BlogAsk an Industry Pro Episode 2: Minimizing the Impact of a Broken Supply Chain on your Business
By Construct-Ed Inc.
Welcome to our “Ask an Industry Pro” series! If you could ask a successful industry pro one question, what would it be?
Just visit this page and submit your question in the form and keep an eye out to see if your question is chosen. And while you’re at the bottom of the page, check out our previous episodes!
At the beginning of each month, we will compile a list of questions that were submitted and feature them in our “Ask an Industry Pro” series. In this series our pro and 30-year construction veteran, Christophor Jurin, answers your questions about the construction industry.
In Episode 2, Chris answers questions regarding what a supply chain is, the effects of the current broken supply chain on the construction industry, as well as how you can minimize the negative affects for your business. You can also find a full transcript of the video below.
Greetings fellow contractors. Thank you for tuning into this next episode of Ask an Industry Pro. In this episode we are going to take a look at a couple of different questions and our questions this episode are going to revolve around a supply chain.
We’re going to look at what is a supply chain. We’re going to look at the disruptions of the supply chain that we are all experiencing at this point. And unless you live under a rock, you are fully aware of supply chain issues and you’re aware of the inflation that has been caused by it.
We’re going to look at what impact the supply chain disruptions have on our construction industry. And then, finally, we’re going to take a look at some steps that you can take in order to minimize the impact that these broken supply chains have on your business.
So, if you’re ready, let’s get together here and shake out some answers.
When I was growing up my dad drummed into my head this parable. And I think the parable is credited back to Ben Franklin. And obviously, when you’re a kid, you’ve got very little perspective to understand what the message was, but as they say, my circumstances make your words anew.
For the want…
For the want of a nail the shoe was lost.
For the want of a shoe the horse was lost.
For the want of a horse the rider was lost.
For the want of a rider the message was lost.
For the want of a message the battle was lost.
For the want of a battle the kingdom was lost.
All for the want of a horseshoe nail.
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This is a parable about supply chain. And you have to understand that supply chains build on top of each other and if there is any break in the supply chain the entire supply chain is destroyed. The more complex the system, the greater the chance that the system can break. It doesn’t have as much resiliency as what you would want it to have in order to be able to bounce back from the loss of a key product.
So, for example, you’ve got a construction fastener. Well, the construction fastener could have a coating on it, and the coating has certain components, and those components go back continuously all the way back to raw materials. Well, if one of those raw materials or one of those components is in short supply or is out of stock, guess what? Your fastener that you were looking for is no longer available.
OK, so let’s look further in detail at what a supply chain is. So, supply chain is a system that moves raw goods and components through processes to produce a finished good that is purchased by a consumer. Whether or not you are considered the consumer as the contractor or it’s the end user, or the homeowner, or the building owner, doesn’t really matter, it’s just that it flows through that process. Each step is aided by people who helped move those processes along.
So, I’ve given you the example of the construction fastener. Let’s look at it where it’s something that affects everybody, which is the food supply chain. Well, everything starts out for food in the form of seeds and fertilizer which are used by farmers. And then it moves from there after the seeds germinate and you get crops. Then the farmers have to harvest the crops, so that’s the next step. Then they have to package it, give it to the haulers, the haulers move those products through to the markets, and once it shows up on your grocery store shelves, you pick it up and you purchase it. That’s the end of the supply chain. At all of those different points you can have the supply chain break or just be completely destroyed.
All right, so we’ve looked at what a supply chain is. Now we need to ask some questions and say why are supply chains breaking down? The first point to consider is the complexity of the supply chain. As we’ve stated before, the more components, the more steps that go into the supply chain, the greater opportunity there is for disruption. So, you’ve got to simplify it. You’ve got to condense your supply chain and try and remove some of those superfluous items.
Second is inflation. You’ve got to look at the input costs of nothing else like diesel fuel getting your product from the point of manufacturing to the market to your home improvement center to pick up your products. That takes diesel fuel and right now diesel fuel is over 6 bucks a gallon. So, we know that costs are higher, which means it takes more effort, more energy, for people to get the product from the manufacturer to the store shelves for you to be able to buy. And if they can’t afford to move it, you don’t have it to be able to purchase.
And then you have to look at the alternative use for the individual components. As we talked about within construction fasteners, you have a whole series of chemicals that go into producing the coating on that. So, let’s just say you’re looking at a Tapcon screw. Well, Tapcon screws have a coating on it, that’s how it keeps it from corroding when it goes into your masonry substrate.
Well, if that’s the case, you’ve got individual components that go into makeup that coating. And if there is scarcity, if they’re not readily available, those screws aren’t going to be there and available for you when you need them.
