The construction industry heavily relies on the procurement of materials to fulfill its projects, making material procurement in the construction industry a critical aspect. However, professionals in this field face numerous challenges ranging from volatile prices and supply chain disruptions to compliance and quality control issues. To ensure the smooth and timely supply of high-quality materials for construction projects, procurement professionals must embrace innovative strategies and leverage technology to enhance supply chain visibility. In this article, we will explore the specific procurement challenges encountered in the construction materials industry, offering practical solutions supported by success stories and analytical insights.
What are the challenges and solutions in material procurement faced by the construction industry?
Construction material prices are subject to fluctuations in the global commodity markets, which can lead to price volatility. This makes it difficult for procurement professionals to maintain a consistent budget for their projects.
Companies can mitigate price volatility by implementing strategic sourcing practices that involve maintaining a close relationship with suppliers, analyzing market trends, and hedging against price changes.
Example: In 2021, global cement prices increased by 2.5%, while steel prices increased by 21.5%. To address the challenge of price volatility, construction giant Bechtel implemented a supply chain risk management program, which helped the company to identify and mitigate risks in its procurement processes. As a result, Bechtel was able to maintain a stable budget for their projects despite the fluctuations in the commodity markets.
Supply Chain Disruptions
The construction materials industry relies on a complex global supply chain, which can be disrupted by natural disasters, geopolitical events, or supply chain bottlenecks. These disruptions can lead to delays in project timelines, increased costs, and lower-quality materials. Companies can address supply chain disruptions by diversifying their supplier base, investing in technology to improve supply chain visibility, and establishing contingency plans for emergency situations.
Example: In 2020, the COVID-19 pandemic disrupted global supply chains, causing delays and shortages in the construction materials industry. To address this challenge, construction company Skanska implemented a digital procurement platform that provided real-time visibility into the company's supply chain. This allowed Skanska to quickly identify and address any disruptions, ensuring that their projects were completed on time and within budget.
FactWise offers a range of prescriptive and predictive analytics to help organizations be more strategic and fact-driven in their procurement processes, minimize risk, and maintain high quality standards. With analytics into RfX, supplier performance, inventory status, and team performance, and empowers teams to strengthen supplier relationships and supplier base via improved supplier management and increased supplier diversity.
Ensuring the quality of construction materials is crucial to the success of any construction project. However, quality control can be challenging in the construction materials industry, where there are often many suppliers involved in the production process. Companies can address quality control challenges by establishing clear quality standards and processes, conducting regular supplier audits, and investing in technology to improve quality control processes.
Example: In 2020, construction materials supplier CRH implemented a Supplier Performance Management program, which included regular supplier audits to ensure that their suppliers were meeting their quality standards. As a result of this program, CRH was able to reduce the number of quality-related incidents by 15% in just one year.
FactWise empowers procurement organizations with dynamic, holistic supplier performance analytics across key supplier metrics like price, on-time delivery, quality, etc. so that buyers have a high degree of decision intelligence. Our supplier selection algorithm helps you prioritize preferred and well-performing vendors, while also discovering new suppliers that match your ESG or other ethical requirements and quality standards.
The construction materials industry has a significant impact on the environment, and there is increasing pressure on companies to adopt sustainable procurement practices. Companies can address sustainability challenges by implementing sustainable sourcing practices, investing in renewable energy, and reducing waste in their supply chains.
Example: In 2021, construction materials supplier LafargeHolcim announced that it had achieved net-zero emissions across its global operations. This was achieved through a combination of sustainable sourcing practices, investments in renewable energy, and the reduction of waste in their supply chain. As a result, LafargeHolcim was able to reduce its CO2 emissions by 22% between 2018 and 2020.
FactWise empowers procurement organizations to prioritize preferred vendors and discover new, pre-vetted, well-rated vendors that meet their quality and ESG requirements, and to define their item specifications and logistics/delivery requirements in detail on POs.
Construction projects often have strict timelines, which means that procurement professionals need to ensure that materials are delivered on time to avoid project delays. Companies can address lead time challenges by maintaining close relationships with suppliers, implementing advanced planning and forecasting techniques, and investing in technology to improve supply chain visibility.
Example: In 2018, Australian construction company Lendlease implemented a digital procurement platform that allowed them to collaborate more effectively with their suppliers and improve their supply chain visibility. As a result, Lendlease was able to reduce lead times by up to 50%, which helped them to complete their projects on time and within budget.
The construction materials industry is constantly evolving, with new products and technologies being developed all the time. Procurement professionals need to keep up with these changes to ensure that they are procuring the most innovative and effective materials for their projects. Companies can address product innovation challenges by working closely with suppliers to identify new products and technologies, attending industry conferences and events, and investing in research and development.
Example: In 2019, UK-based construction company BAM Nuttall launched a product innovation program to identify new and innovative construction materials. As a result of this program, BAM Nuttall was able to identify a new type of geotextile material that was more effective than traditional materials for erosion control. This allowed BAM Nuttall to improve the quality of their projects while reducing costs.
The construction materials industry is subject to various regulations and standards, including health and safety regulations, environmental regulations, and quality standards. Procurement professionals need to ensure that they are procuring materials that meet these standards.
Companies can address compliance challenges by establishing clear procurement policies and procedures, conducting regular supplier audits, and investing in technology to improve compliance monitoring.
Example: In 2019, US-based construction company Turner Construction implemented a compliance management program that included regular supplier audits and compliance training for their procurement team. As a result of this program, Turner Construction was able to improve its compliance record and reduce the number of compliance-related incidents.
In conclusion, the complexities of material procurement in the construction industry can have a significant impact on the timely delivery and quality of construction projects. Procurement professionals in this industry need to stay informed about industry trends and innovations, maintain close relationships with suppliers, and invest in technology like FactWise Source-to-Pay to improve their supply chain visibility. By addressing these challenges and implementing innovative procurement strategies, companies can reduce costs, improve the quality of their projects, and maintain a competitive edge in the global construction market.