How to Manage Supply Chain Risks Within Construction

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Construction supply chains are notoriously complex. Every project is unique with its own supply chain – a potential nightmare for those who manage them. Anything from logistics to the quality of materials and the safety of workers could go wrong.

With the introduction of risk comes the potential to lose money, which no construction company wants. It doesn’t matter where you are in the supply chain – taking on too much risk could leave you out of business – so we’ve put together the top tips you need to manage supply chain risks within construction.

Ways to manage supply chain risks within construction

Look at the risks early on

Don’t wait until something goes wrong in your supply chain; at that point, it’s already too late. When you’re putting together your supply chain, incorporate terms into contracts so that everything is clear from the outset.

Be clear about what you expect from lower down the chain and keep your expectations in check. Smaller companies won’t want to absorb any additional risks because the costs could put them out of business. Be realistic and fair.

Know the whole supply chain

You need to take the time to ensure you completely understand your supply chain risks during the tender and procurement process. Talk to businesses lower down in the chain and get a strong grasp of the whole picture.

One survey revealed that 20% of construction firms in the UK that source materials globally have no supply chain information beyond their direct suppliers, while another found that 42% of supply chain disruptions were caused by firms in tier two and below. You need to know what’s going on at every level so you know what the risks are, regardless of whether your supply chain is global or domestic.

If you’re not sure where to start here, we’ve come up with some questions you need to answer:

  • Are your suppliers in places of political uncertainty?
  • Are they vulnerable to natural events like floods and earthquakes?
  • What is relevant legislation like where they’re based?
  • Is the COVID-19 pandemic causing any unique problems through local lockdowns, transport restrictions and so on?

Make sure you’re insured

One of the best ways to manage supply chain risk within construction is to get integrated project insurance (IPI). This is where everyone involved comes together under a special purpose vehicle and it comes with a lot of benefits.

Subcontractors are able to share financial rewards, while getting rid of the blame culture that often appears when something goes wrong. Joint ownership of risk is introduced, with the added benefit of minimising the likelihood of projects overrunning.

The coronavirus pandemic is testing contracts like never before, so having something like this in place can only work in your favour. The last thing you want is blame being passed down the supply chain causing even more delays and costing everyone money.

Work towards a transparent supply chain

When it comes to construction projects, less than 15% is usually delivered directly by the main contractor. Your client has no idea how risk, subcontractors and the cashflow are managed. If you want to take a step towards mitigating your risks, you need to change that.

Make your construction supply chain transparent. Use cloud-based software to encourage visibility, and draw up strategic supply chain maps for critical programmes and spending categories. Keep contact channels open up and down the supply chain, too, so that all partners know exactly what is happening.

A connected digital supply chain doesn’t have any downsides. You know exactly where everything is and when, and you can adjust deadlines and costs as you go. You can even use the same system to manage your workforce and streamline scheduling.

Plan for problems

You need to know what problems could be heading your way. In lieu of a crystal ball to predict the future, make the most of cloud-based solutions. These systems will give you advanced predictions with smart forecasting and analytics, meaning you can figure out what’s going to happen next in your supply chain.

Whatever happens, you need to be flexible. Do some tactical scenario planning so you know what to do in case of an emergency. This will help you with your logistics and business continuity. This will be useful now more than ever. With the pandemic affecting timelines and causing extended schedules, you need to transform your existing practices into ones that work and can account for risk.

Summary

If your supply chain isn’t flexible and if you aren’t ready to communicate with upstream and downstream partners, you’re opening yourself up for chaos.

To manage supply chain risks within construction, you need to plan ahead, which is made much simpler with cloud-based software. Build a transparent system and remember, collaboration is always key.

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