Build your strategy right: Construction supply chain management explained
The price of building materials reached a two-year maximum growth this summer, and the overall market keeps exploding. By 2032, the global construction industry will reach $1,867.16 billion, making the coordination for such a massive industry a very challenging process. Maintaining the quality of raw materials to ready products and delivering them on time to fit the tight schedules of building projects — without supply chain management, it would be impossible.
In this article, we will understand the nuances of the construction supply chain management, its main components and stakeholders, see the challenges and opportunities for your business, and break down the tools that will help you turn it into a well-oiled process.
Understanding the construction supply chain
The construction supply chain represents an intricate system that organizes the flow of material, labor, and services from raw materials sourcing to on-site project execution. It involves diverse and fragmented stakeholders, such as suppliers, contractors, and providers, who need to collaborate at a temporary project site to deliver buildings with strict deadlines and budgets.
According to Xu, the construction supply chain involves coordinating both tangible material items (such as steel and concrete) as well as intangible items in the form of services (designs, labor, etc.). Ultimately, the supply chain is challenging to coordinate because of the site and project-specific coordination requirements since construction is work-based and project-based.
This type of supply chain is much different from the other types — let’s see why.
How it differs from supply chains in other industries
Since we referred to Xu’s research, let’s also study the points of difference between the construction industry supply chain and the supply chains of other sectors that this work presents (such as manufacturing and retail).
Construction takes a much longer lead time to get completed; it can take months or even years between material acquisitions and their installation on the project. Also, manufacturing ultimately can bring very complex products to market in an incredibly shorter time frame than construction can provide. Retail has even shorter cycles, as they are caused by the seasonal demand and shopper trends.
Construction supply chains are organized on a single project basis and create unique buildings that all have their own needs and specifications for each project. Unlike them, manufacturing supply chains are set up for continual and repetitive processes to create identical products that maintain uniformity across thousands of products over long periods of time.
Construction is performed in a highly fragmented network of specialized suppliers, contractors, and subcontractors. The contractors and subcontractors have working relationships and expertise to work together, but are often only temporary on a specific project to achieve a unique building. Manufacturing and retail typically rely on fewer suppliers that are more integrated, working in established, centralized facilities under strategic long-term partnerships.
Construction projects are consistently managed under constraints and variables, including: weather, unknown site conditions, regulatory delays, and, less predictably, changes to the size and scope of the project. Manufacturing is conducted indoors in controlled environments. Retail also has its own challenges, but it manages and controls a working environment that facilitates a high level of control and predictability.
Construction chains converge fragile materials and labor at one fixed job site for one unique product that invariably stays in one place. Meanwhile, manufacturing and retail supply chains create and transport finished goods from one identified manufacturing location to many outlets and service areas, and tend to serve a wider geographic market.
These nuances make construction logistics management much more difficult than the respective one for other industries. Apart from covering these differences and challenges, there are some benefits of managing your supply chain in construction.
Why do you need supply chain management in construction?
The industry is witnessing some troubling trends, and each of them calls for special attention to construction logistics. Here are some main reasons why investing in your supply chain management (SCM) is a must:
Growth vs. labor shortages. Construction is expected to stay one of the fastest-growing job sectors until at least 2026 (U.S. Bureau of Labor). In 2023, 77% of companies struggled to fill project manager jobs. Mobile and paperless supply chain tools reduce training requirements for workers, enabling companies to do more with fewer employees, and making the construction industry more attractive to younger generations.
Reliance on subcontractors. Collaboration is now the lifeblood of construction: subcontractors have a major responsibility, and miscommunication patterns cause delays to project timelines. Integrated platforms drive trust, coordination, and accountability so that subcontractors deliver on time with quality work, while also protecting contractors from liability.
Delays and rising costs. Since 2020, 82.5% of construction materials have seen price increases. Since the price of error is high, 83% of companies want to improve material estimating accuracy. Having real-time visibility across the supply chain improves forecasting and procurement, mitigating overspending, preventing shortages, and ensuring timely deliveries to help keep projects on schedule.
