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How to Diversify Engineering & Construction Supply Chains for Greater Resilience

Supply chain issues have hit virtually every business since the pandemic, but none as hard as the engineering and construction (E&C) industry. Difficulties sourcing materials, supply-demand imbalances, logistics bottlenecks, and  inflationary pressures have added up to a challenging couple of years, driving companies to ask how to diversify engineering and construction supply chains.

The supply chain crunch for E&C firms and other companies has abated somewhat recently, thanks in part to falling demand and companies developing new supply-chain strategies, but supply costs in the current environment are still unpredictable at best.

That’s why evolving and diversifying your supply chain can be a positive differentiator for E&C firms. Let’s explore how.

What is Supply Chain Management and Resilience?

In general, supply chain management encompasses “the entire production flow of a good or service” from the raw materials to finished product. Most companies depend on a supply-chain network to receive materials in a timely fashion and reduce costs and waste – a strategy known as “just-in-time” (JIT) materials management.

Supply chain management typically includes five components:

  • Planning
  • Sourcing
  • Manufacturing
  • Delivery and logistics
  • Returning

While they generally don’t deal with returns, most elements of standard supply chain management are applicable to E&C companies.

Supply chain resilience, on the other hand, refers to the ability of a company to withstand severe disruptions in its regular supply chain while continuing operations as close to normal as possible.

Supply chain resilience helps mitigate the risks that come with this dependence on suppliers. Such resilience can also help companies take advantage of market opportunities faster than they otherwise could and build trust among their customers.

What Problems Have Construction Supply Chains Faced?

JIT materials management works incredibly well under stable market conditions. But a cocktail of climate-related disruptions, geopolitical tensions, and Covid-19 have exposed serious flaws in the strategy – the most damaging being a lack of flexibility if deliveries are delayed or canceled.

Such long delays often leave customers irate, cause needless downtime for construction crews, increase waste and costs, and can eat into a company’s bottom line along with making products more expensive.

The traditional tendency of many E&C companies to find a favorite supplier and stick with them – a practice known as “sole sourcing” – only compounds these troubles if the supplier experiences difficulties or goes out of business.

In response, many companies have begun to look hard at the state of their supply chain. A recent Willis Towers Watson (WTW) survey of construction leaders found that:

  • 80% said they have made some improvements in their supply chain management approach since the pandemic
  • 71% named natural resources as the environmental factor that could pose the greatest supply chain risk
  • 66% agree that a lack of suitable alternative suppliers has hindered their ability to diversify

Geopolitical risks – including conflicts, trade disputes, and embargoes – were also identified in the survey as one of the most impactful supply-chain risk factors facing E&C businesses.

Re-Thinking Construction Supply Chain Management

As the survey indicates, companies have begun future-proofing their supply chains by reimagining their supplier network and eliminating vulnerabilities to build greater resilience. Here are some of the most common.

Reduction of Sole-Source, Global Suppliers

A reduction in sole-sourced supply deals in favor of a more diversified supply chain is one way E&C firms have attempted to mitigate risk. “The days of single sourcing are over,” says Rich Brevik of Argon Filling Systems in Glass Magazine.

It’s fair to point out that – as survey respondents indicated above – diversification only works if there are multiple suppliers for the good or service you need. To that end, some organizations offer tools and marketplaces that construction companies and suppliers can use to find each other.

Other industry experts say supply issues have forced companies to pull back from global supply chains in favor of closer onshore options.

Either way, the advantages of supply chain diversification are obvious, including greater resilience in case of regional disturbances and better cost competitiveness among suppliers. And while ensuring quality among multiple suppliers can be a challenge, the risk of long delays means companies need more supplier options in case something goes wrong.

Adding New Technology

Advanced technologies such as data analytics, AI, and the cloud can provide E&C firms greater visibility and automation within their supply chain, including end-to-end supply chain visibility for greater agility and cost-efficiency.

Supply chain control towers – which aren’t actual towers, but essentially real-time supply chain data dashboards – help provide better situational awareness and predictive analytics to inform purchase and inventory decisions.

These technologies help E&C companies track inventory and warehousing data from suppliers, monitor supply chains with real-time logistical data, sense and predict market demand and volatility, and automate routine tasks and decisions for greater cost-efficiency and less waste.

Greater Supplier Scrutiny

Some companies have put more scrutiny on suppliers by assessing and monitoring their compliance credentials, financial health (via regular audits), and verifying insurance coverage (through proof of insurance) to increase overall supply chain resilience.

Assessing the health of suppliers beforehand can reduce the risk of an E&C firm left holding the bag if a supplier goes bankrupt or potential legal issues in case of a lack of compliance or insurance.

Conclusion

While supply chain issues for E&C companies have dissipated somewhat, companies who need cost certainty around crucial supplies still face an uphill battle fuelled by geopolitical tensions and climate-related disruptions.

But by proactively evolving supply chain networks through diversification, new technology, and more closely scrutinizing current suppliers, E&C firms can provide the level of service their customers have come to expect during this challenging time.

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