Supply-chain disruption continues to pose significant challenges for today’s construction businesses. While skyrocketing material prices are contributing to rising project costs and ballooning budgets, material scarcity is causing increased inefficiencies, work stoppages and delayed project timelines. At the same time, demand for new construction isn’t waning, leaving many in the industry stuck between a rock and a hard place.

Fortunately, bad times can often lead to the best advances. To meet the needs of the moment and continue growing a thriving construction business, now is the ideal time to innovate and embrace new approaches. The most successful construction leaders will seize this opportunity to adapt and emerge even more prepared for the future.

Here are three ways the supply-chain crisis can improve the way many construction contractors and executives do business for more successful outcomes.

1. Cultivating sustainable supply chains

The “just-in-time” approach to inventory management has become “not in time.”

As the supply-chain crisis has revealed, even the tiniest missing element can throw a wrench into normal operations and bring business to a complete standstill. Despite well-known construction cash flow issues, business leaders can no longer afford to wait and purchase materials on an as-needed basis for each phase of a project. Instead, they should examine their supply chain to determine the most critical elements and then amass a “safety stock” that will see them through even the toughest of times.

To shore up their supply chain, construction leaders should ask themselves the following questions.

• What is the critical component that, if it were delayed or completely unavailable, would completely halt my business? This could be anything from a chemical ingredient to packaging or a specific type of lumber.
• How much of a safety stock should I pre-purchase to eliminate risk, and is it worth the upfront investment? If a $5 million project could be held up by $10 thousand of a missing critical component, amassing a safety stock is likely worth it to the bottom line.
• Can I source this component locally, and where can I store it? Factor in the costs of transporting goods from vendors, as well as the supply-chain risk of continuing to rely on international sources.

2. Overcoming construction cash-flow issues

To purchase a safety stock of critical components, it’s necessary to leverage positive cash flow—or at least solid construction financing options. However, with rising project and labor costs, construction companies are feeling the cash-flow crunch now more than ever. Plus, with the U.S. Federal Reserve recently delivering its second straight 75 basis point rate hike, borrowing just became even more expensive.

These challenging circumstances will force many construction contractors and executives to rethink and improve the security of their business finances—which will, in turn, improve business outcomes in the long term. Important questions to ask include the following:

• Should I start investing more money to grow my cash reserves? Redistributing company finances could lead to greater cash flow and the ability to start implementing an early-stage procurement strategy.
• How can I develop relationships with lenders in order to get the financing I need to purchase a safety stock of my critical components? New contractors should start laying the groundwork now for the financing required for bigger projects down the road.
• Would stockpiling cash in a savings account be smarter than borrowing at a higher interest rate? Tough times call for unconventional methods, so growing money slowly at a modest interest rate might be the best bet.

3. Embracing alternative materials

A positive result of the supply-chain crisis has been the development of innovative products to offset demand for preferred materials, as well as an increased willingness of construction professionals to embrace them.

Why now? Getting creative with construction materials might not normally be as cost-effective, especially for those on a tight budget with little cash flow. But when it's a decision between pausing a project or paying more for a new product that is multi-use and available immediately, the benefits of continuing work far outweigh any extra upfront cost.

That’s why the most successful construction leaders will start thinking outside the box in terms of critical components by considering the following:

• Substituting usual materials with greener products: Is there an alternative on the market that offers greater environmental benefits? There’s never been a better time to try it.
• Looking for products designed to offer more than one benefit: For example, is there a new cure and seal that also waterproofs and creates an internal moisture membrane? This will also boost project efficiency and cut costs overall.
• Pairing with vendors to source or develop better, more accessible products: Improved performance and efficiency are not all that matters—it also needs to be available and easily secured at the beginning of a project to build that safety stock.

While supply-chain shortages continue to pose challenges for construction businesses, they have also set the stage for marked improvements across the industry. As contractors and executives are forced to pivot or fail, it has been a catalyst for rethinking their approach to supply chains, cash flow and the materials on which they rely.