The answer is proving to be complicated.
With the construction industry remaining exceptionally busy at a time when labor and materials cost inflation continues to create pricing pressure, there is apprehension of a possible downturn according to JLL’s just-released 2023 U.S. and Canada Construction Outlook. There is a projected 5.9% increase in construction deliveries in the U.S. in 2023, and a 5% gain in construction activity.
The increasing demand for new infrastructure projects, such as roads, bridges, airports, and railways, is contributing to the growth of the market. Additionally, the government is heavily investing in affordable housing programs, and sustainable construction initiatives, adding to a positive market outlook. Ongoing technological advancements in construction materials, such as eco-friendly materials, advanced composites, and innovative building systems, are further supporting the growth of the market.
Procurement is a big part of the equation. Let’s take a look at what different types of suppliers bring to the table:
When you work with manufacturers, you’re working with the source of the supply chain. Sourcing your materials from the manufacturer means you’re not paying any additional businesses for the transportation, handling and storing of the product. There are potential downsides - many manufacturers create the materials after they’ve been ordered. This can create a longer wait time than what you’ll receive with a vendor or distributor. But, if what you need isn’t something readily available or mass-produced, manufacturers can create large volume orders to the exact specifications you need. Manufacturers are ideal when efficiency and intricacy are top priorities. If you will need a product in very large quantities, there could be significant savings with a manufacturer.
Vendor / Distributors
Vendors and distributors often fall just one degree of separation from the manufacturer and offer significant benefits. Vendors research and shop the product for you, saving your team valuable time and risk. The vendor is often buying in such large volume that even though you are buying from a ‘Middle Man’ your ultimate cost may be quite close to what you would pay if purchasing directly from the manufacturer. Buying from a vendor or distributor also allows you to purchase in much smaller quantities and the lead time is usually better because the vendor or distributor carries inventory. You are likely to be able to negotiate better terms with a vendor versus a manufacturer.
In my experience, a wholesaler can be compared to a very large distributor. Many distributors in the construction products industry focus on a specialty or two, such as lumber.. or windows and doors.. or only roofing products. A wholesaler carries a fairly large supply of a very large range of materials. In my personal experience I am familiar with a wholesaler that offered products for the following categories:
Roofing, adhesives, cement products, grouts, sound control, stone finishes, tile and support products, hand tools, radiant heating, hardware…the list went on. They boast over 50 major brands of materials just for ancillary products. Having a good relationship with a wholesalers can provide access to many of the materials you may need every day in small volume and an opportunity to shop larger, higher cost materias in a pinch when your primary supplier has a hiccup or your project timeline changes. Generally wholesalers don’t offer the best price points or large volumes of all of the products they sell but it is common that they still specialize in a few commodities .
When you source materials through importers, high-volume orders in standard sizes are where you’ll find the most benefit. The high-volume helps to offset the costs incurred while transporting the materials. It’s not uncommon to buy from a wholesaler or distributor who sources from importers as well.
You could become adept at selecting the right balance of the different suppliers but that requires time, careful research, and planning.
Here are a few steps I have found useful:
- Research - Doing your homework will save time and money in the long haul.
- Contact - Find the right connection at the supplier.
- Check the Supplier’s Technology - This is becoming a bigger and bigger factor for successful long term success.
- Get samples (if relevant)
- Order from their competition
- Assess the product quality and be clear with your expectations
- Evaluate your customer experience
- Negotiate and make the decision.
Since suppliers exist outside of your business, you will need to be careful with the information shared with them. It is vital to strike a balance as the supplier needs to feel like your business values them before they will provide excellent service seamlessly.
Having a single supplier for each item your company needs to do business makes sourcing simple. Having multiple suppliers for each item can add complication, it also provides protection against the risk of interruption. Balancing these two concerns is a key task in crafting an optimal supply chain strategy.
Common drawbacks of this strategy include:
- increased vulnerability of supply
- increased risk of supply interruption
- greater dependency between your business and the supplier
How many suppliers do you need?
It's well worth examining how many suppliers you really need. Buying from a carefully targeted group could have a number of benefits:
- it will be easier to control your suppliers
- your business will become more important to them
- you may be able to make deals that give you an extra competitive advantage
It's important to have a choice of supply sources and carefully weigh up the advantages and disadvantages of single or multiple supplier strategy.
Multiple sourcing may help buyers get more for their money by creating competition and an incentive for each supplier to improve cost and service. Many organizations award a higher percentage of the business to the supplier with the lowest cost or best performance.
There are downsides of having multiple suppliers.
Working with more than one supplier adds complexity to the supply chain and can come with a potential price tag. While multiple-vendor sourcing may reduce dependency, increase flexibility, and reduce capacity risks, it can lead to more complicated supplier relationships. It can also result in lower efficiency, less control over quality and, ultimately, higher costs as the number of suppliers grows.
Success in procurement has a direct impact on the success of your business.
To find the right suppliers, businesses need to consider a number of critical factors, including:
- value for money
Quality, Consistency, and Reliability
Why Construction Technology Matters
Technology will ease the burden of the day to day tasks, communications, and operations between you and your suppliers and allow your team to spend more of their time concentrating on the strategic decisions and relationships related to supply.
Construction technology offers:
- Real-time , Actionable Data
- Visibility Across Your Supply Chain
- Enhanced Customer Communication
- Unparalleled Efficiency
Let DigiBuild manage your supplier needs!
Backed by YCombinator and collaborating with OpenAI, DigiBuild uses AI to revolutionize construction supply chain and procurement.
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- Streamlining processes,
- Optimizing project management
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- Improving project schedules.
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