High risks of disruption. Historically, 40% of E&C companies fail to meet budget/schedule because they fail to manage risk effectively. SCM construction tools drive risk awareness, contingency planning, and adaptive decision-making so that projects can adapt quickly to delays, potential cost increases, or external consequences.
The need for optimization. 33% of construction professionals stated cost reduction is the largest benefit from better data use. SCM reduces overhead, increases speed, and improves decision-making efficiency by automating procurement, minimizing waste, and streamlining workflows.
There’s a great difference between just keeping up with the pace of the industry and riding on top of this wave to succeed. Luckily, construction supply chain management helps you get into the second category. Now, let’s try to see how exactly.
How the building materials supply chain works
To achieve the goals set for any project, the construction supply chain requires several interrelated parties, each playing a unique yet interdependent role within the larger network. We will discuss the main stakeholders in the next section, but for now, let’s focus on the core processes and operational components that make up the supply chain in construction.
Among the core processes native to any supply chain, we can distinguish several key elements, based on our experience and industry knowledge.
Planning is the framework to coordinate all supply chain processes and activities. Construction supply chain management strives to deliver projects on time and at the minimum cost through joint coordination with on-time production and resource sharing, according to Liao et al., and is ensured by planning the business processes across the entire network of suppliers, manufacturers, and all parties involved. Through effective planning, you successfully manage all the contractors to deliver projects in an appropriate timeframe and in accordance with the requirements and budget.
Sourcing is the assessment, evaluation, selection, and management of suppliers to secure required construction materials and services. It includes the evaluation of potential suppliers (assessment of their quality specifications, delivery performance, pricing practices, and sustainability credentials). Sustainable sourcing represents the highest priority in construction procurement, seeking to reduce waste generation and environmental impacts through sustainable sourcing practices.
Manufacturing is the core process to create or assemble construction components. This part of the construction process involves ongoing tasks related to construction management and quality control management. The transformation process is guided through timely and accurate data on material locations, usage definitions, and subsequent workflow needs. A construction manager needs to manage production to get the most from resources available and meet quality objectives.
Delivery and logistics operations are focused on addressing delays and reduced material storage due to limited space, deterioration, and the cost of failed or damaged materials. In this sense, the construction distribution supply is an effort to support the on-site location and timing per the construction schedule.
Apart from the main processes that are matter-of-fact compounded to create the supply chain workflow, there are also other factors to consider — the related components of operations.
Inventory management is a vital part of the operations. In the general sense, it’s maintaining ideal stock levels that balance carrying costs and material availability requirements — but in the long run, it helps you avoid shortages or excessive inventory or wasted storage costs. This component requires advanced forecasting techniques, demand planning methodologies, and real-time inventory tracking systems.
Risk management includes diverse components — identifying, evaluating, and planning for potential supply chain disruptions (material delays, unfavorable weather, supplier failures, or market volatility). To ensure supply chain continuity, this component needs thorough frameworks, backup processes, and alternative sourcing techniques.
To guarantee smooth material and information flow, you need to set strong relationships and communication between all stakeholders. The significance of integrated communication systems is also confirmed by the research of Liao et al., who point out that information distortion and uncertainty can be cut down when information is communicated step-by-step within every department.
To increase supply chain visibility, process automation, and overall operational efficiency, technology integration makes use of end-to-end construction solutions and supply data analytics platforms, as well as digital tools.
In order to satisfy regulatory compliance requirements, sustainability practices incorporate ecologically friendly materials and procedures throughout the supply chain. These often include supplier sustainability assessment programs, waste reduction initiatives, carbon footprint monitoring, and sustainable material selection.
These processes demand precision and cooperation — this way, demanding integration as the main way to connect scattered procedures.
How they function together
The connections between the processes we described in the previous section are complex and begin at the very first steps.
