How Inflation is Affecting the Construction Industry and why Lean – digitalisation is the Answer

How Inflation is Affecting the Construction Industry and why Lean – digitalisation is the Answer
Construction Inflation Solutions
Categories: NewsBlog

How Inflation is Affecting the Construction Industry and why Lean – digitalisation is the Answer

Across the globe, inflation rates are soaring. Interest rates are rising. Add to it the woes of the COVID-19 pandemic, new geopolitical risks, and supply chain disruptions—the world is facing yet another challenging time. The construction industry has taken a huge hit.

In the UK, builders report that customers are putting new work on hold as inflation soars to a 40-year high. A report in The Guardian says, “S&P Global’s construction sector index showed depressed activity last month, after an even steeper fall in July. The CIPS UK construction purchasing managers’ index was 49.2 in August, after a reading of 48.9 in the previous month.” A figure below 50 indicates that the sector has contracted. Andrew Harker, the economics director at S&P Global Market Intelligence, stated the sector “looks set to be in for a challenging period.”

Moreover, the lack of skilled labour is another issue plaguing the industry.

According to Glenigan’s UK Construction Industry Forecast 2022–2024, the construction industry will face challenging economic conditions over the next three years.

In the US, construction and housing market activity have slowed as well. Financial services and real estate firms are laying people off. The trickle-down effect is enveloping the whole world.

We take a deep dive into how it is affecting the construction industry, and how digitalisation could be Construction Inflation Solutions.

 

How Does Inflation Affect the Construction Industry?

The first and foremost effect of inflation is felt in budgets and profit margins. The construction industry is complex, with various items and people involved. Supply chain partners provide the materials and pieces of equipment. Skilled labour is the most crucial component.

If a contractor hits a roadblock under the present conditions, the costs rise manifold. This is in addition to the existing direct costs affecting their profit margins.

While inflation continues to rise, it is more important than ever to start mitigating the effects on construction projects—before things get out of hand.

 

Construction Inflation Solutions: How Can the Industry Respond?

To counter the growing impact of inflation, the construction industry must focus on three core pillars: performance, predictability, and people.

In challenging times, construction projects can only stay on track when everyone works from a shared, strategic plan. This ensures that all stakeholders—owners, contractors, and site teams—are aligned and can respond effectively to changes on the ground.

If you’re looking for practical Construction Inflation Solutions, here are a few simple but powerful steps:

1. Improve Your Cost Tracking and Control

Deferring significant expenses is the first bet that contractors will make during an impending recession. Experts opine that the mandatory step is ensuring that money is being monitored accurately as the work proceeds.

2. Purchase Materials Ahead of Time

Buying materials that provide the best results is ideal, rather than opting for expensive options at the last minute. Hence, keep track of your look ahead and ensure prerequisites are met in time.

3. Provide Flexibility in the Contract

Review the project and projected costs. Be ready for adjustments based on the business’s profitability. Allow teams to work together toward the common goal of project success by defining collaborative processes within the contract.

 

VisiLean – Lean Digitalisation to Mitigate the Impact of Inflation

At VisiLean, we believe that real magic is done by real people who collaborate more effectively. Construction projects with stricter regulations, timelines, and budgets have become more challenging and complex. It has become important for companies to stay competitive and profitable by maximising value while minimising waste.

This is when the construction industry adopted the Lean methodology. Lean construction management principles allow companies to work more collaboratively and efficiently. The Lean principle is rooted in respect for customers and continuous improvement, which is the need of the hour.

 

Why Lean Is the Answer

Lean allows companies to involve stakeholders early, ensuring everyone is on the same page. With tools like pull planning and weekly work plans, teams can ensure that the project always looks ahead. This helps mitigate the impacts of potential constraints.

Reviewing performance each week for variances ensures that the same issues are not repeated. All of this results in a higher quality of output and operations. Thirty years since the industry adopted Lean, things are picking up pace. The digitalisation of Lean tools and workflows has significantly enabled adoption and deployment.

 

VisiLean Enables Seamless Collaboration

At VisiLean, we strive to simplify construction management and workflows. We remove complications and hurdles that disrupt information flow. We also improve communication between all project stakeholders.

It is essential to have everyone on a common platform, rather than being updated through multiple channels. With VisiLean, you can create multiple organisations—or simply, Teams—as per your project workflow.

This gives you the power to categorise and filter planning, monitoring, and performance review accordingly. You can also add your designers and consultants to the platform, along with your execution teams, for seamless communication.

 

It’s Not All Gloom

With recession and stagflation on the horizon, integrated digital construction innovations are taking centre stage. The future is bound to be exciting, despite the tough times.

The infusion of technological advancements is making a paradigm shift in the AEC industry. A strategic plan collaboratively developed by stakeholders is essential to a project’s success.

 

The Path Ahead

Will the changes of the day propel us toward an industry that is truly digitalised? One that is capable of delivering consistent, repeatable, and confident results?

At VisiLean, we hope to be the harbingers of such dynamic change.

Don’t get left behind. Discover how VisiLean can enable your teams to be more efficient. Want to know more? Head to our YouTube channel , or visit our website, to learn about all our features and book a demo with our team!

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