Construction is undergoing a transformation driven by new digital technologies. These innovations are shifting how organizations operate, reducing costs, increasing operational efficiency, improving safety, and boosting performance. In particular, the digital supply chain plays an essential role in this process. It enables manufacturers and suppliers to streamline their operations, coordinate activities more effectively across partners and customers, and optimize their processes at every production stage.
“A digital supply chain can provide connections across the value chain and ecosystem, leveraging multiple sources of data to create transparency, provide advanced planning, and predict and avoid future problems. To take full advantage, engineering and construction organizations need to enable these capabilities through a set of levers.”
IBM Institute of Business Value; Engineering and construction digital supply chains, 2019
The result is a faster, cheaper, and more effective construction industry that delivers better buildings faster. So let’s take a closer look at how the digital supply chain is transforming construction.
The challenges of the supply chain in the construction industry today
With around 98% of all construction projects worldwide inescapably facing setbacks, delays or the impact of the unexpected, there is clear scope for improvement in digital supply chain management attainable. The supply chain disruption, an unfortunately common occurrence in the 2020s, often causes many of the most egregious delays and setbacks to even the most fine-tuned of planned construction projects.
Construction supply chains are large networks that include materials, products, logistics, information, contractual obligations, and financial transactions. Thousands of people from countless organizations are required for these complex tasks, including infinite data and document exchanges. In addition, capital projects are unique, and each player has their own schedule, which makes it challenging to manage the project life cycle. As a result, supply chains are vulnerable to disruptions, wasted materials, extra downtime, and inefficiency.
Source: Mckinsey; The next normal in construction - today's construction ecosystem
Despite its importance, the traditional construction supply chain isn’t as effective as it could be. The industry relies heavily on manual processes. As a result, companies have trouble identifying supply chain problems. Some of the major problems include the following:
- Fragmented data: Data is fragmented and distributed across different stakeholders, sites and systems. This makes it hard to share data, collaborate and make decisions.
- Fragmented systems: Companies use different systems to manage procurement, planning, and scheduling activities. This makes it difficult to share data and collaborate.
- Low visibility: Current systems don’t provide visibility across the supply chain. This makes it hard to manage disruption risk effectively.
- Modest value: Stakeholders focus more on production and provision than on the customer’s needs.
McKinsey’s Procurement Practice surveys indicate that construction is one of the least sophisticated sectors in procurement and supply-chain practices. And companies can overpay by up to 15 percent for materials and services, while poor supply-chain management typically accounts for 10 to 30 percent of cost and time overruns.
However, this complexity is not impossible to overcome. Scope certainly exists for increased efficiencies, the likes of which a cohesive digital transformation in construction supply chain management can provide.
Supply chain and the digital construction revolution
Just as the supply chain is crucial to effective project management in construction, so is it a core element of the digital transformation that is evolving in the construction industry.
Digital transformation has already proven, in other industries, how effectively blurring the boundaries between organizations and physical barriers can transform the efficacy of any business. From the explosion of e-commerce to the rise of digital distribution of entertainment media, digitalization prove that the information age is of the most excellent use to those best equipped to wield its advantages.
To that end, the advent of Artificial Intelligence and Machine Learning has the power to revolutionize the construction industry supply chain. For example, using solutions such as generative scheduling to determine the best sequencing activities according to their order of importance and timing them to meet the availability of critical materials, equipment, or personnel can prevent tremendous amounts of idle time and maximize throughputs.
These incentives increase visibility into areas needing improvement and drive down construction costs as efficiency is enhanced. Any stimulus enhancing resiliency and agility to the unknown is welcome in an increasingly unpredictable world.
Through digital technologies and advances in the construction supply chain, managers can enjoy real-time oversight of the projects currently under deployment. Furthermore, this real-time data can aid in evaluating risks well before they happen and proactively planning, designing and working around identified disruptive factors.
Naturally, any organization capable of demonstrating this level of aptitude will enjoy distinct competitive advantages – but also enhanced means of collaboration that encourage high-level partnerships to emerge towards future projects organically.
