Prolonged supply chain turmoil drives new business practices
Recent shifts in the supply chain are generating a little more stability but very little relief for construction companies who are still wrestling with prolonged lead times, heightened prices and periodic, unwelcome surprises.
The good news is that larger supplies are lowering lead times on some key items. Delivery time for steel joists and girders has dropped from a peak of 14 months down to eight. Lead times for some roofing supplies, which had skyrocketed from three weeks pre-pandemic to as much as 18 months, have settled back down to about four months.
Projects, however, are still being held up by some supplies. Lead times for generators, switch gears, air handlers, and other electrical and mechanical equipment have grown to 12-18 months and delivery time estimates often shift dramatically.
“I had a job last winter that was supposed to have equipment delivered in October. I got a call in October saying the equipment wouldn’t be coming until April. It arrived in June,” said David Hoffman, President of Gipe Associates. “The manufacturers are simply overwhelmed.”
Deliveries of other supplies — including non-critical path items such as wooden doors and laboratory casework — currently are delayed to the point that they now drive construction schedules. Meanwhile, many prices have become less volatile, but the market is not seeing price cuts yet.
“Cost escalation is continuing but it is continuing with fewer products and commodities, and the rate of increase has lessened,” said Bill Hahner, Preconstruction Executive at DPR Construction. The current state of the supply chain “doesn’t mean that things are getting better at the moment. They’re just not getting worse. There are some unprecedented market conditions. I have been doing this for 27 years and I certainly haven’t seen anything like this.”
So how are construction industry companies coping with persistent supply chain turmoil?
“When someone gives us an order, we have to explain to them that we will guarantee the warranty and value they want. But to deliver the roof in four months, we may have to mix and match materials from multiple suppliers,” said Lonnie Downey, Chief Estimator at Ironshore Contracting.
Ironshore’s history of working with multiple manufacturers has enabled it to address supply shortages by determining which membranes, fasteners, insulation materials and other items are compatible with products from different companies, Downey said.
The process dramatically increases the effort that Ironshore project managers must put into procuring materials. It also creates added logistics work and expenses.
“A byproduct of this process is we have to make multiple purchases,” said Gregory Malcolm, IronShore President. “Before, we could have everything come in on load day. Now, we get the insulation one day, the fasteners another and the membrane later. It’s a jigsaw puzzle of deliveries and we have to do multiple mobilizations to store, retrieve and deliver items. But it is still one of the best things we did to cope with the supply chain.”
Unprecedented supply chain challenges prompted Gipe to periodically make big changes in its processes. Realizing that long leads for equipment could seriously impact a public school project in Salisbury, Gipe “worked with the construction manager and major contractors, and pre-purchased everything before the design was complete. We felt we had to take on the increased risk to deliver the project on time,” Hoffman said.
On another project, Gipe changed equipment suppliers mid-project to a manufacturer who charged more but could deliver on a more workable timeframe. It has also added extraordinarily long schedules to many projects, realizing that work would be delayed by equipment lead times.
ARCO Design/Build Industrial started coaching clients on how to alter design and buildout plans to address one particular supply shortage.
“Dock equipment has a really tough lead time right now,” said Drew Enstice, Director of Business Development. “There are many different brands and different types within each brand. Depending on exactly what you need, the lead time and the price can fluctuate greatly.”
So ARCO began suggesting that developers identify tenants’ specific dock equipment needs extremely early or, for speculative buildings, outfit only a quarter of docks with equipment initially to avoid incurring large expenses on equipment future tenants couldn’t use.
DPR redoubled its efforts to understand the specific, current conditions of suppliers, manufacturers and transportation systems in order to identify potential problems early.
“Bad news never gets better with age. The sooner we can learn about issues — like a manufacturer who is having problems or some failure in a supply chain — the sooner we can develop options for the owner and design team and determine what is the most palatable solution,” Hahner said.
Those solutions, he said, could involve sourcing alternate materials, adjusting schedules, approving more overtime, completing items out of sequence, installing a temporary roof (while waiting for a roofing shipment) or completing more work using only temporary power – “whatever keeps the job moving forward and keeps people as productive as possible,” Hahner said.
Mastering all those coping practices, he added, could serve companies well in the long term because “I don’t know if we are ever going to see things come back to where they were pre-Covid, unfortunately,” Hahner added.