Planning integrates everything — it ensures that sourcing decisions are linked to the scheduled timing of manufacturing and delivery, and uses predictive technology to reduce waste and create a construction value chain that gets the right materials at the right time while keeping the total cost of owning inventory as low as possible.
Sourcing makes manufacturing and delivery possible, as good sourcing provides access to stable supplies of materials that enable manufacturing activities to occur on a consistent schedule, with the delivery of the materials having a predictable timeline.
Manufacturing actions dictate the requirements for inventory, addressing how the materials will be stored, or organizing activities for delivery. Effective manufacturing processes improve efficiencies that reduce waste of materials, including the time it takes to procure.
Delivery pulls all of the activity from other participants in the supply chain into a process for a specific construction site, where expected products arrive according to the project's schedule. The integration process creates value by minimizing the cost related to the purchase of the materials, and cost associated with time, and the project delivery.
Liao states that construction supply chain management is defined as the process of achieving an on-time delivery of project work, with minimum cost, through the coordinating processes in production and resource collaboration. An effective integration of activities eliminates the confusion felt by many businesses. We’ve also seen it at COAX, through our client who requested construction marketplace development that closed all the gaps.
By bringing suppliers and construction professionals together on a single platform, the SmartBat marketplace we developed shows this real-world SCM construction integration. We implemented centralized procurement, project-specific material tracking, and integrated delivery management, so data dispersion and coordination issues are no longer the concern of any participant on this platform.
Key stakeholders of the supply chain construction process
No processes and integrations in the construction supply chain would be possible without the responsible people and companies involved in it. Let’s break down the key stakeholders of the supply chain for building.
Suppliers
Suppliers provide the basic building blocks of construction projects, such as equipment, parts, and raw materials. They create delivery schedules and keep inventory systems up to date in accordance with site specifications and project timelines.
The choice of supplier has a big influence on the overall cost of the project because the conventional emphasis on the lowest purchase price frequently results in higher site logistics costs and handling challenges. Reputable vendors supply the materials in the right amounts and packaging to enable effective site operations and reduce waste.
Manufacturers
Manufacturers take the raw materials and turn them into prefabricated parts, specialized building elements, and products that are ready for construction. They perform construction materials management, overseeing timing variability by coordinating production schedules with project demands and frequently keeping buffer inventories.
For manufacturing operations to produce components that satisfy project requirements, precise design information and specifications are necessary. Due to incomplete design data, manufacturers commonly receive orders for construction components with missing information, which causes delays and quality problems, as estimated by the research of Vrijhoef and Koskela.
Logistics providers
Logistics providers have the responsibility of controlling transportation, warehousing, and distribution systems that link suppliers and manufacturers with construction sites. Logistics managers coordinate complex programs of delivery to ensure materials and labour arrive when needed and do not create congestion or storage issues on site. Logistics management helps cut down the large time buffers between supply chain phases of construction and mitigate the large waste.
From the initial planning to last-mile delivery, logistics manages a great deal of interrelated problems like route planning, load balancing, and varied external factors. This is why custom software development for logistics helps cover the needs to integrate every step, coordinate routes, and get full fleet visibility with real-time data.
Prime contractors
Prime contractors are dominant in the project delivery position — they have control over project coordination and delivery with subcontractors, suppliers, and other stakeholders as they manage delivery logistics. They are skilled at construction supply chain management methods to shorten site works' duration and costs through reliable material and labour flows.
The market-based prime contractors are dependent on their supply chain partners as they now typically constitute the majority of their overheads. Prime contractors' supplier choices and logistics coordination significantly affect project performance indicators such as time and cost.
Subcontractors
Subcontractors have knowledge, skill, and service for the specialized activities of construction. They belong to a temporary project organization that spans the construction supply chain and are usually involved across different job sites and projects concurrently.
Subcontractor selection historically uses price criteria in the selection process, which can lead to coordination problems and quality issues. They rely to varying degrees on upstream supply chain discretion and are reliant on receiving accurate information and materials.
