Managing the Move to Off-Site Construction
While construction is one of the oldest industries, it is still very much evolving. The introduction of modern technology has allowed construction firms to improve efficiency, decrease costs, create more accurate forecasts, and better handle their cash flow.
However, as construction firms optimize their operations through the use of technology, new challenges are being presented. For example, we’ve seen a tectonic shift in the construction industry as companies increase their use of prefabrication and modular construction. While utilizing these processes can reduce project cost, time, and risk, it adds a layer of complication when it comes to managing supply chains and project accounting.
It’s important to understand some of the complexities that come along with off-site construction, and how these issues can be mitigated with the proper technology stack. We sat down with ScaleNorth Managing Director, David Lasky, who has an extensive background in the construction industry.
First we want to ask, what goes into the decision making process of whether or not to embrace prefabrication?
“Firms are already doing some version of prefabrication and off-site construction in their supply chain by buying prefabricated assemblies such as window systems, door systems, panels, what have you. To move beyond the typical prefabrication of doors and hardware, and into truly modular construction, you have to determine whether or not you’re going to develop these prefabrications on your own, or you’re gonna outsource this and really, it comes down to the build versus buy analysis.”
Speaking of a build vs. buy analysis, what key factors should firms be plugging into that decision making process?
“I think what people need to understand is, number one is, there’s a capital investment to set this up yourself. Secondarily, there’s the whole predictability of your supply chain to consider. So if you build it yourself, you might be a little bit more in control of your supply chain and the delivery to that project, but with a higher capital cost. If you offload it to a third-party, you can share risk in terms of work in progress and other things and ultimately, that might cost you less. Those cost savings certainly come from reduced capital costs but also from not building something that may sit idle at cost for an indefinite amount of time. Outsourcing that process to someone who has better capacity and knowledge on how to do that can go a long way. So, the contractors need to go through that calculus.”
“I think that by adapting manufacturing techniques in the construction process, you’re ultimately going to control quality much better and I think that is brilliant in this sort of very litigious environment in which we live. And, you know, just use California as an example, where you have an overhang on a residential construction of a 40-year warranty period. If you can deal with the quality issues and have much more predictability in terms of the product that you’re delivering, ultimately, you should see those warranty costs being driven down and hopefully that helps your balance sheet.”
How does this approach change the way a construction business operates?
“I think first and foremost the premise here is around technology. Because, you need technology to manage your supply chain, you need technology to manage the manufacturing process and then you also need technology to manage your cash. I think this also has a positive impact on the labor side of things. All this new technology can attract talent that isn’t necessarily attracted to the construction industry. So it’s really interesting to see not only how this transition is affecting not just the job site, but the back office as well.”
What should businesses consider when deciding to utilize technology and make the move to off-site construction?
“First you have to determine whether or not you’re gonna be on the manufacturing side of this process or not. If you are, then you need a technology package that’s going to have all the manufacturing functionality as well as all the construction functionality. If you’re simply on the construction side, you’re going to need the ability to manage it as an inventory but you’re not actually constructing it. So it’s really critical that you map out the process of how you want this end-to-end estimate to cash and then be able to understand what are the real features that you need to manage this process. It’s incredibly important to get that accurate cost fixture, an accurate understanding of ‘How am I gonna collect cash now, how quickly can I collect that cash and then manage into revenue cost fixture as well.’ So mapping this process out and having the technology like NetSuite to help you execute the process is key.”
So how can NetSuite help construction companies navigate these complexities?
“I think the biggest thing is to be operating under a single playbook and a single version of truth, data is data. We’ve established that there’s so many different ways a construction business can go about this process, and each business is going to be unique. One of the great things about NetSuite is that it can be very highly customized and deeply integrated with your existing technology.”
“With NetSuite providing a single source of truth, you can make some very deliberate decisions and make sure you’re gaining cash on a timely basis. You know that you’re recognizing your cost accurately, not just based on sort of conjecture or an estimation but really getting accurate cost fixtures. You really understand the margin picture so that you can identify that in your next estimation process. I think having an end to end ERP to be able to do that is really critical in this environment.”
“I think it’s really about having that dashboard of what’s going on, coordinating all these pieces around the supply chain. So everything from project management to job costing to project coordination. All of that should be on a platform that allows you to have, really a single view in entirety of what is going on. And it’s really critical to not just have this be sorted, based on some averages or some projection. You really need to have kind of a supply-chain control tower as it were to really understand all these pieces and manage all the cost. We’re now managing much bigger pieces and having a technology platform to control all those is super important.”
Conclusion
The construction industry is undergoing a major transition as the emergence of new technologies have impacted operations both at the job site and back-office. Many firms are realizing that if they don’t adapt, they’ll lose out to the competitors who are moving with the times. However, the surge in off-site, prefab, and manufactured construction does bring some complexities when it comes to supply chain and managing cash flows.
Advanced technology is going to be increasingly important as construction firms adopt these new practices. Having a platform like NetSuite which can give you real-time visibility into cash flows, project status, supply chain, and more across all facets of the business is crucial. NetSuite excels at managing both on-site and off-site construction by closely integrating all moving parts into a single cloud-based system, accessible from anywhere. It can be heavily tailored to fit any construction business including on-site, prefabrication, multiline and more.
By integrating any existing parts of your tech stack with NetSuite, you can enjoy a single source of truth in your data. This single source is critical to truly understanding your business, remaining profitable, providing accurate forecasts and quotes, and averting project risks.
ScaleNorth has a deep understanding of the struggles being experienced in the construction industry and have helped countless firms overcome these hurdles by utilizing NetSuite. As premier NetSuite & Procore partners, we’ve even developed the Procore to NetSuite Connector ScaleApp, allowing construction firms to handle their project management, accounting, AIA invoicing, supply chain management, and more all from a centralized system.