Supply Chain Management in the Construction Industry: The Ultimate Guide

What is supply chain management in the construction industry?

First of all, what is supply chain management? Supply chain management (SCM) is the management of the entire process Oversight of materials, information and finance from suppliers to manufacturers, wholesalers, retailers and ultimately to consumers. The main processes in the supply chain include product flow, information flow and capital flow. SCM involves coordinating and integrating these processes within and between enterprises. It is one of the most complex areas of the construction value chain.

The supply chain management industry is currently in a high-growth phase, driven by innovations such as artificial intelligence, data analytics, and machine learning. It is estimated that its global market value will be US$23 million by 2023 and is expected to grow by 11.2% from 2024 to 2030.

In the construction industry, supply chain management (SCM) plays a vital role in improving the coordination and communication of inter-interest relationships to ensure project quality. Simply put, it determines whether the project is completed on time and on budget.

The supply chain of a construction project involves various stakeholders such as engineers, architects, general contractors, material suppliers, and specialized subcontractors.

An effective SCM strategy can increase revenue, cut costs, and impact a company's bottom line.

How Supply Chain Management Works

Although supply chains have been around for many years, most organizations have only recently begun to focus on them as a value-added part of their operations.

Supply chain management aims to oversee the entire scope of the supply chain. However, in the construction industry, many challenges in the supply chain still exist, mainly due to the lack of standardized supply chain management models, lack of integration and cooperation, and interdependence between parties. If one stage is affected, all other stages following it will also be affected.

Design changes, inaccurate calculations, and a lack of standardization in communication can become barriers to effective SCM implementation. Other challenges include poor quality materials and equipment, inadequate training for subcontractors and workers, and changing coordination of different projects.

What can entrepreneurs and leading businesses do to achieve better results?

• Planning

Planning Phase It is the “glue” that holds the supply chain together. Supply chain planning is designed to improve the efficiency of capital flows by coordinating business activities. Cooperation between the networks ensures better optimization from the start of the project.

For example, in a construction project, supply chain planning can effectively strategize and manage contractors to procure the right resources to build, commission and hand over the project on time and on budget to meet customer requirements.

• Procurement

Procurement is the process of evaluating, selecting and managing supplies and suppliers that can provide the right “building blocks” required for a project .

By prioritizing supply and material sustainability, construction companies can reduce waste and minimize their impact on the environment. This includes finding environmentally friendly and recyclable materials, using waste reduction strategies, and working with suppliers who share similar sustainability goals.

• Manufacturing

This is the core of the supply chain management process, where a business uses its machinery and labor to transform materials into new structures. After materials and resources are obtained, construction professionals must monitor construction.

The transformation process is critical and decisions must be made based on timely and accurate data. This means having a clear understanding of where materials are, what they are used for, and where to go next.

• Delivery

Construction professionals need to minimize delays and reduce the need to store materials due to space constraints, risk of spoilage and storage costs , which is not always possible. In an ideal world, materials arrive at the right place on time.

While every stage is equally important, none is more important than the last-mile delivery stage, where goods move from the shipping center to the final delivery destination.

One emerging solution is the rise of construction industry marketplaces, which are growing in popularity and enable construction professionals to manage the delivery process more efficiently.

The benefits of supply chain management in the construction industry

Supply chain management is the backbone of construction operations, and its implementation can bring the following benefits:

• Complete Projects on Time: Uncertainty is inevitable in construction projects. For example, delays in material delivery can result in missed deadlines, increased labor costs, and project failure. Good supply chain management ensures that everything needed for a construction project is available when needed, helping to manage the entire project smoothly from start to finish.
• Reduce costs: SCM can help reduce costs in a variety of ways. For example, it can identify areas where logistics costs are higher. Knowing where the bulk of your budget is going can help you go in different directions and make decisions accordingly. A comprehensive SCM strategy that enables management to assess the existing supply chain and identify weaknesses. Addressing these weaknesses can reduce costs and increase efficiency in the long run.
• Reducing risks: Risks to the construction industry include weather-related delays and supply disruptions. A strong supply chain can detect risks in advance, implement backup plans to minimize negative impacts, and have systems in place to monitor progress in real time.
• Improve reputation: Strong supply chain management in the construction industry provides construction companies with a competitive advantage. Whether you’re a business or a start-up, reputation is one of the construction industry’s most valuable assets. Past successes or failures have a significant impact on a business's reputation, affecting its ability to attract new projects and build closer relationships with suppliers.
• Data Centralization: Construction supply chain management can improve data visibility. Data centralization ensures that every stakeholder involved in a construction project has access to 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 beneficial as it also helps professionals make more informed decisions through advanced analytics.