How Procurement Tech Will Pave the Road to Recovery 

Digitising Procurement Processes Can Help Mitigate Future Supply Chain Risks

Generally speaking, the construction industry tends to be more volatile than the overall economy. This has been apparent during the pandemic as reduced economic activity understandably harmed the demand from businesses looking for new commercial facilities. Similarly, job losses, reduced salaries and a general lack of consumer confidence have resulted in a reduction in residential developments.

In addition to reduced demand, developers also faced the problem of getting construction workers on site. This issue was intensified as once workers reached the site, they faced a range of protocols hindering productivity. Aside from the human element, we also witnessed the supply chain for building materials hampered, which placed added pressure on the industry due to production and distribution issues.

The industry has, however, continued to play a vital role throughout the pandemic. From building hospitals in a matter of days to converting sports venues and exhibition centres into field hospitals, the construction sector played an integral role in supporting many countries worldwide to recover from the devastating impact the virus caused.

In line with research from leading data and analytics company, GlobalData, we expect the recovery of the construction industry in the MENA region to continue to be slow. The sector will face challenges throughout 2021, resulting from a potential drop in expat numbers that are expected to impact consumer spending negatively and, as such, likely to affect future construction plans.

Underscoring the importance and size of the industry is a 2020 report by McKinsey. Research revealed construction represents a US$10 trillion global industry or 13% of global GDP – the figure increases to 14.5% when addressing the UAE’s GDP. Some reports have projected the value could rise to US$14 trillion by 2025 – COVID-19 has caused a bump in the roadmap, however there is an opportunity here for procurement to be a key value driver in the organisation through digitizing key processes to help support recovery and increase value in the short to medium term.

Spend Categories in the Construction Sector

We find that within the construction sector there are several spend categories. These range from health and safety supplies to building materials, ancillary equipment to outsourcing services, and transportation and logistics to heavy equipment. Implementing the right procurement technology to navigate the challenges related to the categories mentioned above is therefore crucial.

Solving Challenges with Procurement Technology

Challenges, including dark purchasing, difficulties identifying the correct supplier and the right items on time, inability to provide material on time and lack of visibility across all project and teams are all common issues within many procurement organizations. Digitising these processes can provide solutions to these issues and add value to the company by increasing the supplier marketplace and working with approved suppliers while helping to implement sourcing strategies. The decision-making process is also accelerated, helping save time and money which is crucial in the fast-paced construction industry where meeting deadlines is instrumental in the success of any development.

In terms of contracts, digitalising the process will result in faster contract execution, increased compliance and decreased risk negating setbacks in contract negotiation. Errors caused by manual data input can also be omitted, which is particularly relevant for construction companies operating in several countries worldwide. A lack of supplier performance metrics is a challenge for any industry or organisation. An inconsistent qualification process and poor visibility of evaluation results and KPIs are also issues. A supplier and category management system will help streamline data processes and enhance collaboration. In addition to negating the above, a supplier and category management system also helps with off-contract spending and leakage.

Implementing invoicing and spending analytics will help identify saving opportunities, grow revenue by controlling the budget, and manage invoicing more efficiently. This will also provide those working in the construction industry with a reporting function for effective decision-making in savings and costs.

In addition to issues relating to the supply chain and procurement, we also appreciate the construction industry faces several key challenges relating to safety issues, labour/skills shortages, underperforming projects, and the potential bankruptcy of suppliers. Addressing these, and those associated with procurement technology, will positively impact the construction industry and business continuity as it begins the road to recovery.

Developers have already adopted several new technologies to add increased productivity to their projects. Drones, 3D printing, mobile and cloud applications, artificial intelligence, and machine learning improve efficiency on the Jobsite and in disciplines such as planning. However, ensuring procurement departments are at the forefront of organizational digital transformation can help mitigate future supply chain risks with the speed and agility needed to drive the construction industry forward.

This article was originally published on Construction Week Online.