If you stop to think about it, the construction industry supply chain is all around us — it’s the roads we drive on, our houses and commercial buildings, and all sorts of other infrastructure. But when you take a closer look at how this supply chain works, you realize that there is a lot of waste and inefficiency. Simply put, there’s probably no other supply chain that is in more dire need of transformation than the construction industry supply chain. Why is that? What are some of the challenges? How can companies get started on transforming their supply chains?
What Makes the Construction Materials Supply Chain Unique?
While we are all familiar with the homes we live in and the roads we drive on, we probably don’t think much about the materials they are made of and how they get to (and are used at) construction sites. Therefore, I began our discussion by asking Steve to tell us about the construction materials supply chain and how it is similar to or different from other supply chains.
Steve comments that most people may think of supply chains as tankers or container ships traveling across oceans, not as concrete or asphalt which is used within an hour of arrival on site and which turns over many times a day. “Like any supply chain, there are buyers, sellers and logistics providers,” says Steve. “And that model works higher up the construction materials supply chain as well. But that all changes when you get to the job site. Whether you’re talking about houses, commercial building, highways or bridges, it isn’t a simple transaction because there are inspectors involved at every step. When a load of materials arrives at the job site, it isn’t an official transaction until the inspector certifies this is the right material, or maybe even 28 days later when a lab technician certifies the materials. So there are some unique considerations to how we look at things compared to other industries.”
Another uniqueness I mentioned was that construction projects are all “one-offs” like made-to-order supply chains. Steve concurs. “Even if you are dealing with the exact same contractors and building the same buildings or roads, the sites will be different and the weather will be different, two factors which can completely change how you go about the project.”
Digital Transformation in Construction Materials
Digital transformation is a hot topic across all supply chains today. But how does that apply to an industry as unique as construction materials?
“Starting at the macro level, whether you are a supplier or contractor, we are all resource constrained,” notes Steve. “In a study by [the Global Infrastructure Hub, a G20 initiative], global spending on infrastructure over the next 25 years is projected to be $79 trillion, but actual needs are expected to be $94 trillion, creating a $15 trillion gap we need to fill.
“Closer to home, the American Society of Civil Engineers, (ASCE) has rated U.S. infrastructure at D+, an unacceptable level for the greatest country in the world. Projected needs are $4.6 trillion in spending by 2025, but only about $3.6 trillion is actually funded. We’re going to have to find productivity gains to help fill this gap.”
One of the problems is that productivity has been relatively flat in the industry, mainly because it is still mostly paper-based. Steve notes, “For example, a very conservative estimate is that we waste about fifty million work hours a year just keying in data from job site delivery tickets, and that may be low by a factor of two or three. A place to start transformation is to digitize this transfer of data. We have to move from a document-driven industry to a data-driven industry.”
With the significant investment in time and dollars required for digital transformation, the question becomes whether it’s worth it. Steve offers some examples. “Several state DOTs have begun digitizing data and have experienced from 200% to 700% returns on their investments. Contractors have started using digital collaboration tools to save three to four percent on their materials and trucking costs.”
“Perhaps a more surprising example is in the third-party hauler segment,” continues Steve. “Rather than send drivers, which haulers are struggling to find enough of, to sit in rush hour traffic in the morning to fill silos at a plant that already have enough product, they can better route and utilize their trucks and drivers if they can see silo inventories and better understand actual demand.”
Process and Technology
So, why has the construction industry been a laggard when it comes to digital transformation? What process should companies go through to get started on this journey? How is technology helping? I encourage you to watch the full episode for Steve’s insights and advice on these questions and more. Then post a question or comment and keep the discussion going!