3 signs that you need a construction inventory management solution

Fast to grow – Fast to fail, do you agree with this point of view?

It is a judgment for those who are losing control over their business. However, If you have already passed the stage of growth and have a certain position in the market, as long as you have a foreseen for your business and are skilled in management, the risks associated with rapid growth can be mitigated.

With a compound annual growth rate (CAGR) of 5.8%, the construction materials industry is growing too quickly due to the constantly increasing demand for housing from urbanization and population expansion. Parallel with that, this industry also faces many difficulties such as competition, price fluctuations, and political instability. With such advantages and disadvantages, management becomes more difficult, forcing managers to have an overview of the entire operation, especially the inventory management which mostly determines the progress of the project. Whether you are a construction company or a construction materials distributor, there are 3 signs that you need a construction inventory management solution to avoid the company falling into debt or even bankruptcy. These include the cash flow problems, delays, and conflicts.

What’s the inventory management solution for the construction business?

There are mixed opinions that inventory management does not have that much impact on the entire operations management of the company. So what effect does a construction inventory management solution actually have? Construction inventory management solutions are often management systems and processes that control the entire inventory process from purchasing to storage, transportation, and the post-sales stage.

Construction inventory management solutions are classified into three main categories: Automated solutions, Manual solutions, and Third-party solutions. Nowadays, automated solutions are most widely applied such as inventory management software, warehouse management software, and ERP software. Software enables effective control and tracking of raw materials, equipment, and warehouse status in real-time and monitored from anywhere, anytime. This meets the needs of both construction project companies and construction material distributors. So, using a construction management solution is useful and suitable for you. Simply because this is a necessary tool no matter who you are. Let’s dig deeper into why we need a construction management solution and its relationship with the signs mentioned earlier.

3 signs you need to know before it gets worse

1. Cash flow issue

The first sign you can easily spot a cash flow problem is when there are costs overruns. When a project exceeds the expected budget, when payments are delayed, or when the project takes longer, all can cause cost overruns. In this case, controlling money will be very difficult and cause many problems for small and medium-sized companies with limited capital.

These problems come from many aspects. For construction companies, poor budget planning and underestimating hidden costs during project construction can be very costly for contractors as well as construction bosses when a project ends. This problem can also stem from poor construction inventory management when the boss does not know how to use equipment and supplies scientifically and economically. Inventory that sits unused for long periods also causes cash flow bottlenecks, thereby slowing project progress and increasing final costs.

For construction material distributors, when the working capital turnover ratio is less than 1, it means the company does not have enough cash in circulation and the company is facing difficulties. Cash flow at a construction materials distributor is very important because it is the blood of the company. Slow customer payments, poor profit margins, poor inventory management, and poor liquidity ratios can lead to cash flow problems. Ineffective construction inventory management can cause excess inventory for a given material. At the same time, it causes cash flow difficulties resulting in inventory shortages for other materials.

So, it is essential to accurately estimate how much money you have in real-time. Always maintaining a working capital turnover above 1.3 is essential for construction material distribution companies. Using construction inventory management software can accurately calculate your inventory and track the status of raw materials as well as determine which products are in stock/out of stock on time.

2. Delays

Quality and progress are 2 important factors in the construction field, they determine how well the project will progress and whether it meets the previously set conditions or not. Therefore, delays are the scariest thing for construction bosses as well as construction material distributors. With construction projects, delays can cause a lot of problems and cost a lot of money, of course, it comes from many different causes, both objective and subjective. For construction material distributors, delays are often due to not having enough inventory, which reduces their brand value in the eyes of contractors and construction project owners.

Regardless, delays can come in many forms and the causes come from outside as well as within the business. To proactively manage and prevent the harmful effects of procrastination, it is important to recognize its signs and causes.

The signs

The most common delay we see is when a project drags on its schedule for any reason. For construction material distributors, delays occur when manufacturers extend supply and delivery times and customers delay payments.

