Smart About Supply Chain
This article is included in the Great Things: Issue 5 edition of the DPR Newsletter.
Being shrewd about the material supply chain is more than just buying in bulk, and it’s more than controlling costs. In fact, the first objective in managing the supply chain is to reduce disruptions, as low cost is of little benefit when materials show up late and delay a project.
While disruptions in the already-complex global network aren’t new, they are increasing, and have been further exacerbated by the COVID-19 pandemic. Averaging across industries, companies can now expect supply chain disruptions lasting a month or longer to occur every 3.7 years and can expect to lose half a year’s profits over the course of a decade, according to McKinsey.
Understanding the material supply chain makes it possible to focus on key manufacturing relationships, proactively gain insights into supply impacts, improve collective buying power and add value to projects. It also improves efficiency in logistics and warehousing and ensures high material quality.
Deploying a great supplier relationship management program deepens partnerships with manufacturers and opens the door to strategic sourcing opportunities, which in turn maximizes the supply chain and can lead to improved costs by aggregating a higher volume of materials to fewer targeted suppliers.
Greater volume to fewer suppliers provides increased influence to help ensure on-time deliveries, and it improves access to real-time information related to upcoming challenges. This information can be used to advise customers and partners on upcoming opportunities and impacts, so they can make better-informed decisions. Simply put, having strong relationships with suppliers is key to navigating uncertain circumstances with a greater degree of predictability and in starting the “upward spiral” of true trade partnership.
For DPR, as a self-performing general contractor with strategic partnerships spanning commodities to equipment to prefabricated building components, applying smart supply chain strategies helps deliver its customers’ critical facilities on time and within budget.
Teams are beginning to see early advantages of central collection, warehousing and communication of impacts to the supply chain. This information can then be used to identify trends, highlight areas to focus on, and enable collaborative conversations with suppliers and teams to enhance outcomes and address challenges.
Recently, on a project in North Carolina, DPR worked with the client to address the project’s escalation contingency, which was added to the project budget to cover expenses for potential cost escalation (including materials). Given the recent uncertainty in the market, and the increasingly frequent cost increases being announced by material suppliers, the contingency was larger than the project budget would allow.
Conversations between the project team and supply chain staff focused on understanding the real impact of recent increases, and the likely future costs and trends for these materials. DPR narrowed the focus to high-cost trades, which are at the greatest risk for escalation. Armed with this information, the project team projected potential impacts by trade and developed a priority list of which trades should be locked in immediately.
As a result, the client was able to reach their target budget without resorting to value-engineering the design, and authorized early onboarding for the trades without further competition. This allowed DPR to commit to several trade partners and lock in pricing for each major trade. “Had the savings not been provided at this stage of the project, an additional $3 million of cost savings would have been sought through redesign,” said DPR’s Josh Valliamont, who serves as project executive.
This article was written by Tim Jed, DPR's lead for supply chain management.
Posted on March 30, 2021
Last Updated August 23, 2022