In 2023, UK construction projects exceeded their budgets by an average of 46%, contributing to the sector’s highest rate of insolvencies.
But why? Amidst challenges like high interest rates, and inflation, contractors are grappling with escalating borrowing costs, entangled supply chains, and mounting pressure. This confluence of factors is testing the industry’s resilience like never before.
However, amidst these challenges, there is reason to be optimistic! While certain economic factors contributing to this situation are beyond the industry’s control, innovation thrives in tough economic times. The construction industry can effectively reduce risks and boost profitability by optimizing and digitizing supply chain management. Did you know that artificial intelligence-powered supply chains are now 67% more efficient than traditional ones that don’t use AI? We’re entering a new era in supply chain management propelled by tech innovations.
Let’s uncover the full potential of SCM!
Table of contents
What is supply chain management in construction?
First of all, what is supply chain management? Supply chain management (SCM) is the oversight of materials, information, and finances throughout the process—from supplier to manufacturer, wholesaler, retailer, and ultimately to the consumer. The main flows within the supply chain include the product flow, information flow, and financial flow. SCM involves coordinating and integrating these flows both within and among companies. It is one of the most complex areas of the construction value chain.
The supply chain management industry is currently in a high growth stage, driven by innovations such as artificial intelligence (AI), data analytics, and machine learning. Its global market was valued at US$23 million in 2023, with an expected growth of 11.2% from 2024 to 2030.
In the construction industry, supply chain management (SCM) plays a crucial role in improving the coordination and communication between stakeholders in order to ensure project quality. In basic terms, it determines whether projects can be completed on time and on budget.
A typical construction project’s supply chain involves various stakeholders such as engineers, architects, prime contractors, material suppliers, and specialty subcontractors.
An effective SCM strategy can boost revenues, cut costs, and impact a company’s bottom line. Here’s how…
How SCM works
Even though supply chains have existed for ages, most organizations have only recently paid attention to them as a value-add to their operations.
SCM aims to oversee the entire scope of the supply chain. However, in the construction industry, many challenges in the supply chains are still very present, mainly due to the absence of a standardized SCM model, a lack of integration and collaboration, and the interdependency between all parties; if one stage is affected, all others thereafter will be too.
Design changes, inaccurate calculations, and lack of standardization among stakeholders can be hurdles in the effective implementation of SCM. Other challenges include poor quality of materials and equipment, inadequate training of subcontractors and workers, and the constant variability of the workforce from one project to another.
What can entrepreneurs and leading companies aim to do to better?
Planning
The planning phase is the “glue” that holds a supply chain together. Supply chain planning seeks to enhance the effectiveness of resource flows by coordinating business activities. Collaboration among networks ensures better optimization from the project’s outset.
For example, in a construction project, supply chain planning enables effective strategic development in managing contractors to procure the right resources, build, commission, and handover the project on time and on budget, to fulfill the client’s requirements.
Sourcing
Sourcing is the process of evaluating, choosing, and managing supplies and suppliers who can offer the right ‘building blocks’ required for a project.
By prioritizing sustainability in the sourcing of supplies and materials, construction companies can contribute to reducing waste and minimizing their environmental impact. This involves finding eco-friendly and recycled materials, using waste reduction strategies, and partnering with suppliers who share similar sustainability goals.
Making
This is the core of the supply chain management process, where a company uses its machinery and labor to transform the materials into a new structure. After acquiring materials and resources, built professionals must monitor construction.
The transformation process is crucial and must be based on decisions grounded on timely and accurate data. This means having a clear understanding of where materials are located, how they’re supposed to be used, and where they go next.
Delivering
Built professionals need to minimize delays and reduce the need to store materials, as it’s not always possible because of space limitations, the risk of deterioration, and storage costs. In an ideal world, materials are delivered on time and at the right place.
While each stage is equally important, there is no point of higher priority than that of the last mile delivery stage, where the goods from a transportation hub move to their final delivery destination.
