January 11 2022 | 13 Min Read

Procurement and logistics of building materials and products

Posted By
Wendy Mackenzie
Share
Procurement and logistics of building materials and products

“Disruptive technologies, product innovation, and digitization will transform the building-products industry. Incumbents can protect themselves by transforming their thinking—and their businesses.” (“Strategy in the face of disruption,” McKinsey & Co.)

After decades of relative stability, the building materials and products industry is now undergoing a process of remarkable disruption and change. Fueled by a combination of factors — labor shortages, technological improvements, and logistics challenges chief among them — the commercial and residential construction industries are placing a multitude of new pressures and challenges in front of building materials and products producers, as well as manufacturers sourcing recycled products and beyond. And not surprisingly, these stressors are flowing on to those enterprises supporting the industry’s supply chain.

The manufacturing industry overview

The global building materials market is enormous and rapidly expanding. The market was estimated at US $286 billion in 2021, according to market research released by Research And Markets; and it is projected to grow at a rate of 5.57%, hitting an estimated US $377 billion by 2026.

But where that expansion will come from and what it will look like is impacted by a wide range of competing factors. Of course, the COVID-19 pandemic has vast and far-reaching implications for this industry in terms of supply and demand. But the impact of the pandemic is occurring alongside an array of equally significant social, economic and technological influences. Moreover, their trajectories are emergent, subtle, and difficult to forecast.

Overall, at the beginning of 2022, the building material industry faces abundant challenges, with considerable opportunities for the poised and equally considerable risks for the unprepared.

Challenges of the manufacturing supply chain

Not surprisingly given the industry’s vast and growing market, the building materials industry is complex and varied. The unique challenges a manufacturer faces will be enormously influenced by the size and weight of its product, its area of operation, and centers of demand. However, four impacts are nearly ubiquitous.

The COVID-19 pandemic

The pandemic introduces volatility across the building material industry’s workforce, making it harder to forecast available person-hours and rates of production. That same workforce volatility is hitting logistics companies in equal measure. A few years ago, a company could reliably predict (and guarantee) production and delivery in a way that simply isn’t possible in 2022. Worldwide, the construction industry is forecast to shrink by over 3% in 2020, insurance broker Marsh reports.

But COVID is also having a profound impact on the kinds of structures being built. In the US, we are observing a marked prioritization of residential dwellings. Swimming pool sales are skyrocketing. Demand for home offices and home upgrades generally has also been steadily growing and is likely to continue to surge for the foreseeable future.

Shipment uncertainty and rising freight costs

Shipping and trucking lanes are less reliable than they were a few years ago. COVID is an obvious culprit, but climate volatility and the changing face of our global economy also play a role. In the case of the building industry, this complexity is compounded by its reliance on the shipment of oversize materials. Fewer suitable trucks coupled with a dependence on more specialized equipment serve to compound shipping uncertainty, but also sharpen the severity of its implications.

In the US, truckload rate market volatility is quietly eroding profit margins. IL2000’s November 2021 market update reports that diesel costs are continuing to climb and contract rates are up close to 20 percent. These indicators suggest that domestic shipping volatility is likely to continue for the foreseeable future.

Van National Rates IL2000 BI material supply chain

Slim profit margins

Net profits in the building and construction industries remain slim. Deloitte estimates that construction earnings before interest and tax account for 5.5% of revenue. Slim profit margins in turn are placing pressure on the construction industry to execute leaner, more efficient construction programs, and this is increasing expectations on suppliers of building materials and the supply chain operators they rely on. The building materials industry as a whole is seeing intense competition at the supply chain level.

Emerging developments

In addition to the known challenges the industry faces now, emerging trends indicate it also faces a turbulent and disruptive future.

Rapid expansion of the housing market

National housing prices increased by 12 percent per month from 2020 to 2021, according to FRED Economic Data’s Case-Shiller Index.

National Home Price Index material supply chain

The rapid expansion of the housing market represents a significant opportunity across the building material industry, but rapid expansion of demand is challenging the industry in a host of new ways. A particular challenge is one of scale. As building firms shift to prefabricated and modularized building methods, material suppliers are challenged to rethink their manufacturing and shipping strategies.

Growing demand for green building materials

Kyoto, Japan bamboo forest. material supply chain“Environmentally friendly, green, responsibly sourced, and alternative building materials have a direct contribution to provide healthier indoor zones while enhancing the quality of the built environment.” (“A conceptual framework for understanding the contribution of building materials in the achievement of Sustainable Development Goals (SDGs),” Sustainable Cities and Society, V.52 Jan 2020.)

