Supply Chain Disruptions Require Enhanced Risk Management, Part 2

By Granger Hassmann, Vice President of Preconstruction and Estimating for Adolfson & Peterson Construction

The global supply chain is all kinked up, placing pressure on developers, general contractors (GC), and occupants/owners. Here at AP, we’re working closely with our clients and trade partners to minimize supply chain disruptions.

If you missed part 1 of Supply Chain Disruptions Require Enhanced Risk Management, where we discuss the conditions that created the current disruptions and their impact on construction projects, you can read it here PART 1.

One of the biggest challenges related to today’s supply chain disruptions is keeping projects on schedule.

Keeping to the schedule

Because of the kinked-up supply chain, material orders must be placed well in advance to prevent any scheduling delays.

Consider this: AP is currently building a commercial office building. Under normal circumstances, it would take four months to receive the decking to build floors. Today, the lead time is nearly 10 months.

If we had not kept a watchful eye on the supply situation, we would have ordered the decking too late and delayed the project. As everyone in construction knows, you have to line up the schedule with supply delivery.

Scheduling delays due to supply chain disruptions can have a domino effect if they’re not effectively managed. When projects are delayed, trade partners also suffer the consequences.

The supply chain disruptions have compelled AP to work with its trade partners differently as well. In some ways, we’re also managing their finances.

Bigger trade partners may have an easier time navigating supply shortages. They may have a better position in the marketplace because of their buying power. Or they may have a 2 million-square-foot warehouse filled with supplies.

In contrast, a smaller company isn’t going to have tens or hundreds of millions in credit. Nor are they going to have huge warehouses full of unused supplies. Without an early release of cash, they aren’t able to place orders as early as they need to in the current environment.

AP solved this by providing payment plans so they understand how much they will be spending during the first weeks on the job. We’re also making sure that our clients are releasing funds in a timely manner so we can pay our trade partners, and our trade partners can pay their suppliers. AP’s strong financial position paired with its 75-year-long legacy has created these wonderful relationships with our trade partners so we can generate these beneficial arrangements for our clients.

Flexing that partner mentality

Over the past 12 months, AP has worked diligently with its clients and trade partners to minimize potential problems caused by ongoing supply chain disruptions. To best serve our clients and stakeholders, we’ve become more flexible and proactive, creating contingency plans in case supplies don’t arrive on time.

We’re prepared to restructure entire plans and resequence schedules so we can do other work while we wait for supplies to arrive. It takes a lot of effort and know-how to completely revamp project schedules once they’re underway. Fortunately, AP is up for the challenge.

For a 190,000-square-foot, design-build hospital secured by AP, the traditional way of preparing shop drawings after the design documents were completed was modernized. Instead, AP used new ways to complete shop drawings and material selections that work with design documents, so materials were available sooner. This success was dependent on AP’s relationship with the design and ownerships teams and their early decision to innovate.

We’re also making changes to our contracts to address supply chain issues. Because supply chain disruptions haven’t been a major problem in the past, most GCs don’t have any language in their contracts that protects them from being accountable for unavoidable price increases and schedule delays related to the supply-demand imbalance and the strained supply chain. This additional language ensures clarity and fairness for both AP and the customer.

Even under normal circumstances – when materials and supplies are readily available – AP has a partner mentality when dealing with its customers. Today, however, being true partners is more important than ever.

So, what does it mean to be a partner? In our world, the preconstruction group is the first interaction point between the GC and the client. This group decides how to build the project, as well as the price and the schedule.

During that period, we work hard to establish ourselves as a trusted advisor to our clients. We make sure they know we’re here to protect their interests and that we always have their financial wellbeing in mind. AP works diligently with trade partners and design teams to propose alternative materials and construction methods not impacted by the supply chain issues, so projects can be completed effectively as well as efficiently.

The bottom line is that being a partner means taking care of your clients. That means providing information that is as accurate as possible and giving them what they need to manage the financial side of the equation.

In order for clients to manage risk on their side, they need complete transparency. That means really getting in the details with matrices that illustrate when supplies must be ordered and spreadsheets that detail prices and total cost. We’ve also increased the size of our buyout teams – the teams that make project purchasing decisions – so we can accomplish tasks more quickly and avoid any supply-related issues.

Looking ahead

I’d like to say the supply chain will soon be back to normal. Unfortunately, I can’t. In fact, I expect material and supply shortages to last throughout the fall and likely into 2022.

Right now, we’re in a bit of a lull for the buying cycles. People are planning to kick off projects in the fall, and I expect we’ll see another spike then.

The companies and institutions that don’t have a partner like AP may find themselves unprepared to deal with today’s supply chain disruptions. Without an enhanced risk management plan in place to tackle these supply and demand challenges, a company’s future plans could be wrecked.

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Granger Hassmann leads the region’s preconstruction and estimating departments. His responsibilities include the development of preconstruction strategies on large, complex and high-risk projects while ensuring alignment with the client’s strategic goals. He is responsible for developing an environment of accountability to ensure that preconstruction department performance is consistent with project planning, scope and budget.

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