How the newest types of technology will change the construction supply chain. By Gary Ross
What is blockchain? How will it affect the construction industry? And when? These are all fundamental questions that any savvy construction business should be asking itself as we see other major industries start to transform their supply chain models through a technology originally developed for the trade of cryptocurrency.
The phrase blockchain is one which many of us have seen in the media but not one that we typically associate with our industry. That’s quite possibly because aside from techies most people don’t really know what it means – certainly not in relation to construction supply chains.
Put very simply, blockchain in the supply chain refers to a distribution ledger that is held by multiple elements of that supply chain. With no central authority, the blockchain is intended to be fully transparent with every transaction immediately updated on every version on the ledger.
Essentially blockchain makes it easier to work with complex supply chains by allowing everyone involved to see the chain of ownership and value exchanges over time. There are no hidden deals and much less chance of unscrupulous players trying to scam the rest of the supply chain – without the need for onerous agreements and institutions becoming involved.
A blockchain based supply chain would enable a totally transparent supply chain in which construction materials, knowledge and services could be easily traded without the need for formal institutions and payment delays holding up the process. In the simplest of terms blockchain can help identify trustworthy elements of the supply chain and simplifies the process.
Blockchain in the supply chain
In theory, no matter where you are in this supply and demand chain, you seem to benefit from an automated and rapid exchange of value. So why isn’t the construction industry embracing blockchain already?
Other major industries have made significant strides towards blockchain supply chains with major players in international food and automotive industries leading the charge from the non-financial sector. However, in a recent look at trends by business insight experts at Gartner, construction didn’t even get a mention in the list of industries looking into blockchain.
Many blockchain specialists say they are not seeing any interest from construction, despite almost every other industry sector making increasing use of the technology
At nmcn, we take the ability of our supply chain very seriously, as it supports our combined offering to the customer. We are also able to perceive the demand chain from both ours and the supply chain’s point of view, and we understand that there is a challenge there too, in terms of specifying what is needed and being able to rapidly pay for it.
As a tier one or tier two contractor, we either form part of the supply chain, or the demand chain depending on your point of view, and we know from experience that generating a trust between those links in that chain is very, very hard to do.
We also have the challenge with blockchain of bringing a whole industry with us on the enlightenment path which the technology or even new idea brings with it. This again has proven very difficult.
The major challenge we as an industry face is the change in culture that would be required to make blockchain realistic for construction. However, with other industries jumping firmly on the bandwagon, the reality is that blockchain will not disrupt our industry any day soon.
It’s not if, but when
If the experts are to be believed, it is a certainty that commercial transactions can and will be improved by using blockchain, but at what scale and at what time will that affect us?
The simple fact is that when it comes to this type of new technology, despite providing ten per cent of the UK’s gross domestic product and leading the charge on other advancements, construction as a whole is often years behind its more progressive cousins.
What’s likely is that we will not see blockchain operating in project-wide value exchanges until the other markets have seen proven, long-term and repeatable results something that is unlikely to come to the fore in the next decade at least.
All is not lost
That said, there is still a long way that the construction industry can go to reap some of the rewards without necessarily leaping two footed into blockchain supply chains before they’re proven.
At nmcn we have been working, quietly and behind the scenes for many years to improve the way we operate our business, using data and electronic, automated transactions as the crux. We have reduced paper-based invoicing down from 100 per cent to less than ten per cent and have vastly improved the time taken to place orders, receive goods and make payments because of that.
All that is great, but what has happened as a by-product of that is almost magical. The culture has changed because of the technology. Our supply chain 3can now depend on our orders and our payments, and with that reduced risk, they are able to deliver more quickly. Our buyers are able to get what they want in a more predictable way. Indeed, we are halfway to blockchain all on our own.
So, what are the next steps? What can our industry do to keep up with our more digital savvy counterparts? What we would like to see in the short term is for businesses within the supply chain to start to adopt some of the principles of the blockchain approach.
By operating more transparent approaches to transactions across projects and agreeing automated, pre-authorised contracts and values on commodity products we enter into what we’d call mini-chains. This way we can, as an industry, start to make our supply chains more efficient and start to gain some of the benefits of the trusted buyer and supplier relationships that blockchains can offer.
To achieve this, we need to work together as an industry. We must start to embrace these new technologies if we’re to continue to be seen as a vital industry sector. It’s all well and good that we lead the way with construction technologies but we must avoid being left behind in terms of our approach to supply chains.
Gary Ross is Head of digital transformation at nmcn (formerly North Midland Construction). nmcn is a leading engineering and construction company. It has developed a talented 1700-strong team, offering multi-sector engineering and construction skills, design and technical innovation.
The company delivers major built environment and critical national infrastructure projects across the UK – from buildings and highways, to large-scale water networks and treatment plants.
For more information, please see www.nmcn.com