Supply chain disruption in the construction industry is a significant concern for any project. It can cause delays when construction materials and equipment show up late. Cost overruns occur as crews sit and equipment sit around idle, waiting for deliveries, and productivity is impacted when they are diverted to unplanned tasks to fill the time.
Even without supply chain disruptions, most construction project schedules are constrained by long lead equipment. Long lead equipment is defined as materials, equipment, or other components that take long enough to be delivered that it has a high likelihood of impacting the critical path of the project. It's essential to plan for long lead items in construction as early as possible. Sometimes, a long lead delivery schedule may be longer than the overall project timeline.
A holistic view of procurement
Every organization has its own process for managing the supply of materials and equipment to the site. Many owners and contractors treat procurement as a linear process that can't start until the execution phase. The project team is mobilized, design starts, materials and equipment prices are determined based on the project designs, and they buy what is needed.
Understanding the list of long lead items you will need for a project is beneficial from planning onward. Long term, you will be unable to eliminate all long lead items from your procurement log. It’s just the nature of the world we live in today. However, during planning, there is an opportunity to think about the design intent and what will be specified. Are there decisions you can make now that minimize your exposure to items in high demand?
Procurement should be treated as a cycle or a flywheel. There are natural entry points as new items start and other projects are completed. These inflection points are an opportunity to capture closed loop learning on your process which can lead to overall process and delivery improvement. In construction, your long lead items list will naturally fluctuate, but there are similarities across all projects.
Materials shortages are becoming more common and we all have to plan around them in real time. Correlating other factors such as labor rates at the same time can allow you to minimize other issues. Based on your project's boundary conditions (for example, labor shortages), it may make sense to shift work offsite. The material cost may be higher, but your model will show that this option allows for quicker delivery.
7 tips for dealing with long lead equipment
- Remember, nothing in your current process is sacred.
Improvement starts with being willing to change. It starts by thinking about your process as cyclical, rather than linear. Global supply chains are at capacity. What you did last week may no longer work. Your entire process is an opportunity to improve.
- Start planning as early as possible.
Understanding what you must order during planning will allow you to specify alternate materials. A good procurement process flywheel will let you to take observations from previous projects and apply them to new ones during planning.
- Specify standard materials when and where possible.
Oversized, custom, and non-standard materials typically have longer lead times than off-the-shelf alternates. Specify as much standard equipment as possible that does not require custom tooling or installation. This will make sourcing substitutes much more manageable and give your procurement team a broader set of options to choose from. Designs should optimize for the goals of the project or program, not just the optimal way to configure a singular aspect of the overall scope.
- Consider Transport & Installation of Machinery.
Pay attention to your heavy machinery like high-capacity cranes, specialty heavy haul, boring machines, etc. The lead time and availability for such machinery can have longer lead times than the materials and equipment you will order. Precise construction management is all about having the right parties involved show up with the right machinery, equipment, and materials simultaneously. Your long lead item strategy must factor in labor, equipment, transportation, installation machinery, and the materials and equipment you're planning to buy.
- Have backup suppliers on your bench to ensure success.
Don't be afraid to branch out. While we know relationships are key to success in this business, it doesn't mean you should only rely on one relationship to accomplish the goals of your project. Every supplier has a limit to their span of control, and it's important to understand them. Supply chain management in construction works best when there is enough collective span of control within your supply chain to deliver your projects. If your span of control is near its limits, start building that next relationship to ensure you have the capacity in your supply chain
- Understand there will be supply chain disruptions along the way.
It's not a matter of IF there will be a disruption to your supply chain during a project; it's a matter of WHEN. And the when is the key. If you hear about a disruption by your supplier telling you your delivery is going to push out three weeks, it's too late. The best way to ensure project success is to have the right market insights paired to a detailed understanding of your structured bill of materials. This way, market commodity impacts can signal potential delivery impacts when you still have a chance to minimize the impact.
- Utilize a well-crafted Should Cost Model.
A well-crafted should cost model can allow you to examine different options for your project. While this will never be universal to all suppliers or contractors, a detailed model will provide you with a better view of the potential levers to pull based on your project goals. Are there financial benefits to the final assembly occurring on-site? Which supplier is the best option for cost-effective building materials? Where is the best place to build a complex module based on logistical constraints?