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11 Aug 2020

2020: how will the business of building materials unfold?

Industry analysts predicted that 2020 would be much the same as 2019 for construction: overall market growth despite cost pressures, shortages in labour, and trends towards fixed-bid projects. But what about now, as the construction and building materials industries navigate a new landscape?

How will the building-materials industry, confronted with the interruption of production and distribution, compete and serve their customers?

The construction industry accounted for 13% of global GDP before the pandemic shut down building sites and suspended supply chains. The global building materials market was expected to grow from over US $ 9,100 billion in 2018 to more than US $ 18,000 billion in 2025 with an annual average growth of over 10%.

The European market, still worth 85 billion US dollars in 2017, is expected to grow by 5.5% annually until 2024.

The European market

S&P Global estimates that revenues for rated European construction and building materials companies could decline by up to 20% this year. The good news is, if government policies effectively address public health issues, the industries will bounce back much quicker than they did after the 2008 financial crisis.

The need for civil infrastructure and building materials still exists with the pace of growth in urbanisation. In fact, there’s a backlog of projects. Government stimulus packages and public investment will also contribute to the recovery.

This does not mean construction and building materials logistics will return to the normal we once knew. Work is resuming, yes. But the industry can no longer afford to work in the same, inefficient manner. Companies handling complex logistics will have to simplify their processes.

In 2019, a McKinley report estimated that 60% of companies in the building materials industry were value-neutral.' Another 20% suffered financial losses. The remaining 20% were doing quite well, even with tightening environmental regulations. That 20% was best placed to survive the shutdown, but why?

The rise of digitalisation

A 2020 McKinsey report points out that engineering, construction and building materials (ECB) companies who came out stronger from the 2008 financial crisis did so because of actions such as investing in digital technologies.

This suggests that digitalisation is how the building-materials industry can and should adapt to the current situation. It’s not too late for the other 80% of those companies to turn their fortunes around. The industry has traditionally had low levels of digitisation, and those that cling to manual processes must embrace digital transformation to stay relevant.

First and foremost, the priority for construction and building materials is to achieve financial stability. For building materials, it means cutting operating costs while improving customer service levels, streamlining supply chain operations and mitigating losses through insights into best-practice procurement processes.

Automating and optimising logistics enables companies to manage risk, increase capacity, lower costs, and reduce CO2 emissions. Data collected by devices, such as vehicle technologies, and then analysed, provides a 360˚ look into operations, enabling smarter decisions.

Digitalisation will enable agile and flexible collaboration

Staff will no longer be tied to on-premise software, and thus, the office. By adopting an end-to-end transport optimisation solution that operates on the cloud – one designed specifically for their industry – they can work from anywhere and with all relevant stakeholders at any time. Digitalisation can cut costs in every business area. It’s been proven to reduce planning time by up to 75% while lowering mileage, hours driven, and CO2 emissions by up to 25%. It can also reduce the number of vehicles needed by up to 10% and improve customer service by up to 33%.

Re-thinking strategy

Companies who’ve put off making certain moves will look at the current situation as an opportunity. For example, now is the time to re-allocate resources and competencies if areas of their value chain are underperforming. The recent upheaval very well might have highlighted flaws – and strengths – in business models. Take advantage of that new insight and act accordingly.

Turning company culture upside down

Perhaps this trend should have been mentioned first because it kickstarts any digital transformation. It begins with embracing new ways of thinking, including the idea of working from home when it’s feasible. Companies are interested in strengthening their positions for future uncertain times. Upskilling employees in new technologies and processes now, instead of later, are viewed as safeguarding the business.

Recycling building materials

For European markets, regional materials are preferred, so much so, that new product innovations hold little interest to the industry’s customers. Recycling materials are still important and will only grow in desirability, especially in order to meet environmental regulations.

It’s about long-term improvement

Companies will move to future-proof their business, which is especially critical given that rapid urbanisation will resume.

How companies meet these challenges will take vision. The blueprint is there: new ways of thinking, a strategy re-think and digital transformation.