By Aki Merced – Content Manager at Handle.com
Supply chain management in construction has its unique challenges. To manage the supply chain, it’s crucial to understand the breakdown and movement of all resources, parties, activities, information, and activities involved from the beginning of a project, during it, and until a project is finished.
Much of the complexity of supply chain management in construction comes from variance in the nature of construction projects, as well as the network of consultants, suppliers, and contractors for each project who constantly shuffle. Organizations and people involved in construction know that it’s normal to work with people you have never worked with before and, chances are, you might never work with them again.
On top of that, each entity involved in construction projects has its own supply chain. For example, within a building developer’s supply chain, the design company hired has its own subcontractors and independent professionals working under them.
As projects get bigger, so too does the complexity, making supply chain management a multi-tiered and elaborate undertaking.
Automation in Construction Supply Chain Management
Managing the supply chain from top-down in a construction project is never linear, making parts and components of it ripe for automation.
On the contractor level, construction business owners know the importance of managing the supply chain well as profits in construction are razor thin, and each efficiency improvement — and reduction of loss — translates into an increase in the bottom line.
Construction is notoriously prehistoric when it comes to business processes. Being the mammoth industry that it is, it’s still the second least-digitized industry in the US. Still, the gains brought about my automation in construction supply chain management show a promising and more efficient future. Here are some ways:
Costs change, markets change. Along with that comes vendor changes and adjustments to the flow of a construction company’s supply chain. Staying on top of spending and reconciling job costs with cash inflow are keys to maintaining a positive working capital for construction companies, both big and small.
Procurement and delivery are two critical aspects of the success of any construction project. Purchase orders used to have to go through many levels of approvals that can take days, and delays in construction cost big money. Making the process transparent also allows management to make decisions that shorten the procurement cycle without compromising due diligence.
By automating procurement processes, contractors not only shrink internal bureaucracy, but they also keep costs down, collect and track vital data to project future growth, and identify opportunities they can exploit to drive more profit.
Accounts Receivable management
Accounts receivable is the most critical asset in a construction company’s balance sheet. Managing A/R efficiently is crucial in ensuring that a company’s supply chain runs without a hitch. However, extended payment cycles and delinquent accounts plague the construction industry, making A/R management a particularly complex challenge.
Contractors have turned to automation to protect their payment rights and go after non-paying clients. The traditional process of lawyering up or hiring a collections agency to handle payment issues costs a lot of time and money, leading many construction companies to eat up the debt. As companies take the financial blow, the supply chain suffers and projects slow down. At worst, it can slow the whole business down to a grinding halt.
Another area where automation has made a significant impact is inventory management. For both construction suppliers and larger contractors, being able to keep and maintain a highly-visible and well-managed inventory of materials carries a marked significance in the success of construction projects.
Not having the correct supplies on hand at the right time and not being able to strategize procurement based on inventory data will weigh a project down. It increases costs, annoys customers, and results in lost business.
Inventory management automation in construction has hastened the work of many employees both in the job site and in back offices. Automated inventory management systems have made the tasks of facility and inventory executives easier and less prone to human error. It also impacts work in other departments. Job costing, implementing change orders, and cash flow management are all functions that inventory management automation has made more efficient.
Future of construction automation
There is still much room for improvement when it comes to automation in the construction industry, both in building and improving tools that automate processes and also in adoption. That said, more and more companies are embracing innovation and change. Supply chain management automation is leading that charge by showing how technology can address construction’s inefficiencies through technology, driving financial gains while making the work of stakeholders easier.
About the Author: Aki Merced is the Content Manager at Handle.com, where they build software that helps construction businesses get paid faster by automating the collection process of unpaid construction invoices.