Q&A: What role will technology have in the construction supply chain?

Construction Technology speaks to Neeral Shah, founder and CEO of YardLink, on how technology can play a vital role in the transformation of the construction supply chain.

Q: How do you see technology transforming the construction supply chain industry in the next five to ten years?

A: The pandemic sparked a wave of change in every sector, but construction is poised for a particularly radical transformation over the next decade. Compared to other sectors, construction’s digital transformation has been very limited. Traditional practices still prevail, leaving it with a huge opportunity to innovate.

One of the areas in which technology offers the most promising transformation is procurement. YardLink’s recent research revealed that over a quarter of senior procurement managers struggle to find appropriate suppliers. Nearly a third of contractors still involve senior decision-makers in purchasing decisions. These are only two of the many signs of inefficiency in the sector.

Technology offers a clear pathway to streamline these inefficiencies. It can facilitate new procurement methods, easing the process of finding suppliers, managing finances, and coordinating the delivery and collection of equipment and materials. It can also reduce the length and complexity of long, drawn-out supply chains into more sustainable and localised ones. This is where we’ll see the most radical transformation.

Q: What are the key challenges facing construction supply chain management today?

A: Like every other sector, although perhaps more than others, construction has felt the pinch of inflation and high energy prices over the past couple of years. However, this is outside of its control. The sector’s real challenge is recognising those factors that are within its control and then mustering the courage to change them. One of the major challenges is the sector’s historical underinvestment in R&D, resulting in the well-known statistic that construction is the least digitised industry in Europe.

As I’ve mentioned, procurement offers many diverse opportunities for construction firms to increase their profit margins. However, procurement managers report problems in service speed, last-mile delivery, supplier-contractor communication, equipment quality, collection, and PO processing. The sector has been so stuck in traditional modes of operation that it lacks the agility to address these problems.

Solutions exist; construction must invest in technology to enhance operational efficiency and stay competitive.

Neeral Shah Neeral Shah, founder and CEO of YardLink (Photo: YardLink)

Q: How do you envision the integration of emerging technologies such as AI, IoT, or blockchain in revolutionising construction supply chain management?

A: I believe there are simple, tried-and-tested technological solutions the industry can adopt, just to catch up with other sectors like manufacturing and logistics. These include digitising product catalogues, quotations and invoicing.

Another interesting area is the development of modular construction techniques. While the concept has existed for decades, recent developments in design and material technology are renewing its image as an effective method of producing high-quality buildings faster, more cost-effectively, and more sustainably than traditional methods.

Modular construction refers, in short, to the practice of constructing building modules off-site and then erecting them on-site. This method can be used to construct as much as 80% of a building on off-site locations, offering a range of speed and quality benefits. One McKinsey report estimated that modular construction reduced building costs by an average of 20%.

IoT is emerging, particularly in the equipment supply chain, to help contractors better manage fleet utilisation. Idle equipment is a major cost on projects, adding an estimated 30-60% to rental costs. On-board telematics help equipment rental customers off-hire equipment as soon as it is no longer required.

In terms of AI, we foresee this technology being applied by construction companies to plan their projects better and reduce risks in execution. This requires large data sets that can be used to train AI models to detect patterns. For example, based on a construction plan, AI could be used to identify the types of equipment required at any given time, as well as on and off-hire items at the appropriate stage of a project. It could also assist with the reconciliation of invoices against expected costs to reduce queries and disputes.

Q: What are the most significant trends you see shaping the future of construction supply chain technology?

A: Problems relating to construction firms’ cash flow will determine the future adoption and use of supply chain technologies. Construction, which is made up of SMEs more than any other sector, has struggled to stay afloat over the turbulent past few years. Stable and secure cash flow has become crucial to their continued survival.

Digital invoicing and payment systems, which have proliferated in other sectors, remain rare in construction. Yet these systems will prove vital to overcome the cash flow problems that Business Secretary Grant Schapps referred to when he called for a review of late payment practice at the beginning of last year.

Digital invoicing and payment systems would offer transparency for all supply chain stakeholders, ensuring security for SMEs and accountability for the companies they rely on. They could also help resolve disputes and offer informed credit risk analyses, building a more sustainable path forward for the construction sector.

Q: What are the biggest obstacles hindering the widespread adoption of technology in the construction supply chain?

A: Adopting technology in construction presents a significant barrier to its future success. Historically, the sector has underinvested in R&D compared to other industries like manufacturing, logistics, and agriculture, which have witnessed a huge shift in productivity.

In our recent research, nearly a third of senior procurement managers cited a lack of digital tools and innovation as their biggest challenge. Adopting technology could reduce project costs by as much as 44%.

The biggest obstacles to its adoption are fragmentation, low investment in technology and deep-rooted, analogue ways of working. Promoting the possible cost benefits that technology can enable will prove crucial to its widespread adoption in the future.

About the author

Neeral Shah is the founder and CEO of YardLink, a B2B marketplace digitising the US$1 trillion construction supply chain. A former investment banking analyst, his idea to launch the business came while providing trade finance for construction buyers around the world, as he noticed the problems the industry faced: fragmented supply chains and inefficient procurement strategies.

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