Architects and engineers
Architects and engineers provide the tech specifications, design documents, and construction requirements, which they produce and establish to inform material procurement and construction processes. In fact, architects and engineers create the information architecture for decision-making in supply chains and material requirements through the project life cycle.
As such, their involvement encompasses both timing and accuracy in the documents provided. Design completeness and accuracy affect supply chain performance. If design and engineering documents are not fully developed or provided on time, it creates unevenness that ripples through the subsequent processes of making and transportation, and through construction.
What challenges does the construction industry face in managing the supply chain?
Construction supply chains deal with a variety of issues that can have a big influence on project budgets, schedules, and overall company expansion. 91% of construction managers report delays, according to research, with 31% blaming them on irrational planning and 19% on a lack of resources. These difficulties are a result of some challenges.
Complexity and fragmentation of the industry present one of the biggest construction supply chain issues. Manufacturers find it difficult to maintain production quality while handling misunderstandings when multiple stakeholders operate independently. The majority of waste and issues are caused at a different stage than when they are detected, according to Vrijhoef and Koskela. Construction projects' transient nature and frequent organizational changes make supply chains more unstable overall.
Global construction projects are impacted by shortages of raw materials caused by market conditions, natural disasters, and geopolitical events. The 2023 WTW Construction Supply Chain Risk Report states that 20–30% of building materials are considered substandard as a result of supply chain disruptions. As a result, contractors are forced to lower their prices and jeopardize delivery dates and quality standards.
Some other supply chain resilience challenges are brought on by the ongoing changes in regulations. For instance, California's more stringent lead exposure limits and the UK's fire safety standards for second staircases are among the new 2025 regulations. Also, OSHA's national mandate for appropriately fitting personal protective equipment (PPE) complicates compliance and influences the purchase of equipment.
A great portion of the supply chain issues in construction is caused by the inaccuracies in planning and ordering. They lead to wrong material quantities, causing logistical and financial issues. Vrijhoef and Koskela found poor planning and scheduling as the top universal delay factor in construction projects. They impact material procurement processes, affect client relationships, and harm contractor reputation.
Delays in material deliveries caused by road congestion, weather conditions, and labor strikes create bottlenecks within the supply chain, which can ultimately lead to problems within the construction project. Vrijhoef and Koskela identified value-added time as only 0.3% to 0.6% of the total pipeline time of construction materials.
The irregularity of material prices associated with market fluctuations, foreign exchange, and supplier prices creates budget uncertainty. The traditional lowest-cost procurement position often leads to unintended financial consequences with higher total project costs because of the quality and logistics problems.
Yes, the supply chain in the construction industry is a greatly dispersed phenomenon — same subcontractors working on several projects, a lack of understanding of what each team is doing remotely, and the jumping Jacks of prices always keep building companies on their tiptoes. Luckily, technology helps close the divide.
How technology helps
Technology is currently the greatest ally that helps supply chain management in construction to solve historic problems with new levels of specificity and intelligence. These changes are occurring on various interdependent layers.
Supply chain management systems provide the foundational layer for integrated management solutions, where Enterprise Resource Planning (ERP) systems provide the systems of intelligence and software support to coordinate all business processes into one system for execution. Contemporary ERP solutions store information in databases and interpret the information incorporated in the models to reveal new insights.
These insights can be enhanced with the generous capabilities of AI. With machine learning, AI can reveal patterns on a timely basis across procurement, manufacturing, logistics, and customer demand. In other words, it relieves human experts of significant lead times that could take them weeks to discern. Companies are seeing 30-50% better accuracy predictions with demand forecasts and eliminating waste.
By creating digital twins of projects before construction starts, Building Information Modeling (BIM) in construction produces great advantages. Traditional coordination failures are eliminated when all stakeholders rely on these data-rich models as their only source of truth.
