In anticipation for the need to move more products, trucking capacity gets more constrained with every passing season. The use of technology has helped supply chain partners ensure success by opening visibility and giving “one version of the truth” to trading partners up and down the supply chain. Using these integrated fulfillment systems is critical to ensuring the optimal amount of inventory to meet demand.
Per the Associated General Contractors of America (AGC), the construction industry has more than 650,000 employers with over six million employees and creates nearly $1tr worth of structures every year. Construction uses a lot of materials and is one of the largest consumers of manufacturing, mining and services. While this industry doesn’t always get the attention that classic manufacturing industries do, it’s just as critical to our economy and has the same challenges, especially when it comes to supply chain visibility and technology.
The supply chain for the heavy building material (HBM) industry flows from the contractor back upstream to concrete providers, back to material suppliers, and with trucking involved up and down the chain. Like all industries today, there is a growing concern within the construction materials industry surrounding trucking capacity. Per the U.S. Census and FMI Forecast, construction put in place is estimated to continue to grow in both residential and non-residential construction through 2021. From a macro level, construction is going to remain strong for the near future — and, the challenge facing the industry is not from a lack of raw materials — it’s coming from the agility to move the materials. Per the American Trucking Association, the national driver shortage is expected to quadruple by 2024 while U.S. News and World Report says truck freight is expected to expand nearly 29 percent by 2026. That is a recipe for pain for the construction materials industry.
There is a tremendous opportunity for the HBM industry to improve on existing processes and increase trucking capacity without adding more trucks or having to figure out how to hire more drivers: improve existing productivity. Per a McKinsey Global Institute Analysis, the construction and infrastructure industries are lagging every major industry in productivity improvement between 1947 and 2010. Agriculture, manufacturing, wholesale and retail, mining and the overall economy have seen increases in productivity greater than the construction industry. A lot of this waste comes from poor order-fulfillment practices, untimely communication and wasted driver miles and hours in the HBM.
The upstream raw material orders are still being managed via multiple phone calls, spreadsheets, and — in some cases — pen and paper. Upstream raw material orders are at times placed de-centrally with lags in timeliness. That’s an issue because each individual plant generally only has visibility into its own plant needs and not the entire networks. Downstream concrete orders are managed multiple times per hour as they change by the minute, where raw material orders are managed once a day in some cases.
It’s not uncommon for a truck to make a delivery to a plant that has enough inventory to last several days while running other plants' inventory to critical levels. This unorganized process can result in diverted loads, wait times due to a truck’s inability to unload, stockouts or surplus inventory. Every unproductive truck is putting more strain on an already strained industry.
Tools are becoming available to take end-customer contractor demand and break it down into raw material demand and delivery rates. Combine this with real-time, remote-accessed inventory readings, and this will allow upstream suppliers and haulers to see true demand for the finished product broken down into the raw material constituents. The way to ensure a truck can increase turns and decrease wait times is to know that the plant has room for inventory before the truck arrives. When trucking assets are constrained, it’s easier to prioritize final deliveries when you know which plant will reach critical inventory levels first. Having visibility into real-time forecasting and end-customer finished good demand will allow them to make better decisions, and optimize delivery assets.
The HBM industry is going to have to change the way it gets raw materials to production facilities if it’s going to weather this driver shortage storm. To start, the industry going to have to improve demand planning by removing the barriers to information upstream.
Jason Campbell is product manager for supply chain at Command Alkon.
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