Supply Chain Cost and Materials Management Strategies for Construction (2024)

• Appoint dedicated supply chain leadership. This is a complicated subject; someone needs to own it to drive success. The role of supply chain leadership should include efforts to compile and digest the information being gathered by your various teams and fully leverage it across the organization. There are many moving parts: processes, systems, compilation and assessment of data, and the strategy to make sense of it all. In other words, this should be someone who can see the big picture, and who has the authority to take big picture actions. Whether it’s a dedicated specialist or part of another position, there’s value in someone taking point.
• Implement a robust, documented, and continuous subcontractor communication plan around supply chain. Subcontractor outreach is foundational to correctly understanding supply chain risk. They are closest to the risks and can give you the best possible intelligence on them. What might a sub outreach program include? It varies, but the common themes are fairly consistent. Talk to subs about:
  • Known Materials Status and Availability - Do the subs or suppliers know there is a problem, or that there is no problem? Find out.
  • Potential Areas of Concern - What are sub/suppliers worried might become a problem?
  • Lead Time and Price Impacts – On both, work with subcontractors and suppliers to strategize a solution. Their insights may provide a solution you wouldn’t otherwise think of. This will also facilitate project schedules being developed realistically and incorporating anticipated lead times and allow for accurate budgeting.
  • Comments – In a nutshell, understand what keeps them up at night. This freeform opportunity for subs to elaborate regarding anything on their minds regarding supply chain can be very revealing - if you read between the lines. Ensure that someone does.
• Conduct a Supply chain audit for all in-progress projects and upcoming or potential projects. Make a consistent effort to understand what is at risk and where to focus. In today’s environment, “Required on Job” and “Material Procurement/Tracking” logs need to be managed 6, 9, and 12 months out. Verify that your Trade Partners and suppliers have placed their orders in time and that the anticipated lead times are current – and have a buffer.
• Mitigate potential impacts. Plans may include alternate materials or suppliers for those with potential for delays or escalation, re-sequencing work to accommodate delays, pre-purchase and storage – with appropriate controls.
• Share your knowledge. It’s important to educate owners and designers. You’re going to “own” this risk together for the duration of any project. Some of the smartest strategies will have cost associated or require a design compromise. Make sure everyone knows WHY it makes sense. If the owner makes a different choice, ask them to indemnify you for the risk with contingencies, price escalation clauses, or other appropriate measures.

It’s important to educate owners and designers. You’re going to “own” this risk together for the duration of any project.

• Implement a materials management planfor all at-risk materials, tracking from point of origin to your site with documentation along the way. Confirm the materials are being fabricated. Know when they are headed your way and know when they will arrive. This level of upstream communication may be new for many organizations, but it is a critical step in understanding and managing supply chain risk. Once on site, check materials in against submittals to check for correct and sufficient materials. This is an environment in which substitutions might happen or quantities might be short. Missing or damaged materials will take longer to replace. Don’t leave these responsibilities to subcontractors only; builders need to own this risk and manage it. This is a trust but VERIFY situation.
• Incorporate material constraints/delays into your project scheduleso that it accurately reflects the actual activities on site. This forms the basis of any request for increased time or cost, so be sure it is accurate.
• Consult your lessons learned.Have you experienced this in the past? What did you do then? Make sure you leverage past experiences.

The above list contains tactics you can use to react to the situation now, but what are some strategies to put your organization in a better position for the future? Consider the following:

• Focus on your Go / No Go criteria.Understanding supply chain challenges can help you pursue the right projects. Knowing how flexible and accommodating an owner is likely to be matters. To the greatest extent possible, try to:
  • Work with owners you know and trust. Your knowledge of how fairly an owner manages contract issues, how flexible they are likely to be when design or material changes make sense, certainty of funding, schedule and cost priorities, and involvement in sub decisions is valuable, and should be cultivated and leveraged.
  • Make reasonable schedule commitments. Incorporate new realities around labor and materials in your schedule. It is likely that projects built now will not go up as quickly as those in the past. Adapt to this reality.
  • Make reasonable cost commitments. Use reasonable and current assumptions around cost. Shifting supply chains almost certainly mean there will be cost deltas from historical data.
  • Review contract language with legal counsel. The details matter with regards to risk allocation. Use what you’ve learned and definitely don’t take on a contract with the same problems you have identified previously.
  • Stick to your core competencies. If there’s ever been a time to double down on your strengths, this is it. Avoid “firsts” and exceptions. Play the long game.
• Collaborate.Implement a process for projects to communicate with subcontractors and suppliers to understand their supply chain challenges. Begin this conversation at the earliest possible stage of bidding and continue it over the life of each project.
• Include supply chain conversations in subcontractors’ qualifications analysis.Identify those with supply chain redundancies and strong supplier relationships and weigh those things in award decision. Ask subs to disclose the value and source of all potential materials as part of their bid and use this information to make reasonable risk management decisions.
• Focus on Resiliency.This may include redundant sourcing, redundant subcontractors, stockpiling some vulnerable materials, and building strong relationships in situations where redundancy is less possible.
• Incorporate Supply Chain strategies into your Business Continuity Plan.Whether a pandemic, strikes, tariffs, or embargoes, interruption events like these will arise again, and supply chain interruptions are typically close behind. Contemplate your approach in your business continuity plan.

There is no doubt that the issue of supply chain management is incredibly complex, and a challenge to even begin to address. With a defined focus on these strategies, we can work to build a new, better system for managing supply chains in construction. These logistical matters are seemingly mundane on their own, but combined, they comprise the critical tactics needed to foresee and avoid unexpected impacts. When strong vision and strategy is coupled with the tactics discussed above, it may be possible to both mitigate current risks and avoid or soften future supply chain impacts.