An emerging solution is the rise of marketplaces in the construction industry, which are becoming increasingly popular, enabling construction professionals to manage the delivery process more efficiently.
Benefits of supply management in construction
Supply chain management is the backbone of construction operations, and its implementation brings about several benefits:
- Timely project completion: In construction projects, uncertainties are inevitable. For example, late material deliveries might result in missed deadlines, increased labor expenses, and project failures. Good supply chain management ensures that everything needed for the construction project is available when it’s needed, helping manage the whole thing smoothly from beginning to end.
- Cost-cutting: SCM can help cut costs in multiple ways. For instance, it identifies areas where logistics expenses are high. Understanding where most of your budget is going could help you head in a different direction and make decisions accordingly. A comprehensive SCM strategy enables management to assess the existing supply chains and identify weaknesses. Addressing these weaknesses can reduce costs and improve efficiencies in the long term.
- Minimizing risk: Risks in the construction sector include, for instance, weather-related delays and supply interruptions. A robust supply chain allows for early risk detection, the implementation of backup plans to minimize negative impact, and the establishment of systems for monitoring progress in real time.
- Enhanced reputation: Strong supply chain management in construction provides building firms with this competitive edge. Why? Whether a corporation or a startup, reputation is one of the most valuable assets in the construction industry. Past successes or failures significantly impact on the company’s reputation, affecting its ability to attract new projects and establish stronger collaborations with suppliers.
- Data centralization: Construction supply chain management can enhance data visibility. Data centralization ensures that every stakeholder involved in a construction project can access a centralized repository of information. The latest data management software and digital communication tools help built environment professionals centralize and organize data related to numerous aspects of construction projects. This is advantageous because it can also help professionals make more informed decisions through advanced analytics.
Examples of construction supply chain management companies
GoFor
GoFor, one of Cemex Ventures‘ investment portfolio startups, is a last-minute and last-mile logistics partner for distributors and suppliers enabled by a marketplace of drivers. It provides its clients with reliable and affordable delivery of materials, whether small loads or big, bulky items, either on demand or pre-scheduled.
LINKX
LINKX is a cloud-based logistics software for the delivery of goods in Mexico. Its platform allows operators to optimize their operations by managing loads and deliveries in real time and integrating all transaction ends.
PartRunner
The US-based startup has developed an on-demand delivery platform for the construction and industrial sectors that addresses a critical pain point within a complicated supply chain, especially for small and medium-sized projects.
In 2022, Cemex invested in PartRunner. This investment aims to provide a last-mile, last-minute delivery solution to Cemex distribution businesses and other customers in Mexico and the United States.
Voyage Control
Voyage Control is a UK-based leading software solution provider for construction, ports, and events clients around the world. The startup’s end-to-end solution helps reduce delays, waste, and cost overruns caused by inefficiencies in the construction materials delivery process through optimized delivery scheduling and an overview of all transactions in real time.
Voyage Control was one of the 5 winners of Construction Supply Chain 2020, and its benefits include streamlining operational processes, enhancing security, reducing congestion, improving driver compliance, and benefiting the environment.
Cemex Go
It‘s also worth highlighting that Cemex has its own solution and digital platform, Cemex Go. Cemex Go is the first-of-its-kind, fully digital customer integration platform. With a strong customer-centric approach, it allows its users to increase their productivity, make better business decisions, and have more control over their businesses. Established in 2017, Cemex Go seeks to boldly advance the building materials industry to the interconnected business age.
What’s Cemex Ventures doing to improve supply chain management?
In the supply chain management category, Cemex Ventures is actively looking for startups offering innovative solutions. These solutions help in the procurement of a project, introduce marketplaces for materials and resources, offer material tracking and logistics coordination, inventory management, fleet management & dispatching, and marketplaces for delivery and last-mile solutions.
If your startup offers a solution to make the construction industry more agile, stay tuned and apply to Construction Startup Competition 2024 under the Construction Supply Chain vertical. Coming out very soon!
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