Construction Procurement, by Amazon
Books, Kindles, a talking plastic disc named Alexa, and next, your construction project.
One morning, you’re down at the shops, looking for some eggs for breakfast. You find the egg section, but there are none to be found. Confused, you grab a clerk who’s passing by.
‘Excuse me, where are the eggs?’
‘Sorry, we don’t have any at the moment,’ he says.
‘Don’t have any eggs?’ you ask, confused. You’ve never seen a shortage of eggs.
‘No. We were supposed to get a delivery two days ago, but it never turned up. The egg man said he’s hoping to have some to us by the end of the week, but we’re not sure. We’ve got plenty of ice cream, though, if you need that,’ he says, walking down the aisle.
‘I don’t want any ice cream,’ you say. ‘I need eggs. For breakfast. It’s too early for ice cream.’ As you’re saying this, you pass the bread aisle, which is absolutely bursting with bread, so much so that it is spilling off the shelves. ‘What’s going on there?’ you ask.
‘Oh that. We’re supposed to get an order of bread once per week, but the vendor decided that they’d drop off a whole month’s worth, because they ran out of space for it in their warehouse.’
Just then a vendor in a polo shirt stops the clerk. ‘I’m here to drop off a delivery of milk,’ he says. The clerk eyes him. ‘We don’t need any milk. We did order some but it isn’t supposed to arrive for a week.’ Says the vendor, who clearly isn’t going anywhere, ‘Sorry mate. You placed the order, the milk was ready, so we decided to bring it over. Not really worth taking it back now, is it? Sign here.’ The frowning clerk signs, and then turns to me and says, ‘You’ll have to excuse me, I’ve got to go figure out what to do with a bunch of extra milk that I don’t need.’
Obviously this is slightly ridiculous and a bit overexaggerated, however it describes with some accuracy how procurement went in construction back when I first started in the industry in the 90’s. Materials were constantly showing up later than when you needed them (eggs), were readily available when you didn’t (ice cream for breakfast), sometimes you had more than you needed (bread), and sometimes suppliers would dump materials on you when they felt like it (milk). This problem has always preturbed me, particularly after doing an MBA a few years back and learning about supply chain management. While retail outfits like WalMart in the U.S. and the Zara’s of the fast fashion world have completely upended and fine tuned procurement to the point where it is a competitive advantage, construction is stuck doing the same old thing. It’s true: like a hipster wearing that WHAM! t-shirt and Boy George glasses you sent to the Salvos a few years back, the 90’s haven’t yet died and construction procurement continues to operate by the seat of its pants.
That MBA I mentioned got me interested in supply chains, thus you can imagine my fascination with everyone’s favourite book/electronic/music/whatever seller Amazon, the king of supply chain management (WalMart might want to fight me for those words). You’ve probably heard of Amazon Prime, which provides free two-day shipping on damn near everything. To go from clicking go on the order of your new ab roller to picking, packing, labelling, handing off to shipping to being in your hands in two days qualifies as magic to some. Cooler still, Amazon Prime Now offers free two-hour delivery on groceries, restaurant orders and household goods in a number of cities in the U.S. Before I completely turn into a puddle emblazoned with an Amazon logo, I’ll just finish up by saying that these people know how to get products into the hands of people who want them. They are coming damn near to providing the one retail experience that online shopping has not been able replicate from a bricks-and-mortar shopping experience — instant gratification. (By the way, if you’re a fanboy like I am, you should know that apparently Amazon is opening up shop in Australia this year, and not just a figurehead website that ships stuff from the U.S. Harvey Norman might need to get out of his recliner for this….)
Amazon’s world dominance of commerce continues apace, and could move next to, of all places, your construction project.
Would you love it if your materials could simply turn up Just In Time, right when you are ready to use them? This little corner of inventory promised land has been preached about for years and sounds great in theory, but practically speaking it doesn’t often work (in construction at least). Projects are typically under schedule pressure, and not having materials when needed is a risk which often necessitates ordering the materials as soon as reasonably possible. This sometimes has them ready early, and suppliers are notoriously against holiding materials — they want to send them to site the minute they are ready.
Enter Fulfillment by Amazon (FBA), one of Amazon’s many side businesses. Essentially FBA is a service utilised by people who sell stuff on Amazon, whereby they send their goods to an Amazon warehouse, who then manages the distribution. So when someone buys the crocheted pillows you’re selling, Amazon’s supply chain masters will do what they do best and send it to the customer for you, fast and efficiently. What if they could do this for your construction project?
Here’s how I imagine it working. Procurement is fast tracked from the start of a project, so from day one the contractor is purchasing steel, doors, hardware, plasterboard, kitchen equipment — you name it. When ready, all materials are delivered not to the subcontractor or supplier and not to the jobsite, but to a warehouse near you. During construction, all material deliveries are then managed online. You can see via the web what materials you’ve got in storage, and when you need them you make a few clicks and Amazon delivers materials to your jobsite within a day or two. You’re planning on installing doors 100–105 and the toilet in unit 64 at the end of the week? No problem! Get online and they’ll turn up first thing in the morning, right when you need them.
This offers many advantages over the current ad-hoc method of procurement:
- Just In Time delivery, for real. You want something, you get online and with a few clicks of your mouse it is on site.
- Security. My secure warehouse is tighter than your jobsite and the chain link fence you’re rolling with.
- Climate control. I once had a project where all the doors were delivered to site early, and by the time we went to install them they were all warped due to sitting in the heat and humidity while in storage on site. A climate controlled warehouse solves this problem.
- Safety. No longer do you have to worry about tripping over big piles of stuff being stored all over the joint on site.
- Quality Control: No longer do you have to worry about materials getting damaged when some worker staring at his phone trips over them when they’re being stored all over the joint on site.
‘Sure,’ you say. ‘This sounds great, but who is going to pay for this, and what about my cash flow? I’m potentially paying for materials now that I might not need for months down the line’. You’re going to pay for it, if you know what’s good for you. Consider this the cost of mitigating the risk that your materials are not ready on time. Spending a few dollars now to keep from losing a lot of dollars later (not to mention damaging your reputation, the relationship with your client, etc.) when you aren’t done on time, is money well spent. And not to mention it saves dollars by not having materials sitting on site, getting damaged and mysteriously disappearing.
I could also envision some magic happening through pooling of demand. Quantity discounts are everywhere. 7-Eleven is notorioius, offering you a discount for buying two Cokes instead of one(just what you need). Why should construction be any different? Say your job is ordering a massive amount of Lockwood hardware. You contact the warehouse, and they know through their records that they’ve got three other projects they are working with also ordering hardware from Lockwood. By facilitating putting together the orders and thus pooling demand for a larger overall order, dollar savings might be realised. Everyone wins.
Construction is an industry that is quite slow to evolve: many of its current practices have roots that go back years. You could call it old fashioned, and you’d probably be right. You could also look at it as being ripe with opportunity for change. Amazon continues to change the game of retail, and build on its strengths there to branch out into other complementary areas. Maybe someday they’ll be managing your construction procurement for you.
