I was talking to a couple of builder friends of mine over the past couple of days and we got into a discussion about what effect COVID-19 would have on the housing industry and if the industry would be shut down.
My advice was to prepare a Risk Assessment and do a Supply Chain Audit to determine the best course of action for their business.
At the moment, all governments in Australia see the housing industry as an ‘essential service’ and should continue to operate as much as possible within the constraints of what is happening here.
HIA has done a great job and lobbied all levels of government to let them know the housing industry can comply with the distancing guidelines. A guideline has been distributed to all members on how to deal with the restrictions on building sites, including renovations.
Information coming from other countries is showing that the housing industry is being seen as an essential service in those countries and being allowed to continue to operate however, in some countries, the industry has closed down voluntarily in some parts due to the lack of labour and materials.
My advice to builders at the moment would be to do two things –
· Undertake a Supply Chain Audit; and
· Prepare a Risk Assessment for the business.
If you do these two things now, you will be in the best possible position to complete the homes or reduce the exposure and the effects when the time comes to start up again and be ahead of the game. Going through the unknown times ahead, you can at least sleep well at night knowing you have done all you can to plan for the best possible outcome.
What do I mean by a Supply Chain Audit?
This is not a classic 'best practice' Supply Chain Audit but it is sufficient for this purpose.
Review every material and fixture that will be used in the construction of each of your homes and determine where that material or fixture is manufactured, how it is transported, what other distributors are involved in the supply chain and where all these are located. Then identify what potential issues will occur if you can’t obtain these supplies when you need them.
For example, many appliances are made in Italy and China. Check with your supplier to find out if they are holding those goods in stock ready for delivery. If not, can the supplier guarantee the supply at the time when you will be needing the goods? If they can’t guarantee supply when you think you will need it, are there other alternatives available from that supplier? If your supplier does not hold the goods or can’t guarantee the supply, then you need to contact other suppliers of those goods and see if the same situation applies. If you can continue to source the goods, what measures do you need to put in place to guarantee the supply of the goods when you need them. If there will be no supply, what are you going to do to overcome that scenario. (Risk assessment and risk management). Think about how many goods and fixtures come from overseas countries that are in lockdown.
If you haven’t pre-ordered your goods and supplies, then this situation shows you why it is good practice to estimate your project in full upfront and get those purchase orders out to your suppliers early. This gives them time to plan and order goods and manage their inventory. The supplies and goods they have in stock will be allocated to those who have already ordered them, not for those who wait until the last minute to order and expect it to appear like magic. Waiting until you need the goods onsite is poor planning and poor project management. It’s times like these, when the proverbial hits the fan, that poor practices are found wanting badly.
Contact your client/s and discuss with them the scenario that you have confirmed and the possible solutions to the situation. I have heard that some suppliers are starting to ask for payment up front or a large deposit for goods that won’t be required for several months. This will obviously put a strain on cashflow. An option may be to delete the ‘supply’ of the goods from the contract and ask the client to pay for them upfront. This would have to be an option for the client to be able to pay for them. Also check with HIA or your association on the contractual validity of doing this.
What do I mean by a Risk Assessment?
As a builder, you should know what a risk assessment is through your safety planning and creating a SWMS. Basically, it is going through the steps I outlined above on identifying the risk, working out what the likely scenario is then preparing a response or solution to it. You would need to do this for every material and fixture that is used in the construction of a home from the concrete to the final accessories. You would cover off on the element, the type of risk, the issue that will develop, a full description of the risk, a description of the consequences of the risk, the strategy for eliminating or reducing the consequence, the expected outcome, the progress to date, the consequence, the likelihood, the rating and who is responsible for following it through.
Now more than ever, builders will find that being a member of an association is critical and they will feel comfort in knowing there are people there to support and help out through this crisis.
You never know. Going through this risk assessment and supply chain audit may show up some things you weren’t aware of and provide opportunities to procure your goods better in the future and become more efficient. It just may create a cultural shift from a ‘transaction processing mentality’ to one that focuses on strategic supply improvement and increased operational reliability.
A free copy of a 'Risk Register' is available from my 3C Mentor Business Resources site for download. You can access it here.
I’m happy to help builders work through some strategies to deal with the supply chain situation. My contact details are on website. Message me first or leave a message as I probably won’t answer an unknown number.
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