The construction industry continues to be one of the most important in the world economy, generating nearly 9% of GDP in the European Union and providing 18 million direct jobs. All this despite the fact that for several years now there has been talk of a crisis in the sector, aggravated moreover by the global health emergency of the last period.
The contingent situation, together with a progressive reduction of entry barriers in the construction industry, which has saturated a market already characterized by strong competition, have considerably reduced profit margins and limited essential reinvestment in new technologies and the revision of best-practices. It’s safe to say that productivity in the construction industry has actually stagnated over the past 50 years, especially when we compare it to other industries.
Typical margins for construction firms range between 2 and 8 percent. As a result, construction firms often find themselves trapped between declining profit margins and stagnant productivity, unable to generate the profit needed to invest in critical technologies.
There is no question, then, that digital technologies, which are in fact already disrupting all industries, can provide new opportunities to address the old and new challenges facing the industry. Only companies that have been able to face a serious digitalization process will be successful in the near future.
We can summarize, in a simplified way, four reasons why digitization of processes – and in particular supply chain and procurement processes – has become indispensable for the industry, beyond the need for digitization that has emerged from the pandemic environment:
1) Increase productivity and profitability
2) Ensure project performance
3) Invest in sustainability and innovation
4) Combat skilled labor shortages through better supply chain governance
1. 20 years of active collaboration with construction companies around the world has enabled VORTAL to identify and quantify the following Spend Solutions benefits:
– Cost savings – digitizing purchasing processes has resulted in cost savings of up to 20% through the development of a broader supplier network and consequently expanding competition, but also through accurate supplier scouting;
– More efficiency – at a centralized, decentralized or mixed level, telematic tools have allowed to manage in an efficient way the sourcing phases, the aggregation of the demand, the negotiation events and the contractual management, increasing therefore the efficiency of all the processes connected to these activities and increasing consequently the productivity;
– Time saving – an effective digital solution can save up to 60% of the time spent in the phases of analysis and comparison of offers, in the management of workflows, in the preparation of recurring events. Time that can be invested in more value-added and strategic activities for the company’s business;
– Improved analysis and decision-making processes – The expansion and immediate availability of information (on volumes, consumption, status of contracts and orders, evaluation of suppliers and their performance by category and/or project) allows to drive decisions in a rational, organic and timely manner;
– Traceability – Real-time visibility of spending, contract consumption and product and workmanship compliance enables any anomalies in the chain to be identified and corrected in a relatively short time;
– Improved risk management – Through a partnership with Info Provider, it is now possible to have easy access to a variety of financial information to support decision making and supply chain risk management;
– Online collaboration with all stakeholders – real-time collaboration increases productivity, reduces waste and mitigates the negative impact of unforeseen events.
All these advantages multiply the more the technology adopted is usable and within the reach of all users involved in the processes.
VORTAL has for this reason realized in these twenty years a vertical focused on the enterprises of the constructions, with a tailor-made solution that increases profitability by expanding the pool of suppliers for each individual category, activating automatic systems for monitoring expenses, managing internal processes, benchmarking and monitoring contract execution. It is possible to associate a specific service of scouting of the suppliers – also in geographic areas in which the company is not usual to offer services.
2. While opportunities in construction are growing, thanks in part to grants in recent years, so is the complexity of projects. With companies already operating on razor-thin profit margins, any unexpected event-such as a pandemic and economic stagnation, or production glitches-can result in significant losses. As projects become larger and require greater efficiency, the risks associated with project management increase. More than half of construction companies globally experience one or more underperforming projects during the year.
Unfortunately, a specificity of the industry is the very high percentage of direct processing time spent waiting for materials and equipment to be delivered (especially when it comes to mega-projects), requiring breaks and work re-planning, with all the inconvenience and cost that this entails.
That’s why we believe it’s essential that the operational tool for the digital management of purchasing and supply chain processes be innovative, built on the real needs of the market, modeled on the basis of the individual processes adopted, powerful enough to increase project performance in terms of economy, time-to-market, forecasting and risk management, without neglecting the needs of compliance with regulations, auditing and worker safety.
3. The construction industry is among the top global consumers of raw materials. Carbon emissions, climate change and water management are environmental issues that pose a growing challenge to the construction industry. Smart planning, sustainable design and the use of new eco-sustainable materials are essential to reduce energy consumption and pollution, but also and above all to guarantee a future for the sector. They are a medium-long term investment that is now almost obligatory, but they require a decisive change in approach.
Once again, the key is represented by the active and constant collaboration between all those involved: general contractors, partners, suppliers, subcontractors.
A more productive and profitable industry that operates with more sustainable assets must necessarily pass through the use of innovative technologies, to join the digital future and stay in the race with competitors and other sectors that already adopted these technologies some time ago. The alternative to today is no longer viable.
4. The construction industry is preparing for a dramatic reduction in its workforce. On the one hand, there is the generational difference between baby boomers and millennials in terms of approach and attitude, work ethic and outlook. On the other, the recession and most recently the global health emergency, which have pushed many skilled workers out of the industry without being replaced. Already, millennials represent nearly half of the global workforce in the industry-many with little or no experience or interest in the construction industry.
The combination of increasing project complexity and decreasing resource experience is certainly a risk multiplier, increasing the likelihood of delivery delays, loss of product quality, and employee safety risks.
This has repercussions on the activity of the general contractors and on the entire supply chain, that today demands analysis and attentions greater than ever in the search of new suppliers, in their qualification, in the risk management.
The success of an eSourcing or P2P project also depends on how buyers, suppliers and subcontractors are supported during the digital transformation process. VORTAL has a proven methodology for on-boarding new suppliers into the network and providing service, support, consulting and category management services to users.
VORTAL is able to support companies in the industry in expanding their business into new countries by providing access to a database of over 360,000 pre-qualified suppliers. The service allows the buyer to identify new partners worldwide, obtain structured data on their nature, business volumes, skills and qualifications, and references. Customized support also ensures that the network thus defined remains responsive and dynamic over time, able to respond promptly to the buyer’s needs, whether they are local, international or global.