Recent disruptions, including COVID-19, regulatory changes, and product compliance concerns, have put the spotlight on procurement and supply chains for construction businesses. According to procurement experts, there are ways to turn these challenges into opportunities through undertaking some supply chain housekeeping.
Procurement practices have a major influence on the success and profitability of a construction business and its projects. As recent events have shown, relying on the same products and suppliers from project to project may not always be the best approach.
The Chartered Institute of Procurement and Supply has outlined a framework for construction firms to review and de-risk their supply chains, particularly as the global industry recovers from the economic and social impacts of COVID-19. Greater integration between builders and trades and their suppliers is a fundamental part of the way forward, claims General Manager of CIPS Australia and New Zealand Sharon Morris.
“The disconnect between the business and the supply chain cannot continue if recovery is to be smooth and efficient, but also to avoid future disruption,” Morris said. “Procurement needs to be placed at the heart of this solution, building robust supply chains that are fit for the future.”
Look for Value, Not Just Price
Although price has often been the prime consideration for procurement, this approach may no longer be fit for purpose. According to findings from the inquiry into the disastrous Grenfell Tower fire in the UK and inquiries into cladding fires in Australia, procurement is key in terms of managing regulatory, safety, financial and reputational risks.
“We know that profit margins throughout the construction industry are low, and with high levels of competition and risk, there is a real concern that, despite the best intentions, the culture of low prices and undercutting of competitors continues,” Morris said.
“Many of the shortcomings revealed in the Grenfell Tower review are reflected more widely across the sector, with COVID-19 further exposing some of these risks.”
A new CIPS report has outlined how construction businesses can change procurement and supply for the better. It notes the construction sector supply chain is an “ecosystem which is highly interlinked and fragile, with vulnerability points having a butterfly effect through the whole industry.”
Elements of a more robust approach examined in the report include identifying risks in the supply chain; improving demand planning; boosting onshore and local supply capability; standardisation of products and specifications; and increased collaboration and cooperation between builders and suppliers.
Adapting to a Changing Market
There are broader trends to consider as well, such as rising awareness of the importance of sustainability and regulatory shifts regarding social responsibility requirements.
Morris notes that Modern Slavery requirements as well as sustainability and safety standards are “driving the need for greater scrutiny and due diligence—particularly looking at the sub-contracting space where the chance of malpractice might be easy to eventuate and harder to detect.”
Some of the ways builders can shape their supply chain to better meet such requirements are outlined in a range of online resources CIPS has developed specifically for the industry.
They include clauses in tender specifications, supplier prequalification procedures, setting social outcome benchmarks like an Indigenous procurement target, and developing an end-to-end construction lifecycle management plan for strategic sourcing to reduce future waste.
“All businesses involved in the construction sector need resilient supply chains with full supply chain transparency, better planning, risk assessment and mitigation, and a focus on value rather than price,” Morris said.
Build Reputation with Clients
Changes in the market and the chance to find new efficiencies are just some of the reasons to look at potentially changing suppliers or product choices, Hayley Jarick, CEO of the Supply Chain Sustainability School, said.
Clients are becoming more informed about sustainability, she said. There is more awareness around operational energy costs and how design, construction and fixed appliances affects energy bills.
“There is also more awareness about preventing discrimination through universal housing and how practical and flexible design that meets the needs of people of different ages and abilities over time, positively affects the future value of homes for owners or investors,” Jarick said.
Businesses and consumers are also seeing more emphasis on social responsibility, for example, whether potential Modern Slavery exists in the product supply chain.
Jarick said recent legislation around Modern Slavery is also a reason for builders to assess suppliers and materials because builder reputation is affected by suppliers.
“Social responsibility is an expectation people have nowadays,” Jarick said. “How a supplier runs its business is going to impact on yours.”
It may not be necessary to look for new suppliers entirely as part of a procurement rethink.
“Sometimes it is a matter of pushing current suppliers and asking them, what are they doing differently?”
This can “reinvigorate your options.”
Tech Can be a Supply Chain Asset
Technology is supporting the transition to greater transparency in terms of material and product supply chains. Blockchain, data analytics, and the digitisation of logistics are all contributing to greater clarity about where products come from and how they are produced.
Building Information Modelling and platforms for Lifecycle Assessments (LCA) are similarly supporting a more informed procurement approach.
“The technology is out there—and people expect to see it used,” Jarick said.
It can also show the benefits can be gained when switching suppliers or materials, such as lower cost, less time or reduced risk.
Get to Know Your New Suppliers
When looking for new suppliers, finding information about their past performance is valuable, Jarick said.
Looking at members of relevant industry associations can also be helpful. After all, being a member is a statement of genuine commitment to a cause, such as quality, compliance, sustainability or social responsibility.
“That is important in the mix of deciding who to go with,” Jarick said.
Spending an hour doing one of the School’s free courses on materials can also help a builder stay informed about product choices. The school also offers a free supply chain assessment. It provides participants with a personalised action plan, suggested learning resources and a secure account that can be used for staff training purposes at no cost.
Jarick said many people in small business think major change is beyond their capabilities.
“But if you have a big, hairy audacious goal, you will do better than if you just aim for compliance. And you can have a massive [positive] impact just by making simple choices differently.”