Strategic Stockpiling: How The Construction Industry Is Innovating In The Face Of Supply Chain Challenges

Strategic Stockpiling

In the face of rising supply chain challenges around material supply, how are procurement and inventory management strategies in the construction industry adapting to avoid costly and lengthy delays, and how can a Logistics Service Provider (LSP) help?

Construction planning is tricky, and at the core of the task is material procurement and inventory management. Making sure that tradespeople have the right materials at the right time involves managing purchase and storage budgets, demand forecasting, inventory accuracy, and material obsolesce, often across multiple locations. For large, complex projects, a balanced consideration of both costs and scheduling aspects is essential.

The Old Way
Typically, inventory management for a construction project centers around the goal of minimizing material storage and acquiring materials as close to the time they are needed as possible. This approach usually consists of a combination of these overarching methods:

Just In Time (JIT): A strategy where inventory is minimized and materials are only ordered and received as needed for production. This method reduces storage costs and waste, but places a huge dependency on the vendor

Economic Order Quantity (EOQ): A formula-based inventory model that determines the optimal order quantity to minimize total inventory costs, including ordering and holding costs.

Material Requirements Planning (MRP): A system that calculates the materials and components needed for manufacturing, ensuring they are available in the right quantity at the right time to meet production schedules.

Push and Pull Planning: Push planning involves ordering materials based on forecasted project needs and schedules, whereas pull planning orders materials in response to actual project progress and immediate requirements, minimizing excess inventory on-site.

In this traditional material procurement model, the concept of buying and storing large amounts of materials well in advance is done for bulk price discounts, minimizing delivery occurrences, and improving quality control. In today’s construction landscape, however, standard methods are starting to change, and the strategic stockpiling of materials is becoming increasingly common—and increasingly necessary.

Changing Landscape
There is already a lot of pressure on supply chain agility, as the acquiring and transporting of heavy materials and equipment has massive implications on project costs and timing. Making matters worse, contractors are waiting long spans for material to be delivered, even post-COVID. In 2018, supplies like steel and lumber wait times were two-to-four weeks, but now are 12-to-16 weeks. At any given time, another type of material could become delayed. As an example, here is a quick look at some materials that are experiencing shortages for construction projects:

Across the construction industry, material shortages are real and significantly impact project timelines and production schedules. In a survey of construction professionals, raw material shortages are reported as a leading risk factor thought to have a significant impact over the next two years.

The lost time caused by a lack of material supply can add up. Poor material planning can result in delays as many as 80 minutes per day, putting the average project nearly 50 days behind. For a smaller build, these delays can cost thousands of dollars per day, so for a much larger project, the lost productivity costs hundreds of thousands of dollars each day and millions over the course of the build. For instance, according to one study, the dispute costs of large construction projects (of which delays play a major part) averaged $100 million, representing a huge aspect of any project to address as effectively as possible.

The Stockpiling Solution
With material costs high and their availability in flux, established processes for inventory management have been upended. This is where strategic stockpiling comes in. Materials now need to be ordered well in advance, as soon as the engineering design is complete and sometimes even before. To accommodate this early procurement, pieces must then be stored in designated areas until needed. It’s a responsive approach that many large-scale construction projects are adopting.

In order to adopt strategic stockpiling in this new era of supply chain challenges, partnering with a reliable Logistics Services Provider (LSP) is becoming even more crucial. An LSP is a company that offers a range of services to manage the transportation, storage, and distribution of goods. These services can include freight forwarding, inventory management, order fulfillment, and supply chain management.

As experts in shipping and warehousing, using an LSP for construction materials offers significant advantages. Especially for large projects, as these providers have the expertise and infrastructure to manage large inventories efficiently, ensuring materials are stored correctly and delivered promptly. As contractors focus on reducing the risk of material shortage delay through buffering their inventory, the specialty role of LSPs in the project plays a vital part in supporting smoother project execution and timely completion.

To learn more about how Trangistics can solve logistics problems for your large construction project, click here.