Technology

The Time for Digital Purchasing and Materials Management Is Now

Outdated processes drive up project costs and timeline overruns. Digital purchasing and material management software can improve materials management and increases profits.
By Or Lakritz
August 18, 2021
Topics
Technology

Subcontractors cannot afford to maintain traditional ways while the construction industry is making dramatic efforts to improve productivity. Yet, subcontractors and self-performing general contractors know profitable construction projects come from a successful blend of managing labor, material and equipment.

Too often, they overlook opportunities to increase profitability to improve the way they order, price and manage materials. However, responsibly growing a business requires a lot more than winning jobs and taking on additional work. Contractors also need to improve how work gets completed across the organization.

There are five critical areas where outdated processes drive up project costs and timeline overruns, leading to the introduction of digital purchasing and material management software and mobile apps. This easy-to-use tech helps contractors improve materials management and increases profits without needing a task force or major upheaval of resources to move forward.

Focus on Material Workflows and Eliminate Hidden Costs for Materials

Materials are a significant cost factor of any project and can account for 30% to 50% of project costs. Subcontractors overspend common materials by an average of 8% and absorb additional hidden costs to get the right materials to the jobsite on time. Five significant issues affecting subcontractors and self-performing general contractors include:

  1. Field Labor Waste Accounts for 10 or More Hours Per Week. Field foremen can spend 10 or more hours per week requesting, communicating and tracking materials on the job site due to a lack of visibility on material orders. The result is inflated labor and material costs from repeat orders and late deliveries. With materials management software, they can communicate with the office and suppliers, order materials with an app on their phone or laptop, sync the order with accounting and get instant digital proof of delivery.
  2. Manually Processed Purchase Orders and Invoices Waste Time. Procurement and project managers lose time manually re-entering data and communicating back and forth. A lack of organized cost codes and historical data makes it difficult to analyze and search for information across purchase orders. The same disorganization also makes it challenging to hold vendors accountable. Materials management software automates POs, invoicing and delivery reconciliation. Project managers can quickly search orders by cost codes and historical data.
  3. Ad-hoc Orders Create Tracking and Management Issues. Due to lack of time and data availability and an inability to track materials effectively, managing orders too often becomes an ad-hoc activity, affecting jobsite operations and the entire project schedule, resulting in errors, delays and higher materials costs. MMS tracks material orders and delivery integrates that information to the accounting system and generates reports with real-time information on project costs, inventory and other expenses.
  4. Limited to Zero Inventory Visibility and Material Breakdown. Access to accurate inventory and valuable scrap represent significant hard dollars. Tracking this financial information is essential to factual financial statements and managing business cash flow and profits. MMS tracks materials inventory and cost by cost code and provides a line-item breakdown of project cost and business expenses – all synced in real-time to the accounting software.
  5. Overspending on Materials. Subcontractors may overspend, usually due to billing errors, incorrectly applied taxes (which vary by state) and an inability to properly source the best price. Additionally, failing to pay POs within payment terms may lead to added charges rarely scoped in the budget. Existing manual paper-based and email/text processes are the main culprits, leading to broken purchasing and materials management which dramatically cut into profit. MMS automatically generates and sends invoices, and matches purchase orders and materials delivered.

Outdated Processes

Inefficient processes and undedicated tools used to manage the communication and workflows among the field, office and suppliers can cause substantial and unnecessary costs for managing materials. Instead of collaborating, stakeholders (foremen, project managers, purchasing and accounting teams, and vendors) block each other, causing delays on projects. Inefficiencies and mistakes at any step increase costs in the form of late deliveries, delayed payments and repetitive data entry.

With materials management software, contractors and subcontractors can connect disjointed materials workflows to enable stakeholder collaboration. Managers have access to data that allows them to identify trouble spots and the top-performing suppliers.

Digital Purchasing and Materials Management Software Connects Disjointed Material Workflows

Purpose-built software for specialty contractors allows information to flow accurately and in real-time among all stakeholders and accounting systems involved in a project. As a result, such software can dramatically increase subcontractors' profits.

Connecting disjointed material workflows enable office teams to focus on finding the best volume prices for materials instead of tracking down invoices and manually entering data.

Managers also have access to data that allows them to identify both trouble spots and top-performing suppliers. And – most importantly, they can start using the technology without making any significant changes to business workflows; it's complimentary, cloud-based and IT-free.

by Or Lakritz
Or Lakritz is the Co-Founder, Chief Product & Strategy Officer at StructShare. He has vast experience in combining software and business strategies to provide creative solutions for complex challenges. Prior to StructShare, he worked in software development in several companies such as Datorama and Citi Bank Innovation Lab, as well as management and strategic consultant for early staged startups and large corporates. Or also holds a double-major in Computer Science and Psychology from Tel Aviv University.

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