Successful capital projects must be planned and executed in the most efficient way possible, which is a challenge when large segments of the global economy are in flux. Supply chain difficulties, in particular, are forcing owners to think outside the box when it comes to balancing schedules and budgets.
There are two possible choices for owners moving their projects forward: optimize cost or optimize speed. In this current environment, owners can either pay more to work around the supply chain issues, which eats into profits, or grit their teeth and deal with the delays, which can wreck a schedule.
But owners are getting creative in navigating these challenges and figuring out which strategies help them protect their budget and schedule while minimizing risks. Here’s a look at some of those strategies:
Taking the portfolio risk out of the equation
One approach owners are taking is to eliminate risk from the equation. They don’t want to tempt fate by taking on more than the supply chain would allow.
For some retail owners, this means shifting their focus to new builds as opposed to making improvements to an existing building or facility. Because supply chain delays that disrupt existing facilities are more likely to impact profitability and the community, these owners manage their risk by transferring it to new facilities, where delays won’t affect margins as significantly.
Owners are getting their hands dirty to get the job done
One major wake-up for owners has been the realization that even some of the world’s biggest manufacturers have trouble keeping tabs on their materials. For example, Greg Cashen, VP of Construction at Wood Partners, points to a recent incident where they were unable to get refrigerators to put in units because the supplier was unable to locate the shipment of plugs.
“As much as we like to think there’s a sophisticated supply chain management mentality in this industry, there’s not. We can’t fix that with any strategy. When a major manufacturer doesn’t know where its materials are, we can’t solve that problem for them,” explains Cashen.
Historically, project owners didn’t have to get too deep in the weeds when it came to procurement. Thanks to the pandemic, that luxury is now a distant memory. Many have received the dreaded call the night before a scheduled shipment alerting them that their shipment is actually months out.
As a result, owners today are rolling up their sleeves and getting up close and personal with everything from sourcing and design coordination to trans-pacific freight logistics. They’re watching shipments step-by-step. They want to know which port a delivery came into or whether it came in by truck or by rail. In some cases, overseas freight deliveries have gotten so unreliable that owners aren’t satisfied with anything less than a picture of the literal ship in the ocean.
Another way owners are solving for this challenge is by paying a premium, in advance, on a shipping container so materials have somewhere to go when they roll off the assembly line and to ensure their containers leave the dock before other containers. However, this option has become increasingly cost-prohibitive in recent months as the premium has risen from 55% to 130% and may continue to rise.
Rather than relying on overseas shipments, some owners are turning to local suppliers to source materials. Of course, this also comes at a premium, but it helps them control the schedule.
Adapting to proactive building methods and strategies
To take even more control, some companies are also exploring alternative building methods. This includes everything from modular construction to off-site building, and even coordinating with architects and designers down to the fixtures level to make sure they’re not speccing something out that will require a long lead time.
Projects like data centers or multi-unit apartment buildings typically require large numbers of identical items, manufactured products purchased in bulk that don’t change much in their design from shipment to shipment. These “products” are largely standardized, and therefore repeatable across projects.
While some owners are stopping short of going the full modular or off-site construction route, others are taking advantage of this standardization. In addition, if an owner knows a project requires a certain number of electrical generator enclosures, they can take those specs to the design team and they can design around it.
Conclusion
Thinking on your feet goes with the territory as an owner in construction, but rarely have so many external factors been simultaneously out of owners’ control.
The supply chain crunch is forcing owners into making some difficult tradeoffs, and getting strategic about areas of their business that were once on autopilot.
Whether it’s increased costs, shifts in tactics, or simply managing expectations, owners are demonstrating characteristic creativity in addressing these challenges head-on, ensuring minimal interruptions, maximum profitability, and minimal risk.
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