Solve Procurement Headaches and Increase Profits with ERP Software: 6 Ways to Benefit

Material procurement is essential to successfully complete construction projects. Inefficient procurement management often means paying more for materials—and extending project timelines. Companies often double work, order extra, or double-handle materials when there is no clear visibility over the supply chain.

A software-based material procurement solution, such as construction ERP software, helps organizations manage procurement challenges and achieve efficiency when sourcing materials. Let’s explore common challenges and how a software solution can help overcome them.

Common Material Procurement Challenges Faced by Construction Companies

A poor procurement system—or the lack of one—in construction can lead to a considerable loss of money. Poor management of the supply chain often causes companies to incur otherwise avoidable costs.

• Paying a premium price for materials due to poor supplier management
• Ordering materials in excess because of inadequate planning
• Inconsistent supply and material delivery times

Below are the most common challenges in construction procurement:

1.   Issues with supplier management

Challenges with supplier management start from the moment the company sources for suppliers. Finding the right suppliers can be complicated and time-consuming. Once the organization has a list of steady suppliers that reliably provide high-quality materials, performance monitoring and assessments are key for a successful business relationship.

2.   Cost-related issues

According to a study by the Lulea University of Technology in Sweden, the overall project cost is the most important factor in predicting the success of a construction project. Cost overruns cause issues that, if prolonged, can balloon the project costs over budget.

Construction companies should watch for opportunities to reduce costs and keep the project within budget constraints. When data management is poor, costs become increasingly difficult to control.

3.   Long lead times and procurement cycles

Long procurement cycles delay the entire construction plan, ultimately increasing the costs. Putting in the work in the early stages and ensuring that the terms of reference for services and statements of work are promptly prepared can help keep the process under control. Modern construction technology includes a clear procurement system that streamlines contract negotiations and can prevent long procurement cycles.

4.   Poor inventory management

A construction manager needs to know exactly what materials are in inventory to make solid procurement decisions. Inadequate or inaccurate procurement data can cause problems like excess or shortage of inventory. This gives way to rushed purchases with corresponding cost increases and delayed milestones.

The Benefits of an Effective Material Procurement Strategy

Organizations are always looking for ways to improve costs. This is even more true for construction companies that need to keep costs within budget. Using technology to improve your material procurement strategy saves costs and improves the overall project efficiency.

Here are six benefits of implementing an effective material procurement strategy:

1.   Optimizes Worker Productivity

According to a study by the U.S Chamber of Commerce, 78% of contractors see increased productivity as a result of integrating advanced technology.

USG + US Chamber Commercial Construction Index

Managing material procurement efficiently can impact positively on workers’ productivity. When the construction crew has the right supplies when they need them, tasks can be completed without delays. This minimizes time wasted waiting for materials or an unexpected material shortage that affects the likelihood of completing the project on time, adding overtime costs.

2.   Reduces Handling Costs

Material handling is another hidden culprit of high costs that can easily be managed with efficient procurement management. An effective material management system schedules and tracks the materials for delivery.

Having a procurement plan allows for a delivery schedule. Therefore, when the materials arrive, the staff is ready to receive and inspect them, avoiding wasted time. In addition, the planning prevents duplicate handling because the materials are unloaded as close as possible to where they’ll be used. Duplicate handling is inefficient and increases costs, and the risk of damage to delicate materials such as tiles, fixtures, and ceramic appliances. 

3.   Minimizes Risk of Damage and Theft

Accurate scheduling can also minimize the risk of weather damage. Construction sites often have inefficient weatherproof storage space for materials. With efficient planning, the time materials sit unused and exposed to the elements is minimized. This also reduces the risk of theft.

4.   Improves Budget Management

Material costs make up an important portion of any construction budget, reaching up to 70% of the total. With this ratio, managing the procurement of material effectively is critical to prevent costs from exploding. A procurement strategy provides oversight of the existing inventory and allows managers to budget forecasts if there are changes in the project.

5.   Helps Keeping the Project on Track

Poor material management can impact the adherence to project deadlines and completing milestones. If workers have the required materials when they need them, they can maintain work schedules to stay on track and meet deadlines. Considering that most construction projects risk fines for not delivering on time, staying on schedule is critical.

6.   Reduces Excess Materials

Material procurement management also ensures the company purchases the right type of materials and the quantity needed. The consequences of purchasing the wrong material can range from minor delays up to contract penalties. Regulation fines can be incurred if materials are not up to code.

Storing, returning, or offloading excess or incorrect materials and supplies wastes time and will mean paying extra storage and shipping costs as well as restocking fees.

How Construction ERP Software Improves Efficiency on the Material Sourcing Process

Construction companies use of ERP software (Statista)

 Construction ERP (Enterprise Resource Planning) software offers several advantages that support all aspects of construction project management, such as information gathering, transparency, integrity, and reach for project managers in the early stages of material sourcing.

A construction ERP solution can help with controlling costs, optimizing planning, and allocating budgets. It helps reduce delays in material procurement and tracking costs. It also makes it easier for project managers to estimate costs and revenues when bidding on tenders. The software can accurately estimate raw materials, labor, and the time expected for the project, so the projected costs are as close as possible to actual. The software streamlines the procurement process, thus reducing time and expense.

These systems also simplify information management. Keeping track of several projects at the same time can be a hassle for construction managers. Considering major infrastructure projects may require exchanging millions of emails and documents, managing and processing data is critical for construction firms.

ERP systems offer a centralized way to manage project information, through exchanging secure data with customers and service providers.

The Bottom Line

Developing construction projects requires optimal management of resources and planning. Implementing construction ERP software helps project managers effectively manage material sourcing from the early stages of planning while streamlining the overall project process.

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Author Bio

Tom Stemm is the CEO/Founder of Ryvit. He was inspired to build Ryvit when several of his clients in the construction industry had asked for some custom integration development work. At the time, Tom was part of the founding team at GadellNet (a fast-growing IT consulting firm in St. Louis, MO), and they realized that there was a significant gap in the construction tech industry – namely that, while tech purchases were high, the adoption rate of those solutions throughout all stakeholders was still lagging. After a very diligent launch process, Ryvit was born to address the rampant problem of a disintegrated tech stack in the construction technology space. Tom continues to lead a team of integration developers, application enthusiasts, customer heroes, and sales superstars on a mission to eliminate duplicate data entry and rampant data errors from the construction technology world.