STEPS TO PREPARE FOR THE NEXT SUPPLY CHAIN DISASTER
Quintessential Construction Managers & Consultants, LLC
Recently read an article by Ryan Bosworth who leads the San Francisco office of property and construction consultant Rider Levett Bucknall, on suggested ways to alleviate supply chain issues on construction projects.
The following reflects his suggestions on steps that will help your firm alleviate some of the fallout from similar future incidents like the those encountered during the pandemic, which could all too easily derail international commerce yet again.?
It’s going to take a complete change in mindset. Developers should not try to game the system by playing the futures market. Commodity prices will fluctuate over the next year, but the escalation of costs over the long-term is a certainty. Will lumber be more or less expensive next year? Should you buy now or wait? If you wait, it’s possible that cheaper commodities prices will prevail, but you’ll pay more in healthcare and labor. That said, there is indication that lumber prices are starting to rise again after falling dramatically from their peak in May 2021.
He believes that prices will definitely stabilize, but they are not likely to go back to a pre-pandemic baseline. It’s important to follow costs every step of the way to know what the real price is at any given moment.?
For large commercial projects, prices you get from a general contractor are generally based on budgets they developed one or two years prior—the time it takes to design and build something. It is suggested that you hire someone to keep a finger on the pulse of real-time market prices, which may save the cost differential and then some.?
While supply chain disruptions persist, it’s also wise to plan ahead, meaning buy in bulk and warehouse locally. In some areas empty warehouse space away from ports is plentiful, as are failed former big-box retail stores whose landlords are begging for revenue while they reposition properties. These structures are normally the right proportion and have few columns to work around. They are also relatively inexpensive to rent, require little in the way of build-out and guarantee developers supplies for multiple projects.?
He suggests that another good idea: In the design phase, make the best informed plans as soon as you put pen to paper, if not before. Architects should remain in constant discussion with suppliers when selecting product and material specifications to keep tabs on stock available of everything, from tile to lighting. To do otherwise could lead to shortages at the procurement stage and getting mired in finding a substitute.?
Similarly, when bidding a project with a general contractor, make sure they are getting input from their subcontractors on product availability. Identifying potential supply risks early will prevent owners from paying vast sums in overtime to contractors to expedite the work when goods show up late.
Part of planning ahead is leaving the time to do so. Start the process early and build accurate delivery times into your expectations. Not doing so could mean paying punishing expedited shipping in addition to overtime costs.?
Forward planning is particularly important with hotels, whose highly constrained turnaround time can be problematic. Having to reselect flooring or roofing materials from what’s available mid-project is a problem to be avoided. It is smart to have experienced consultants on board who are constantly monitoring costs, giving a sense of where things can go wrong, taking steps to stop it from happening, saving money exponentially.?
Sourcing locally is another way to avoid a repeat of the current supply chain disaster or at least lessening the impact. Shop on the continent: the U.S., Canada, and Mexico. There’s no need to stay away from the global market completely, but there are local suppliers who are top-notch and available with more than adequate production capacity. These local suppliers are particularly good on the furnishings side—flooring, lighting, etc.—and will work with designers on custom orders.?
Items from these domestic suppliers might cost 2-3 percent more per unit, but you save on shipping by ground, which is also generally more reliable. Truck drivers may continue to be in short supply with so many of them snapped up by companies like Amazon or even UPS, but there are plans afoot to improve U.S. freight delivery by rail using driverless robotic trains with far greater capacity than trains currently in use. One such system in use at the Port of Rotterdam increased capacity by 44 percent. Australia launched a fully autonomous freight system two years ago.?
Pairing up with big institutional partners is another option. Companies like Williams Sonoma or Best Buy have clout in the supply chain that smaller customers can profit from. Not only can you purchase from them, many are chartering their own cargo ships at this point to try and skirt the log jam.?
It was reportedly a full moon that helped dislodge the Evergreen container ship from the shores of the Suez Canal. Ryan Bosworth indicated in his article that the current bottleneck may well require a similar miracle.
What are your thoughts?