A supply chain in the construction industry is made up of many moving parts, including manufacturers, distributors, and contractors. Good supply chain management can strengthen industry relationships, customer delight, and cost- efficiency. However, the emergence of Covid-19 has disrupted supply chains, increasing lead times and prices, and creating shortages of labor and building materials.
The construction industry relies heavily on the global aspect of supply chains. About 30% of building materials imported to the U.S. come from China. The pandemic caused the global market for raw materials to slow down, resulting in contractors adding to the existing demand for locally distributed materials.
Local manufacturers and distributors have lacked enough supply to fill the demand, resulting in postponed or cancelled projects. Projects that did not experience cancellations still had to deal with delivery delays. Many parts of the supply chain couldn’t afford to put extra money into maintaining shipping when there was no product to ship, resulting in long lead times. The delivery delays brought about by the pandemic have caused lead times to increase from as low as six weeks to as high as six months.
Despite the construction industry employing around 5% of the nation’s workforce, the pandemic caused extensive layoffs. In April of 2020, 709,000 workers or 10.8% of the total construction workforce were let go.
As projects begin to resume, the industry is now facing a labor shortage, and some of the workers may never return to the construction industry. According to the U.S. Bureau of Labor Statistics data by Associated Builders and Contractors, the construction industry may have to hire as many as 480,000 new workers, and this number could keep increasing. With a shortage of labor, wages for skilled workers will continue to rise, and construction industry spending is expected to increase even more in 2021.
In April 2021, the Associated General Contractors of America (AGC) issued Construction Inflation Alert which cited the rise in input costs from April 2020 to February 2021. The report recorded a jump of nearly 13% in material costs for contractors and subcontractors.
Contractors who submitted bids in 2020 would have to pay a higher price now for the same projects. Essential construction materials such as steel products saw a price jump of 20% or more. The surging of prices is likely caused by balancing out the losses of the pandemic, industry spending during the peak of the pandemic in 2020 increased by nearly 5%. Despite the U.S. now being in the recovery of the pandemic, contractors are hesitant to continue projects that they had put on hold in 2020. With the high prices, contractors are at risk of paying more for the project now, and the prices are unlikely to drop any time soon.
Though recovery from the effects of the pandemic is underway, the increase in interest and material costs left over from covid-19 are going to have some lasting effects on the construction industry in the next couple of years. Even with continued bidding and unfinished plans, contractors are hesitant to begin new projects or continue old ones when prices are this high and lead times are this long.
Learn about 4 steps that can help manufacturers maintain short lead times.