Contractor's Guide to Supply Chain Management

Frances Mary Loughead
Nov 23, 2021
By Frances Mary Loughead

Managing a supply chain is all about balance, and every organization's needs are unique. That's why a successful strategy needs to remain rooted in helping manage the supply chain, especially for contractors.  

Contractors rely on the supply chain for materials and labor. As a contractor, you are one of the many moving parts of the supply chain because you arrange or provide materials and services needed to finish a job. 

Because you work on multiple projects, relying on the supply chain is a major part of your business. Understanding the need for proper supply chain management is key to the success of your business. In this article we will cover what you need to know to for effective and efficient supply chain management.  

Why Is Supply Chain Management Important?

Supply chain management is essential for contractors and service providers of all sizes. Without the proper materials, it is impossible to meet a client's needs. If you do not have the necessary materials in a warehouse or if they get delayed during shipping, it can cause a missed deadline. This can have a domino effect on the rest of your business, delaying future jobs and opportunities.  

Building materials are commodities with prices that fluctuate according to the market. As materials become more expensive or go down in price, your profitability may rise and fall. Price fluctuations can be devastating if not managed correctly, and that means not only monitoring your supply chain and costs but also adjusting your prices. 

Five Supply Chain Management Tips for Contractors 

As a contractor or service provider, it’s important to understand how to manage supply chains in a way that maximizes efficiency while minimizing the risk of price changes and delays. Here are a few tips to help you. 

1. Have Multiple Suppliers for the Same Product 

Industry-wide shortages and commodity price fluctuations can cause issues. However, the problem can also be more localized. Perhaps one of your suppliers has a problem at a warehouse or a delay in sourcing material. If you have another supplier for the same product, you can move forward with your work without schedule disruptions. Furthermore, with multiple options, you can select the option that provides the lowest price for a given material. 

2. Communicate With Suppliers 

Another way to mitigate the risk of delay is to communicate regularly with suppliers. By letting them know about your latest bids and upcoming projects, you can provide notice about upcoming needs. Even if you do not have the exact figures for an order, the supplier will be aware of upcoming orders and expectations. If necessary, they can lay the groundwork to fill your order quickly. Also, if they foresee issues or delays, they can let you know early so that you can make other arrangements if needed. 

3. Increase Supply Chain Visibility 

By increasing your supply chain visibility, you can track your inventory in real time. Also, your suppliers and subcontractors can see what you have on hand and en route and plan accordingly. Subcontractors can let you know if they require more materials, and suppliers can get the next shipment ready without you having to contact them.  

Visibility can also help with scheduling. Subcontractors and workers will know when materials will arrive, so they do not have to spend time waiting at the job site for items to arrive. 

Finally, in some cases, you can provide supply chain visibility to clients or project stakeholders. They can see the processes in real time, which may eliminate some of the inquiries that you receive about the progress of the project. 

4. Reduce Your Supplier Costs 

Price spikes from supply issues or increasing demand can cause issues for contractors who are trying to meet project budgets. One option is to obtain a price guarantee from a supplier. These short-term price locks allow contractors to get a set price. 

In addition, contractors may be able to insert a price escalation clause that allows them to recover part of the expense of a price increase.  

Consider these additional cost-saving measures: 

  1. Pre-ordering lumber 
  1. Getting price guarantees for lumber and supplies  
  1. Delaying building to wait for better prices 
  1. Asking for shared-price clauses in contracts 

Though exponential spikes like the recent rise in lumber costs are still challenging for contractors, price guarantees can help with budgeting and make costs more predictable in the short term. 

5. Use Demand and Price Forecasting 

By analyzing supply and demand, you can get ahead of potential price increases. Forecasters look at events, such as hurricanes and the COVD-19 pandemic. They measure the impact that these things have on materials' prices and shipping costs. Regular seasonal fluctuations can also influence these forecasts. Also, the current housing market can play a role in the demand for construction materials. 

These factors can inform your ordering strategy and, in some cases, help you get ahead of price changes. 

Wrapping Up 

As the struggles with supply chain will continue to create challenges for many businesses, it’s more important than ever to have a firm hold on the parts you can control. Use these supply chain management practices to help increase efficiency and help manage risk, battling these challenges as best as possible. If you would like some additional help, reach out to us for your marketing needs. 


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