At the onset of the pandemic in March of 2020, toilet paper, ketchup and other household goods were flying off the shelves. People hoarded these commodities out of fear they would become unavailable. For several months, scarcity became a self-fulfilling prophecy.
As the pandemic recedes in the U.S. and the economy opens back up, people are on a purchasing spree. GDP rose 6.4% in the first quarter of 2021, and CNBC notes, “Outside of the reopening-fueled third-quarter surge last year, it was the best period for GDP since the third quarter of 2003.”
Prognosticators expect rapid growth to continue throughout the year. The Conference Board, a non-partisan think tank, “forecasts that US Real GDP growth will rise to 8.6% (annualized rate) in Q2 2021 and 6.4% (year-over-year) in 2021.”
With the economy simmering, businesses that sell goods are thriving once again, but there are red flags leading to a dampening of enthusiasm. The concern is summed up nicely in the title of a recent Bloomberg Businessweek article,
“The World Economy Is Suddenly Running Low on Everything.”
As the title suggests, the article focuses on the breadth of goods and materials in short supply. The challenges of keeping up with supply will not be short term.
Since resources are constrained, companies are scrambling for resources rather than managing them in a thoughtful manner. According to the Bloomberg article, companies both big and small have taken to hoarding for fear of price increases and running out of supplies. Large manufacturers, including Whirlpool, are “producing based on what parts are available,” unlike in the past when they produced “based on incoming orders and forecasts for those sales.”
Another concern for companies is sustainability. According to research from IBM and the National Retail Federation, “nearly six in 10 consumers surveyed are willing to change their shopping habits to reduce environmental impact. Nearly eight in 10 respondents indicate sustainability is important to them.”
Besides appealing to consumers, a focus on sustainability can help companies to manage their resources rather than be managed by them. By being thoughtful about the amount of resources used and how they are applied, companies may be able to reduce waste and costs by limiting the supplies they use.
Construction companies, particularly those that focus on residential construction, have been greatly impacted by the supply chain and the challenges related to procuring resources during the pandemic. Residential construction was soaring at the end of 2020 and into 2021. The monthly confidence index for the National Association of Home Builders’ reached 83 in April of 2021 (anything over 50 indicates growing confidence).
MarketWatch says, “Home builders are in an enviable position. Millions of millennials are entering their prime home-buying years … as mortgage rates remain near all-time lows. That’s a recipe for strong demand.”
Yet, single-family housing stats plummeted in April – down 13% from the previous month, according to the U.S. Census.
What happened? “… homebuilders are actually slowing production, handcuffed by skyrocketing commodity prices and shortages of land and skilled labor,” says CNBC. In a monthly CNBC sentiment survey, builders said they slowed production because of higher costs of various construction materials.
The great need to add to the housing stock persists. Stopping production is a short-term strategy for builders as they determine how best to move forward. Questions for builders and the construction industry as a whole (as well as businesses in other industries in a similar position) to consider include, How can we do more with less? How can we maintain a reasonable profit margin and quality of product without a massive price increase?
In “normal” times, managing all the variables that go into a construction project is challenging. Add in the current difficulties of securing the necessary resources at the correct time, and the process becomes even trickier. These logistics often lead to slowdowns and delays that cause construction companies to lose time and money.
For construction to proceed at a productive pace, construction companies need to be adaptive in their building process. Following the same process on each project, regardless of the specs and other unique circumstances, is a recipe for blown budgets, missed deadlines, and poorly managed resources.
Companies across the business spectrum aim for agility, which is a noteworthy goal. But being agile requires time -- time to think and to consider alternatives. In an effort to escape reactionary mode, some construction companies are turning to AI. AI can easily and quickly create multiple simulations as well as develop sequences that can facilitate a smooth project flow. Further, AI can create a variety of simulations based on project priorities, such as time, money, the ideal way to use resources, etc. AI will also deliver a perfectly valid sequence for each simulation.
So, before proceeding with construction, teams can review construction sequences to determine the best way to proceed for each particular project. They can consider their priorities and operate based on their client’s mandates.
And when the inevitable glitches arise, including delayed resources, AI can re-sequence a project. Ultimately AI empowers general contractors to explore new strategies and create backup schedules with every progress update so that they can stay ahead of potential slowdowns. Contractors can control their schedules rather than be controlled by them.
One particular resource shortage currently impacting construction is lumber. Business Insider reports that lumber prices are up over 85% year-to-date and 280% in the 12 months since May 2021. They also note, “in addition to accelerated demand, the supply of lumber has also been strained by insufficient domestic production ….”
How can construction proceed without lumber? Award-winning portfolio manager Michael Gayed noted in Business Insider the serious repercussions related to lumber: “… a lumber crash could lead to a stock market crash.”
Lumber, of course, is made from trees. Reducing lumber usage is not only wise due to its meteoric price increases, but also because this is an environmentally smart choice.
Though we are not there yet, limiting the use of lumber is a reasonable goal companies can strive for. And based on the current situation, reducing lumber will lead to many positive outcomes.
For example, decreasing the use of formwork, which is typically made from lumber, will help to lower the cost as well as lessen the environmental impact of a construction project.
Some construction projects are already using less formwork and lumber; AI is making this possible.
For example, Parsons Corporation, a digitally enabled solutions provider, turned to AI on a significant highway project in the eastern U.S. to reduce the use of formwork.
“By using AI, we were able to run multiple scenarios and come up with a solution that reduced the amount of formwork on the project and sequence it to get the most out of our resources,” says Mark Curtiss, a design-build manager with Parsons. “This helped us manage costs and maintain our bottom line.”