So, we’ve looked at what a supply chain is, we’ve looked at why it may break down. Now what impact does it have on the industry? Well, we’ll look at a couple of points here.
First is massive delays in material availability. We all are aware of certain components that go into whatever services we deliver as contractors that are not as readily available or have gone just parabolic in price. So that creates a massive delay in those material availability.
Number two, subsequent delays in project starts and completions. So, projects that are started can be delayed in completion if the materials aren’t available. You find yourself running short on a job, maybe the estimate wasn’t exact, you go back to the supply house to pick it up and they give you that blank stare…
”We don’t have any more in stock.”
Well, when are you going to get it in?
“We don’t know.”
Then all of a sudden you’re stuck, maybe at 95% completion. You also have project starts that can be significantly impacted. You go to place orders. They’re saying that they don’t know when or it could be six months, even a year out, for the products that you need. Now all of a sudden, you’re stuck. And this can expose you to liquidated damages.
Now for some of you who may not be aware, liquidated damages are basically financial penalties for you not completing a project by a certain time. Well, you might have a delay in material and availability, and if it’s not there, you can’t get started. But if you’ve committed to starting, now you’ve got to go back and you’ve got to talk to your customer and try and get an extension on your timeline, pave additional runway. So, all of this stuff, potentially, all for the want of a horseshoe nail.
Ok so far we’ve looked at what a supply chain is, we’ve looked at why it’s breaking down and we’ve looked at the impact that it can have on your construction business. So, what are some of the solutions? What are some of the steps that we can take?
First recommendation, and again I can’t tell you exactly how to solve your problems, what we’re doing here is just sharing some thoughts on different steps you can take. But you have to look at what it is that’s going on in your business and with your customers, with your projects, and you’ve got to make judgment calls based on your own information. So we can’t speak exactly to what you’re doing here within these couple of steps that you might want to take a look at.
So first is you might want to reduce complexity. You’re going to want to look for ways to reduce the complexity of your supply chain. Look at how and where your materials are made. Is there something else that can be supplemented?
Number two, take time to build stronger relationships with vendors. Pay your bills on time. You can think of it this way…you’ve got a $5 bill in your hand (which at this point isn’t worth much anymore). But you’ve got $5 in your hand, and you have two friends. They both asked to borrow the same $5 bill. You want to make sure you get it back.
One gives you the money back and is very good at paying back his loans. Second guy, not too good and you’re not sure who you are going to give your valuable resources to. Probably to the person you can expect to get it back from. So, pay your bills on time, build those strong relationships, and communicate frequently with your vendors, and in advance.
Number 3, maintain a good inventory of materials. Don’t waste your materials, if you have materials leftover at the end of the job don’t throw them in the dumpster. Organize them, set them aside. Have them so that you can pull on them. You have no idea, in six months, a year, or two years, when you’re going to need that specific fastener for a job.
And 4th, maintain your equipment. Avoid that consumer mindset. Don’t think that when something is broken you can just throw it away and go buy a new one. Because right now you might not be able to find it. So, maintain it. Take the time to change your oil. Take the time to sharpen your blades. It will help you out in the long run.
Alright, it’s a wrap up here. Four points to consider.
First, there’s a high probability that the supply chain disruption and break that we’re experiencing right now is going to last with us into the foreseeable future. So don’t think that it’s going to get solved tomorrow or next month or next quarter. Make a plan and make sure that you’re staying ahead of this.
Number 2, be creative, look for options and how you’re fulfilling your obligations on your projects. As Thomas Saul said, there are no solutions, there’s only tradeoffs. So look to see where you can make some tradeoffs.
Three, communicate, communicate, communicate. Communicate with your customers, communicate with your vendors, and communicate with your team members, your fellow employees, those that work for you. Let them know the situation of what’s going on. Ask them to conserve materials, maintain the equipment better.
And final point is (and we’ve included a link below to our “Connecting with Your Crew to Make More Money” course on construct-ed.com), one of the biggest opportunities right now to overcome this is to talk. Now in coaching, and I’ve done a lot of sports coaching over the years, especially in soccer, one of the biggest things that we’ve run into or where I know when the game is starting to go south, is when my teams stop talking. When they get quiet, then all of a sudden you know, you realize, the game is not going to go the way you want it to go. So, I’m always telling the team to talk, to communicate. When they communicate, even if it’s not in the best fashion, at least they know where each other are. It’s the same thing here. Communicate with your customers, communicate with your vendors, Communicate with your team members.
So take a look, check out that course and it might do some good for you to be able to take that, learn some of those skills as you continue to build a profitable business through very strong headwinds that we have coming at us.
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