As urbanization expands worldwide, large cities and residential areas will continue to accelerate demand for building materials and the natural resources from which they’re derived. As urbanization continues to unravel the social and economic dimensions of sustainable development, the building industry is likely to face growing regulatory pressure to produce green products. And this shift to specialized products will almost certainly introduce a raft of implications for supporting industries, including quality assurance, logistics, and freight.

What’s next in the logistics of building materials?

There are dozens of instances where a single prediction can make or break the cost-efficiency of a shipment. But the best decisions are based on fact and built on a solid freight data foundation. It’s this data that makes a prediction something more than a prediction alone–a best practice based on what’s likely to happen and pivoting into the swing when necessary. Here are some of the top things to know for success in the logistics of the building materials and products supply chain.

The shift to smarter cities, businesses, and dwellings

Construction is becoming more complex. “The pandemic revealed a higher priority for embedded technologies to protect individual health and safety,” the Commercial Real Estate Development Association reports in its 2021 analysis of the impact of smart building technology on the construction industry. More is being demanded of building materials and products to future proof their production methods for rapid, technologically-driven change.

Automation

While somewhat curtailed by COVID, the construction industry is undoubtedly heading toward automation. Over the next decade, autonomous robotic equipment will likely accelerate many aspects of construction, from site inspection to bricklaying, Deloitte reports in its 2020 Engineering and Construction Industry Outlook. While it’s difficult to forecast the full spectrum of implications automation will introduce, industry analysts are confident automation will place increased pressure on manufacturing timelines and shipping schedules.

Solution

From a supply chain standpoint, the suite of process improvements a company employs in response to growing industry volatility will depend greatly on its product, locale, and goals — among a host of other factors. The following strategies, however, will be central to positioning many enterprises operating in this sector.

Full-time management of carriers

Building materials are often bulky or unusually shaped. Shipping such material will typically place additional price and planning pressure on building material manufacturers. For specialized building materials, seeking a full-time carrier management solution from a 3PL is often a viable option to consider — with carrier workforce training, equipment, and policies custom built to suit a company’s unique freight needs. For example, consider our case study, “Company cuts freight costs in half and saves millions per year.

Business intelligence analytics for material logistics

A business intelligence dashboard injects more data into freight decision-making. As important, precisely configured supply chain dashboards serve to simplify the variables supply chain managers have to consider on a day-to-day basis. And that enhances agility and responsiveness. Investing in customized dashboards to create visibility across a company’s whole supply chain allows a company both to monitor critical pain points impacting its KPIs and to access real-time data on potential issues on a shipment-by-shipment basis. Both outcomes position a company to better handle supply chain uncertainty.

Managed freight solutions for the materials supply chain

One of the inherent challenges of managing a construction and building material supply chain is that incident management is complex and time-consuming. A managed freight solution via a third-party logistics company permits a workforce to push the more time-consuming aspects of doing business to a dedicated and experienced service provider. And because these services deliver solutions that are optimal and evidence-based, clients typically observe significant cost-efficiencies in overall freight expenses. IL2000, for example, typically reduces supply chain costs by an average of 15 percent.

Get on board with the future of building materials manufacturing by partnering with IL2000

The state of play is hardly a doom and gloom story for the building materials and products industry. The disruptions enterprises face in this sector originate as much from explosive growth and rapidly evolving demand as they arise from negative stressors such as the Covid-19 pandemic and global freight uncertainty.

The winners will be those companies that embrace change — that commit to finding better ways to adapt their production processes, logistics methodologies, and supply chains to an ever-evolving market.

IL2000 is committed to making your logistics happen. We work with a wide array of building material companies to help them make better supply chain decisions. Contact IL2000  today to learn more about how we can help you.

 

Topics: Logistics Management, Supply Chain, Market Recession, Distributor

Related Posts

ManoByte

From proactive to rapid response

Since we started operation as a 3PL nearly a quarter of a century ago, IL2000 has invested...
Read More
ManoByte

Improve your supply chain with transportation management as a service

Summer is nearly here, bringing with it the hopes for vacations, spending time with family, and...

Read More
ManoByte

Five reasons IL2000’s TMS is best in class

If you’ve spent some time reading through our case studies, you may have noticed a recurring theme....
Read More