External reasons

There are many causes of delay that bosses cannot control because it comes from macroeconomics. When market demand suddenly increases, it will create great pressure on manufacturers to speed up the production of materials and construction projects to meet deadlines. According to the 2024 Global Construction Report, the demand for building and housing construction is increasing day by day and will increase to 19,856.65 billion USD by 2028 based on the development of urbanization and industrialization.

In addition, political instability and changes in standards from the Government also create conditions for supply chain disruption. Some site clearances that are not approved by the people are also the reason why projects have to delay progress and prolong the expected completion time.

Furthermore, the lack of skilled labor also causes delays in many construction companies. Wages have increased but it is still difficult to find skilled workers. The labor shortage has become a painful problem for construction companies. For young and small companies, when profit margins are too tight, it is difficult to find and afford highly skilled employees.

Internal reasons

For internal reasons, you need to make sure you understand your company’s supply chain. The supply chain typically starts with the manufacturer, goes through building materials distribution companies, and ends with the construction companies that are carrying out building and construction projects. But sometimes this supply chain will cut out the distribution of construction materials and go straight to the end user as the construction boss. So if there is a delay, it comes from two stages of this journey. One from the manufacturer to the distributor and one from the distributor to the end user.

Why do construction material distributors not have enough goods to supply to construction projects?

This is an early-stage disruption, largely caused by the manufacturer. As we have classified before, external causes cause manufacturers to not have enough labor or raw materials to produce large quantities in a short time. Furthermore, costs are increasing erratically, sometimes because their financial situation cannot meet their needs at the same time. Manufacturer delays create delays at distributors which leads to delays at construction sites, essentially a corollary relationship between them.

Poor inventory control at construction materials distributors is also causing further delays. If construction warehouses are not well managed, there will be excess or shortage of inventory. This problem even causes more cash flow problems for the company, which also comes from late payments from construction project businesses.

Why is the construction project behind schedule?

Here, construction projects do not have enough skilled labor due to financial conditions, and the labor market supply, forcing many projects to be postponed. On the other hand, the unforeseen poor condition of the site and underestimation of the amount of raw materials needed also caused the project to prolong its completion time. The shortage of bricks, cement, and basic necessary materials stems from poor construction inventory management.

In short, successfully managing these challenges requires an overview of the business’s operations, especially inventory management issues for construction projects. Effective construction inventory management and control can minimize many risks and ensure timely project completion. A powerful inventory management software is a good candidate for this role. Not only control and display real-time data about your inventory and warehouse processes. Construction inventory management software can also help you diligently create invoices and track payments for the best quality time management.

For unexpected situations that do not come from within the company, strong relationships and good communication with manufacturers and distributors are a lifesaver in times of shortages.

3. Conflicts

The last sign that you need a construction inventory management solution is conflict. It seems unrelated but actually related. When conflicts appear such as disagreements between stakeholders, customer dissatisfaction, and errors due to misunderstandings. Or some more serious signs like the customer wants to change the design or wants to change the materials used in that project. These signs indicate that your company is lacking or inadequate communication with the people involved. All you need to do now is rework the communication process or anything that can strengthen the relationship between stakeholders.

Sometimes in a job title, if communication is inadequate, there may be two people doing the same job or no one doing it. When your customer changes the material used, you need to notify relevant parties such as your stakeholders or suppliers as soon as possible. Having construction inventory management software and timely materials management will be a big plus. This can help you recalculate the cost of changes and possibly control the cost of making such changes. Otherwise, there will be many conflicts between stakeholders and customers in the future and it can cost a lot of money.

Conclusion

To summarize, running an efficient construction company is not easy and you may encounter a lot of problems. But that doesn’t mean it’s impossible. As long as you can manage the company’s activities with a comprehensive vision, identify problems, and solve them promptly.

Applying construction inventory management solutions can help you effectively manage operations, contribute to minimizing risks, and take advantage of the power of cash flow from construction inventory management. Furthermore, it can give you timely awareness of issues that could harm the business. This ensures long-term cost reduction by optimizing resources with effective inventory management.