BIM modeling software automatically modifies resource allocation when the supply chain infrastructure is connected to IoT sensors on construction sites. With sensors built into machinery, automobiles, and other products, these systems generate streams of real-time data that AI systems can use. Predictive maintenance, which stops equipment failures before they happen and frequently saves hundreds of thousands of dollars in downtime costs, is made possible by this continuous data flow.
Above all, these technologies give entire supply networks previously unheard-of visibility, and it’s the continuous learning is what gives this evolution its unique power. Each transaction generates data that improves the next decision. Businesses are finding completely new ways to generate value through intelligent operations that adjust and improve in real-time, rather than merely automating their current procedures.
To give you complete freedom of innovation within your construction supply chain, COAX provides AI application development services that automate and inform any process, from planning to project submission. Need smart subcontractor sourcing? Sure. Need an ML-based material estimation system? Consider it created. Efficient model training and secure integrations — here’s what makes us a reliable partner.
How to improve construction supply chain management
Throughout the years of working in logistics and the construction industry as the technology partner that knows the issues of such businesses, we have collected proven tips and strategies to help enhance your supply chain. Let’s start with quick wins and go on to improve supply chain management in construction projects in the long run.
Be ready beforehand. Plan your complete project from end to end before starting it. Write down every material, tool, and service that you will need. Obtain quotes for every input from suppliers as a precaution (not as a last resort) when you need them. Research by Waqar et al. suggests that preplanning can reduce the delays on your project by about 40% and materials can be substantially less expensive.
Determine who will do the job. Define the 3-5 suppliers that can make or break your project. Establish rapport with those suppliers in a genuine sense, instead of just transactions. Contact those suppliers every month. Visit their plants. Familiarize yourself with their struggles. At some point, these suppliers will become a lifeline when materials are scarce or deadlines are looming.
Get yourself a plan B. For every key material or service input, have your backup supplier identified when you actually need them. Save the supplier contact information. When your concrete supplier can't supply your concrete, you will be glad you spent the time identifying three suppliers that you have already prequalified.
Adopt digital approaches. Note that the modern supply chain infrastructure can no longer sustain on spreadsheets. Track supplies, automate purchase orders, and keep an eye on deliveries in real time with project management software. Even simple tools can avoid expensive misunderstandings and reduce administrative time.
Invest in visibility. Establish weekly check-ins with all members of your team, including site managers, suppliers, and subcontractors. Use video calls, group chats, or any other method that works. The reason is simple: many project failures begin with someone assuming that someone else was aware of something.
Measure every important aspect. Keep a weekly tab on project expenses, supplier dependability, material quality, and delivery schedules. Don't wait until the project is finished to discover that you have been overpaying.
Manage deliveries leanly. Instead of ordering materials that flow to your project weeks before you need them, order materials to arrive just-in-time for your project. It decreases potential storage costs, cuts the risk of theft or damage, and frees up cash. Work with suppliers to align deliveries with your project's construction schedule.
Keep an eye on every delivery. Inspect materials when they arrive at your project and reject them immediately if they are out of specification. It is better to return the defective materials to the dock right away than to spend time ripping out installed work later.
Calculate each risk. Brainstorm everything that could go wrong with your construction’s supply chain, from recent material shortages, price escalations, supplier bankruptcies, and up to the delays due to weather. Ultimately, have an action plan for each risk.
Get a reliable technology provider. With COAX, you have a solid guarantee that your custom supply chain software will be created based on your unique workflows and challenges and tested with your actual employees. We start with understanding your projects deeply, identifying the places to improve and the potential for scaling and growth, and delivering solutions on time, within budget, and exactly how they should be.
Custom development wins in many cases — but often, you need to integrate ready-made solutions, and need help understanding what exactly you need and building the right connections with secure third-party integrations. This is what we can help you with, as well — our integrations are stone-solid, but flexible enough for your team to tackle as you need.
