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The Ripple Effects of Supply Chain Disruption
The effects of supply chain disruptions were normal before the pandemic put the issue on center stage. While it is often viewed and treated as a short term crunch, we know the ripple effects will have long term impacts.
The Effects of Supply Chain Disruption
The COVID pandemic brought renewed focus to the fragility of our global supply chain. Interruption in the supply of raw materials and critical parts halted production downstream. The shortage of computer chips stopped new car production. You may have personally felt this when used car prices skyrocketed to meet demand. There are many other case studies, but it's clear that these ripple effects will impact our lives.
A lot of attention is being paid to supply. Manufacturers halting production or materials becoming backlogged at ports. The cascading effects and other forces produce new demand-side paradigms as well. The domestication of critical components and ESG requirements are growing demand-side concerns. All this adds up to a complex problem for businesses in construction. What needs building? Where and how fast? What materials and components are available? This all may change with frightening speed.
We see ripples from three big "stones" dropped in the supply chain pond. These will have major effects for years to come. They interact with each other and other forces in unpredictable ways.
The Infrastructure Bill
The tailwinds of change are led by the 1.2 trillion dollar infrastructure bill. Over the next eight years, the United States will be getting an upgrade across many facets. These large construction projects generate enormous demand for building components and labor. Supply chain issues aree likely to continue for a long time, and these projects will need smart planning at scale.
New endeavors have to compete against the demand of these projects. Not only will there be a shortage of components and labor, but the demand for logistics and offsite manufacturing structures will also change. Other growing verticals such as energy storage will compete to build common structures such as transformers and power distribution.
These common demands across projects at scale will have rippling effects on integrators and suppliers. Manufacturing decisions hedge against high volume and volatile upstream disruptions and downstream changes. Successful scaled planning efforts for repeatable construction can help mitigate risk across projects. This gets more complex when other factors disrupt the existing buyer-supplier relationships.
Domestic Change in Supply Chain Organization
The pandemic made us realize how integrated we are to our global partners. There's practical good in bringing the supply chain closer together beyond nationalist rhetoric. In the last two years, we've seen disruption after disruption shake the intricate global value stream. Companies are seeking to not only diversify their supply chain risk, but also bring them closer together. This requires new construction as integrators, and suppliers take on new capabilities.
We've seen the proliferation of specialization connected by sophisticated logistics. The pressure on bottlenecks like ports, distribution, and roads are immense as they are unforgiving. Events such as truck driver protests or pilot strikes create compound delays as supply gets rerouted. Despite the speed that demand drivers change, systematic improvement will be slow. Planners can count on unpredictable disruption as a risk management norm. Reactionary changes will have further cascading effects. The longer the time between plan and execution, the more risk there is for change disruption to affect outcomes.
Re-nationalization of supply chains is not a direct solution to the problem. The shortage of toilet paper early on in the pandemic is one example of domestic issues. The demand loss for office toilet paper and surging demand in-home toilet paper met a supply chain that needed time to change. Imports mitigated that lapse and gave domestic producers time to avert a sanitation crisis.
Bringing supply chains closer to home is a major change driver, but it is still reactionary to the demand changes we are experiencing. Consumers drive changes upstream through their buying decisions.
Change in Consumer Demand
Much is written about the rapid change and immediacy of consumer demand in the internet age. Amazon has normalized the one-click shopping experience. Consumers are used to getting what they want, when they want it. Meeting the demand of what and when is a persistent long-term consideration. However, there is increasing pressure from consumer demands on how a product is made and delivered. This growing problem demands visibility and adds constraints to supply chain management.
Fairtrade coffee is an example of demand-side concerns changing visibility and organizational supply. As the demand for coffee grew, so did the awareness and consumer care for where the coffee came from. Despite the increase in supplier constraints, consumers are willing to bear the costs. This drove a shift towards fairtrade being the norm rather than the exception.
Even before the pandemic, demand on construction supply chains was moving towards transparency. Buyers needed real-time information to better understand lead time and status for planning. New demand for environmental and social proof means buyers also want more information to guide their decisions. Embodied carbon, logistic efficiency, and operational impact add dimensions to already complex problems. A new data center not only needs to handle computing loads but do so with conscious regard to how the need is served.
Resiliency in a Pond of Disruption
Supply chain disruptions were normal before the pandemic put the issue on center stage. While it is often viewed and treated as a short-term crunch, we know the ripple effects will have long-term impacts. Construction is a supply chain with long lead times and localized requirements. This presents unique challenges in a storm of changing market forces. The need to build is inevitable to meet growing demand, but how we build will become a bigger aspect of the challenge.