The construction industry is now witnessing an uphill task because of high interest rates as well as persistent inflation. Construction firms throughout Europe are going through additional pressure because of high borrowing costs, which is causing profit margins to become very narrow.
But in between the seriousness of this situation, there happens to be a reason to remain hopeful. It is well to be noted that research on the supply chain, specifically focusing on the true cost of its operations, was conducted recently. The inferences of this research put forth many inefficiencies within the sector’s procurement procedures. These inefficiencies have gone on to result in senior procurement managers overshooting their budget by 46%.
How does that discovery indicate hope? Unlike inflation, inefficiencies happen to be within the power of companies to change. That is where the opportunity happens to exist.
Challenges faced in the initial stages of procurement
Early in the procurement procedures, there are opportunities to identify and eliminate inefficiencies. As per the research, procurement teams typically review quotes from an average of 11 different suppliers before making a selection. On average, each project involves almost 167 different pieces of equipment. It is evident that construction firms put forth a considerable amount of time to tasks that could potentially be comparatively easy in many instances.
However, to expand the process further, the selection of suppliers involves employees who come from various departments within the company. As per the research findings, CEOs and MDs in 30% of construction firms happen to be engaged actively in making such fundamental decisions. But this level of involvement can potentially lead to many tedious tasks, delays, and, of course, a higher risk of human error.
Inefficiencies occurring on-site
After an order gets placed, additional inefficiencies also crop up. Contractors utilize numerous methods of communication so as to interact with subcontractors and suppliers, like emails, phone conversations, as well as text messages. Frequently, they share information that’s very critical during phone calls that may not be documented, thereby resulting in misunderstandings or even loss when it comes to delivery details and site contacts. As per the research, 28% of senior procurement managers have gone on to identify last-mile delivery as a prominent issue. An additional 28% of customers have gone on to report that the speed of service remains a challenge.
After the equipment gets delivered to the site, contractors encounter a fresh set of challenges. A problem as big as 30% of the equipment being damaged is often seen, which is pretty high. Apart from this, the senior procurement managers cite delays of more than a quarter, i.e., 28%, when collecting equipment after use. This process can be extremely frustrating and filled with delays, thereby leading to surging overall costs.
Another major obstacle that challenges firms from overcoming these drawbacks is their widespread dependence on outdated legacy technology. It has been discovered that a significant majority, i.e., 65% of companies, consistently rely on basic spreadsheets or traditional pen and paper methods in order to handle their complete supply chain operations, which take into account tasks such as supplier selection as well as equipment return. This implies that companies happen to be investing substantial amounts of money in order to manage chaos and also rectify human errors, thereby resulting in a waste of their valuable time.
Reviving the industry via technology
In sectors such as retail, supply chains account for almost one-third of total expenditures. In the construction industry, approximately half of the overall budget, which amounts to 44% or £7.4 million per project, happens to be allocated. This statistic alone should go on to prompt firms to see for themselves how they can decrease their expenditure when it comes to the supply chain.
The solution happens to be actually much simpler and more likely than they may think. According to the research, the main hurdle that is faced by senior procurement managers is the digital tools and innovation absence. Like many other industries, construction happens to have the ability to easily resolve this problem.
To navigate through this challenging economic climate, construction firms should shift their approach and, at the same time, embrace technology instead of resisting it. Digital tools have the capacity to revolutionize supply chains by offering enhanced visibility, lessening administrative tasks, and also significantly enhancing complete efficiency.