Tools that can help you
Speaking of the off-the-shelf tools to integrate into your construction business processes, we compiled a list of industry-specific solutions that you can use to improve your supply chain.
BuildOps is built for commercial construction companies, with a fully integrated solution to manage procurement as part of other project management activities. It automates the ordering process, monitors your inventory levels, looks at ordering trends, and lets you see what you're spending money on. BuildOps provided the commercial construction company, which wants project management and procurement, with a comprehensive view of analytics to optimize its spend.
Procore has an excellent procurement module, which is fully integrated with its project management platform. Procore enables construction companies to manage supply chain management and construction procurement from a single place, reducing complexity and improving visibility to the entire procurement supply chain. Procore is a good option for mid-sized to large construction companies looking for a single, complete project management solution with sophisticated procurement tracking and reporting.
Access COINS Construction provides a comprehensive procurement automation toolset in addition to the full range of capabilities needed for construction management. Complete inventory control, expedited ordering and billing procedures, and integrated logistics tools with immediate Goods Received Notices (GRNs) for supply chain visibility in real time are all features of the platform. The best candidates for Access Coins are mid- to large-scale construction firms looking for industry-specific features like advanced supplier prequalification, full ERP integration, and centralized data management for all supply chain activities.
In addition to its strong project management features, Oracle Aconex has strong procurement automation tools that help construction companies effectively manage bids, contracts, and supplier relationships. The platform's sophisticated contract management and supplier collaboration tools guarantee that projects remain on schedule and within budget. Large-scale construction projects that need advanced document management are the ideal candidates for Oracle Aconex.
With features for automated purchasing, vendor management, and thorough cost tracking across projects, HashMicro provides specialized procurement software for SCM construction. The platform's goal is to streamline procurement processes while keeping a close eye on vendor spending and performance. Construction firms in the Asia-Pacific area looking for industry-specific procurement automation with robust vendor management capabilities will find HashMicro to be especially suitable.
Constructionline offers a complete construction supply chain management system combining all aspects of supplier and compliance management and sustainability standards into one environment. The platform has advanced segmentation features and allows companies to categorize supply chains by location, work package, framework, or criteria of the company's choosing, with management of early warning systems for issues that affect compliance. This technology is perfect for construction companies where compliance with regulations and sustainability reporting is paramount.
The greatest downside of the ready-made solutions is the more rigid plans compared to what a custom solution can bring. For construction software for small businesses, we at COAX would recommend (and will happily implement) a hybrid solution, where you can use the basic plans offered by a market-ready product, and for specific workflows, get a tailored automation on board that will link all the stakeholders and help you get rid of the vendor lock-in.
FAQ
What are the 7 S's of supply chain management in construction?
According to the research, SME construction firms scored highly in Strategy and low in software systems, external training, and centralised authority structures.
What are the nuances of returns management in construction supply chains?
Mollenkopf and Russo defined that construction returns are more difficult than manufacturing returns due to supply chain orientation that spans forward and backward flows, cross-functional integration between marketing and logistics functions, and external factors like customer power dynamics and regulatory compliance that impact return policies. Most materials require some type of gate-keeping authorization at customer sites, but can also include disposition to refurbishment, recycling, or scrapping.
How do you ensure supply chain management construction visibility?
According to the framework developed by O'Brien et al., visibility necessitates the timely, accurate sharing of information about material states among stakeholders. Here are the practices to achieve it:
The implementation of integrated IT systems with real-time data sharing
The establishment of standardized information protocols
The tracking of materials through the design, procurement, fabrication, storage, transportation, and installation phases.
How does COAX ensure the security of construction supply chain management solutions?
We rely on industry standards for compliance through ISO 27001 (Information Security Management) and ISO 9001 (Quality Assurance) for the quality of the protocols. The provisions we use include end-to-end encryption, role-based permissions, and audit trails to protect project and supplier data, manufacturing and material tracking information, and compliance and trust throughout the supply chain ecosystem.
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