Overcoming the Complexities of Construction Supply Chain Management
The 2016 Farmer Review shed light on the construction industry's vulnerabilities, specifically its declining productivity rates compared to other sectors over the previous 22 years1. Post 2016 to 2024, the construction industry continues to face significant challenges that have exposed the fragility of its supply chains – the complex network of vendors who bring materials and services together. The impact of recent global events, such as the COVID-19 pandemic, Brexit, the Suez Canal blockage, and the Ukraine conflict, have further demonstrated the interconnectivity of these global supply chains and the risk these events expose.
The construction industry is not immune to these events, with reports indicating a nearly 40% decrease in growth from the outset of the COVID-19 pandemic2. When compounded by additional ‘black swan’ events, such as the blockage of the Suez Canal in 2021 which impacted the movement of approximately £7 billion of goods per day, it becomes evident the profound impact any supply chain disruption has on the UK and global construction sectors3. Indeed, as a result of the supply chain disruptions approximately 38% of inflationary costs can be attributed to labour and materials4, which led to 80% of UK builders postponing projects in the fourth quarter of 20225. The repercussions of these events continue to unfold with a 35% increase in UK construction material price indices compared to pre-pandemic levels6, and a forecast for continued decline in construction outputs for 20247.
The consequences of supply chain disruption are not always obvious and construction organisations are often unprepared for their impact. Industry leaders are turning to business intelligence, generated by data analytics, to manage this risk, and identify mitigation measures to manage cash flow, optimise project schedules, and improve their resilience to market shocks. This article explores how construction programmes can leverage intelligent platforms, technology, and analytics to navigate supply chain challenges and enhance their supply chain resilience.
Challenge: Construction projects often involve multiple integrated parties. The complex nature of these multi-tier relationships can lead to a lack of visibility and integration across the entire supply chain.
Benefits: Mapping out and understanding the performance of the entire supply chain (leveraging a combination of public and private data and/or intelligent platforms) will establish the following opportunities:
- Develop end-to-end visibility of your extensive and fragmented supplier landscape. This will enable you to proactively identify and address potential risks, preventing disruptions and mitigating potential impacts on delivery execution.
- Gain a comprehensive understanding of how your supply chain will react to any major change in the industry. For example, by assessing the resilience of multiple supply chain tiers (i.e., beyond Tier 1) the true impact of any risk can be accurately diagnosed at a working and source level. This reinforces the importance of a holistic approach to supply chain management, as risks can originate from diverse sources, buried within a complex supply chain.
Challenge: In today's data-driven landscape, the availability of large volumes of information is simultaneously a challenge and an opportunity. Success lies in extracting valuable insights.
Benefits: By leveraging market sentiment and AI/Machine Learning analysis on the supply chain, your organisation could generate insights more rapidly. This will allow you to engage primacy within your sector, gain competitive advantage and proactively manage risks. This could introduce the following benefits:
- Enable more informed, evidence-based decisions that will mitigate disruptions and increase your overall agility. For example, if there are any concerning financial performance reports, or developments in global markets (i.e., sanctions or restrictions), threats can be identified in an enhanced manner.
- Utilising captured data to actively challenge current performance metrics (ESG, productivity, etc.) and supplier performance against their delivery KPI’s.
Challenge: Uncertainty and market fluctuations of materials availability and price can impact delivery performance.
Benefits: Major capital and complex programmes require a wide range of materials, and associated costs can fluctuate depending on external factors (supply and demand, tariffs, currency exchange rates, geopolitical events, etc.). Enhanced visibility of material and inventory availability, through data analytical solutions, will deliver enhanced benefits, including:
- Pre-empting the impact that global events or market movements could have on materials and associated logistics.
- Early identification of your inventory-related risks will allow for a better understanding of potential cost and delivery threats. Enhanced insights into the supply chain will enable the proactive mitigation to deliver diversified sources of materials and implement measures to mitigate material quantity strategies to safeguard against price fluctuations, project supply and ensure uninterrupted progress.
There are significant risks in doing nothing.
Neglecting supply chain resilience in the construction industry could have significant consequences. Unforeseen events (e.g., market shocks or geopolitical conflicts/events) can disrupt global supply chains, directly impacting major capital programmes through project delays, cost overruns, and reputational damage. If supply chain disruptions are severe or prolonged, it could lead to compliance, commercial, legal and/or regulatory risks and ultimately resulting in a loss of business as clients may seek more secure supply chain options.
A passive approach to supply chain management exposes organisations and capital programmes to potential consequences that could impact their bottom line, reputation, and ability to secure future business. All delivery organizations should consider leveraging technology, data, and analytics to proactively mitigate supply chain risks and enhance their resilience. The construction industry has made investments in the digital space, but scaling beyond pilot projects has been a challenge for many8. Intelligent toolkits and platforms, such as AI, have already demonstrated their potential to significantly increase productivity (by up to up to 30%) which will ultimately mitigate delivery risk8.
Leveraging data analytics and intelligent platforms to manage the global resilience of supply chains is rapidly becoming a fundamental concept for major capital programmes. Project leaders must adopt a proactive approach to comprehensively assess and mitigate challenges and risks across multi-tiered supply chains. They can leverage widely available and continuously evolving data analytics, machine learning, and AI solutions to uncover and capitalize on additional opportunities for building long-term resilience within delivery programmes.
Bibliography:
- Farmer, M. (2016). The Farmer Review of the UK Construction Labour Model: Modernise or Die. Construction Leadership Council, London.
- RICS. (2023). UK Construction Monitor Q3 2023. Global Construction Monitor. Retrieved December 18, 2023.
- BBC News. (2021, March 25). Suez Canal: How are companies affected by the ship blockage? Retrieved December 12, 2023.
- Deloitte Winter 2023 Crane Survey (2023). Retrieved December 18, 2023.
- Confederation of British Industry (2023). Tackling supply chain challenges to drive economy recovery. Retrieved December 01, 2023.
- UK Government, Department for Business and Trade (2023, December.). Building materials and components statistics. Retrieved December 15, 2023.
- Construction Products Association. (2023). Construction Industry Forecasts: Autumn 2023. Retrieved December 01, 2023.
- Deloitte. (2020). The Age of With... AI in construction and infrastructure.
