How to Address Uncertainty over Construction Materials
Rising costs, material shortages and shipping delays are eroding profit margins
Even before COVID-19 there were concerns in the construction industry around the supply chain and costs of construction materials. Trade tensions across the globe, especially between two key supplier-buyers — the United States and China — led to rising costs and issues with materials acquisition process for some contractors.
"The cost increase of imported materials from China as a result of the newly implemented tariffs have shown the most significant impact on material costs so far this year,” Marc Padgett, president of Summit Contracting Group Inc., told National Real Estate Investor back in November 2019. “Approximately 60 percent of the cost increases we’ve seen recently are directly related to tariffs.”
The pandemic, however, as only compounded materials and supply chain issues for today's contractors, and is forcing many to adapt their building and construction management processes in order to keep work moving.
The Impacts of COVID-19
As the COVID-19 pandemic rages on, it’s clear the supply chain for goods and services across the world has become one of the biggest global challenges. Labor shortages in manufacturing facilities, warehouses and fulfillment centers, shipping delays, and more have all led to dwindling supplies and rising costs for nearly every industry.
In construction, as a recent article from Supply Chain Dive notes, have led to significant project delays or rushes to find alternative building materials. Shortages of key building materials include steel, roofing material, PVC and copper piping, glass, adhesives, drywall and electrical equipment.
“There is a lot more uncertainty surrounding construction activity, costs and completion times,” said Ken Simonson, chief economist for the Associated General Contractors of America (AGC) in an early-2021 assessment. “Even when factories in affected countries re-open, they may not be able to get all of the inputs or labor they need,” says Simonson. “In addition, disruptions to internal transport, ship loading and unloading at U.S. ports will add to delivery delays, possibly for many months after the virus itself subsides.”
For commercial and residential general contractors, lumber and glass are often among the most in-demand materials. Lumber costs are on the rise again after prices dropped slightly over the summer of 2021. Good quality wood is not only expensive but hard to come by as well, and delays in shipping during the pandemic could mean less lumber to work with. Glass, despite being common, tends to be among the pricier materials used. It is also hard to work with, as certain types of glasses are very delicate, requiring specialized workers to handle.
"We're seeing many projects right now trending over budget," Donny Smith, director of preconstruction services for PCL Construction's Orlando, Florida division told Construction Dive recently. "Everything costs more—if you can get it.”
COVID and weather-related work stoppages or slowdowns in steel mills, cement and asphalt plants, manufacturing facilities and more could affect material production chains used in commercial, heavy-highway, utility and civil projects across the globe. This could have some contractors working in that space looking to stockpile materials—especially in the United States where a highly-anticipated $1 trillion-plus construction infrastructure spending bill is close to being passed—putting even more pressure on supply chains.
Specialty contractors, including the electrical, mechanical and plumbing trades are also closely watching their material usage amid cost increases. Steel, aluminum and other metals are key to piping and ductwork and consistently in demand. Copper, meanwhile, is essential to everything from electrical wiring to plumbing. Already considered a semi-precious metal, contractors have had to keep copper under lock and key thanks to increases in theft from jobsites.
Fuel too is being closely watched as oil refineries halt production with less demand and transportation issues could mean wildly fluctuating gas prices in the months ahead.
These rising material costs, combined with a rising annual inflation rate (up to a 13-year high of 5.4% in Sept. 2021) and ongoing construction labor shortages, are increasing the price tags of construction projects. Yet, with significant competition for work on the market, many contractors are looking to other areas to cut costs rather than raising contract estimates too much. The challenge though, is that with a solid materials procurement, usage and tracking strategy in place, any materials misstep could eat further into contractors’ already razor-thin profit margins.
Why Materials Tracking is More Important than Ever
While there’s no crystal ball for predicting tomorrow’s materials costs, preventing material waste is among the toughest — and costliest — challenges contractors can face. With so many moving parts on projects today, it’s easy to overlook just how materials, parts, tools and more are being utilized and accounted for. However, with already razor-thin profit margins and supply chain uncertainty in the near future, it’s clear that contractors are going to be scrutinizing their materials processes more.
Misuse of materials, theft, destruction and other material waste issues cost contractors tens of millions of dollars each year in potential profit. And, the volume of annual construction waste is expected to double by 2025 to nearly 2.2 billion tons worldwide, leading to a greater push for closer material tracking and recycling programs in construction.
The problem though, is that many contractors are not equipped with the right tools to effectively do so. As noted in the recent report, Improving Performance with Project Data, produced by Dodge Data & Analytics and Viewpoint, most contractors were still on some form of manual processes like spreadsheets or paper. In fact, in a comparison on use of automated software solutions versus spreadsheets, more than half of contractors noted spreadsheets still account for at least half of their data collection processes. And, 13% of general contractors and 9% of specialty contractors relied on only spreadsheets.
Spreadsheets, paper, and disconnected software solutions all leave the door wide open to errors, misinformation and delayed information, meaning that contractors are hard-pressed to achieve accurate material counts in real time or effectively track material usage and waste — while there’s still time to make course corrections or plan ahead.
Misuse of materials, theft, destruction and other material waste issues cost contractors tens of millions of dollars each year in potential profit.
A Modern Materials Approach
To effectively track and manage materials, contractors need a modern, connected software solution that can provide real-time updates from the jobsite to the warehouse to the vendor supply chain.
The Trimble Construction One suite of cloud-based construction management solutions provide just that. Trimble Construction One gives construction companies a truly connected software suite that collaboratively ties back-office professionals with field operations and entire project teams together with real-time workflows. Hosted in the cloud, Trimble Construction One combines leading-edge construction ERP offerings with collaborative team and field products and in-field mobile applications, giving customers a single source of data truth across the construction organization.
Trimble Construction One helps contractors get ahead of their materials and supply chain issues, allowing them to:
- Track raw materials inventories and easily manage inter-company sales and inter-plant transfers
- Track inventory and costs across multiple locations, with automatic updates recorded to accounting
- Automate material reordering
- Easily process material tickets, with ability to upload from scale ticketing systems
- Seamlessly track quoted, ordered and actual units sold
- Automatically generate and track surcharges for fuel and other fees
- Track both owned equipment and independent haulers
- Create real-time reports and dashboards to inform project teams and materials managers
Staying on top of materials, whether prices rise and supply chains struggle, or prices fall and materials are in long supply, will help contractors gain a competitive edge over their competition. When a contractor can show owners their house is in order and run a tight ship to control costs, they’re much more likely to develop long-term relationships and win more work.
Contact Viewpoint today to learn more about how Trimble Construction One can help your organization gain control of its materials management, and operate in a more productive, seamless cloud environment.