Construction material costs increased a dramatic 20.4% across the country in the past year. With the construction labor challenge, breaking supply chains, and increased energy prices, inflation will continue to affect material costs and transportation.
With demands of goods and supplies skyrocketing, businesses are becoming more and more concerned. They are buying and holding inventory on-hand that exceeds more than 5% of what they actually use, out of fear of not getting the supplies timely, or if at all. Looking past the current emergency, it’s clear we need a more resilient supply chain that can readily adapt to future times of crisis and stress.
The supply chain industry has been doing business in the dark for decades, and to tap into these growth opportunities in such challenging and evolving times, construction businesses are finally focusing on software and encouraging greater use of digital technologies. Although the industry is constantly riddled with complexity, regulations, and slow response with change, the tide is finally turning. Openness to collaboration is becoming increasingly widespread. Specifically, blockchain technology is what’s coming to the forefront.
What Is Blockchain?
Blockchain is a linked series of “blocks” of data that form a distributed ledger all existing on a decentralized database which chronologically and securely records transactions. A fancy name for a collection of accounts—like a checkbook that automatically balances itself. This ledger is home to transactions or contracts that define a project.
Here are the steps simplified:
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Transaction – A data request begins the process
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Verification – Nodes automatically validate the request
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Block Addition – A verified block is added to the chain
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Continuation – The new block is a base for future blocks
Now let’s look at an outline of the construction process:
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Client employs consultants/representatives to create and tender documents
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Tenders are called and a main contractor engaged
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The GC then engages multiple sub-contractors to carry out the work
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A building contract is entered into, administered and monitored by consultants
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To complete a project requires that various sign offs, certifications and warranties are checked and confirmed to be in order.
Each consultant has a contract, the client and main contractor have another contract, and it’s the main contractor’s responsibility to manage all the supplies, goods, and subcontractors. There are many middlemen involved. Within this hierarchy, there are many various functions that happen, from payment, project handover, damages, disputes, and more. With blockchain technology, all the management of the key personnel and the functions can be managed under one location.
The three principles of blockchain:
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Secure: Multilayer encryption using mathematical functions hides data in a coded string of characters that are difficult to crack
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Decentralized: Connections called “nodes” automatically check transactions, leading to a digital paper trail of verified records
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Scalable: Because the information isn’t stuck on a central server, blockchain can be scaled to fit very large projects
There are six immediate benefits to the construction industry that blockchain technology provides:
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Predictive asset maintenance
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Smart contracts that stay on track
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Proactive third-party oversight
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Accelerated payment processing
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Instantaneous collaboration
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Streamlined supply chains
It is still a tough pill to swallow for many, but it is now at the point where firms that aren’t investing in new technologies and solutions are no longer staying competitive with those that are strategically adopting and implementing tech solutions. Construction firms that continue to refuse to innovate are destined to die.
Technology in the construction industry has continued to grow briskly with venture-capital (VC) activity rising to several billion dollars at the end of 2019 from low levels a decade ago. VC investment in construction tech outpaced the overall VC industry 15-fold through 2019, with clear indicators for continued momentum.