Effective digital transformation of the supply chain in construction can also be utilized in pursuing more sustainable building materials and best practices and securing the means to create environmentally friendly structures worldwide as the demand for such rises. For example, the World Green Building Council aims for all new projects and renovations to have 40% less embodied carbon by 2030.
What is a Digital Supply Chain in Construction
A digital supply chain is the use of technology to create a digital link between stakeholders in the construction industry. It encompasses all aspects of the process, from capital project design, management, procurement and outreach to project execution.
It allows information and data to be shared and managed across organizations. This enables construction companies to integrate their business processes with suppliers, contractors, customers, and other stakeholders such as designers, architects, operational managers and service providers. The aim is to reduce waste, increase efficiency, improve scalability, lower supply chain costs, and increase visibility in the construction value chain.
Source: BCG; Engineering & construction value chain
A digital supply chain is a modern way of doing business. It facilitates the movement of goods and services along the supply chain faster and more efficiently than what is possible through conventional paper-based systems. The digital supply chain is characterized by automation and integration across the supply chain. As they become more widely adopted and their impact on the industry becomes evident, digital supply chain solutions will continue to gain traction amongst customers, manufacturers, suppliers and contractors.
Benefits of a Digital Supply Chain in Construction
The digital supply chain will transform construction by improving efficiency and reducing costs throughout the industry. It will also open up new business models based on evolving construction technology, such as Multi-dimensional BIM, Advanced Analytics, AI, ML, XR, Big Data, Extended IoT, Robotics, and Blockchains. First, let’s look at a few immediate benefits of digital supply chains in construction:
Digital supply chains are not focused on one operational area. Still, the goal is to ensure a well-designed integration between all functions for maximized results in minimal time and cost-effectiveness. For example, one effective way organizations can have a functional digital supply chain is by incorporating sustainability in their supply chain management processes.
Impact of Industrialized Construction (IC) on Digitalizing Supply Chain
Source: Mckinsey; The next normal in the construction ecosystem
Industrialization has been the key driver of growth in the global economy for decades. It’s responsible for increased productivity and efficiency across a wide range of industries, including construction. Suppose the construction industry is able to digitize its supply chain with the same rigor as other industries. In that case, it will significantly impact reduced time and costs and create a safer environment for both workers and the environment. In addition, The IC approach offers the potential to overcome several Circular Economy barriers compared to the traditional construction supply chains.
Challenges to Overcome in Construction Supply Chain Digitalization
The benefits that technologies bring to supercharge efficiency and streamline processes in the construction supply chain are immense. However, despite all these innovations and their transformative impact on the industry, key barriers are preventing a seamless digital transformation in the construction supply chain:
01. Data Quality and Integration
Data exchange and data quality are major concerns for the construction supply chain since AI, Machine Learning, and connected devices will augment data management usability. Poor data quality means wasted time, effort, and integration and data transfer issues between different platforms. Therefore, companies need to have the right technical expertise to ensure data is properly collected, stored, and transferred between systems
02. Lack of Standardization
The construction industry is diverse, and each company may have its own preferred systems and technologies. This can create a lack of interoperability and can affect productivity, efficiency, and cost. Different programs may be used to track work orders and inventory, and these programs might not be integrated. Communication methods are also often not standardized across organizations and departments.
03. Organizational Culture and Skillset
Organizational culture can be a major hurdle to digital transformation. It can be difficult to overcome organizational barriers to change, especially if the culture is process-driven or rule-based. Employees might have a specific skill set or way of working, and introducing a different method might cause friction and create a lack of buy-in.
04. Lack of Awareness and Skill
The construction industry relies increasingly on technology, so businesses should invest in training to develop digital skills and encourage the adoption of new technologies and ways of working. An innovation hub or sandbox can be a place where employees can experiment with new technologies and ways of working.
05. Security Concerns
Most online construction transactions can cause serious security concerns and threaten the system’s data, privacy, and integrity. This is especially true given the reliance of the digital supply chain on cloud technologies and applications. There is a need for regular monitoring, testing and auditing to ensure that security is prioritized and that businesses are aware of any potential issues.
