely already has established relationships it can leverage, which can be further forged and fostered through basic communication. A true collaboration with your chosen dealers and suppliers — turning historic transactions into interactions — can result in the funding of more managed warehouse space stocked with materials dedicated to your team. Start with a conversation to find out how to best minimize costs and maximize shared production capacity. The answers could be as simple as providing SKUs and date-needed data with more than 24 to 48 hours’ notice. Perhaps a conversation about kitting or a consolidation of last mile logistics to limit deliveries to jobsites can further reinforce savings?
Warehousing may seem a good idea on the surface, however leaning into existing supplier and dealer relationships and learning how you both can positively affect one another’s businesses is a much better option.
Supply chain strain has certainly challenged construction business owners, however, there are strategies our profession has avoided that can become our salvation for cost reductions and greater operational efficiencies. The answers may not be found in the strength of our labor force or individual work ethic, but by disrupting historic practices to work together to lower operations expenses and communicate inventory needs with more thoughtful lead times. Working as a team rather than isolated businesses will lay the foundation for a more productive future.