To overcome these challenges, companies must work collaboratively with partners to improve data quality, adopt standardization, address organizational issues, invest in training, and focus on cybersecurity to bring a functional change to their supply chain management. Construct360’s holistic approach to Digital Transformation provides the insights you need to understand the requirements for successfully executing a Digital Supply Chain in your business.
How digital transformation in construction supply chain technologies enhances environmentalism and sustainability
The demands of the modern world have rendered the supply chain and the international logistics industry at large a pivotal component in societal function – yet also one that creates the potential for enormous environmental harm.
“The typical consumer company’s supply chain creates far greater social and environmental costs than its own operations, accounting for more than 80 percent of greenhouse-gas emissions and more than 90 percent of the impact on air, land, water, biodiversity, and geological resources”.
McKinsey; Starting at the source: Sustainability in supply chains, 2016
Indeed, the construction industry is no stranger to this concept either. Many of the considerations made towards sustainability drives – both for people and the planet – have the supply chain and its logistics infrastructure as a primary concern.
Such sustainability in the construction value chain speaks to the types of raw materials used in construction projects and their means of transportation and storage until they are actively utilized on the project site. In addition, there is the question of community impact in many cases – both at the origin of raw materials extraction and where a construction project occurs.
Construction sustainability is often also a question of energy, water and resource utilization. As one can appreciate, any technology that enhances visibility into the most energy-efficient means of managing these areas, such as digital supply chain capabilities, can enhance a great deal of their environmental impact for the better. Indeed, doing so is often far more straightforward and effective than micromanaging the environmental impact of one’s own business alone. It frequently proves cost-effective, as several construction contractors successfully committing to sustainability can attest.
Of course, were it only so simple, many construction companies would have made these shifts already. But, unfortunately, supply chains being as complex as they are – especially where crossing international borders is concerned – can mean that even the noblest of intentions can be stifled by the realities of bureaucracy and red tape.
Nevertheless, digital supply chain transformations are doing much to improve prospects for the construction sector in this regard. As with on-site deployment, the key is to create a construction project ecosystem in which transparency and efficiency in communication are highlighted – bringing greater agility toward the unexpected.
Because a digital supply chain ecosystem, as deployed in the construction sector, so readily benefits effective collaboration, it puts those leaders using it already a step ahead of the game. Effectively controlling waste, minimizing downtime and enhancing visibility on which areas of a project are at risk of being left behind are critical areas of consideration that a digital approach offers. This, in turn, means that a more real-time approach to the shifting dynamics of supply and demand can be far more effectively put into action.
Such flexibility also enhances a construction company leader’s capabilities in sidestepping or reacting to the unexpected machinations of competitors. However, a more sluggish and less digitally diverse supply chain portfolio would make moving with the times, whatever their pace may be, that much more complicated than the more agile strategy that a digital supply chain enables.
Perhaps most incisively of all, the level of transparency promised by digital supply chain construction solutions means that a business leader can evaluate the movement of goods in the broader industry and, from there, gauge what movements competitors are making accordingly.
A digital supply chain in construction synchronizes across the value chain
Many of the emergent solutions in a digitally transformed construction business today are enhanced even more by a digital supply chain. Consider innovations in Modern Methods of Construction (MMC) and their unique materials; or the Design for Manufacturing and Assembly (DfMA) capabilities empowering many of the world’s most appealing structures.
Supply chain difficulties – and their incumbent environmental considerations – are significant issues facing countless industries today. By adopting a more holistic digital approach, construction business leaders can enhance their level of insight and intelligence into everything from the broadest decisions and long-term plans to the most granular minute-to-minute choices.
It is perhaps the future of the digital supply chain in the construction industry that holds the most significant promise. As AI and Machine Learning create increasing degrees of automated and algorithmic decision-making in how construction projects progress, the future of the digitally transformed construction enterprise will belong to those best equipped and most adept at embracing the high level of innovation on offer.
The prospects for a Digital Supply Chain are inspiring. It is the future. It is only a matter of time before your competitors will leverage a Digital Supply Chain platform to succeed. Contact Bashar to learn how connected construction technologies and methods can help you to transform your Construction Supply Chain.
Digital Supply Chain is one of the change catalysts and enablers in the Construct360 practical approach to digital transformation in construction and real estate development companies.
