Improving Internal Operations

By Don Kafka

A connected business is a profitable business, and technologies like cloud computing, RFID and Bluetooth Low Energy are becoming vital.

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The construction industry is all about getting things done in the most tangible way. From laying a simple foundation for a new house to erecting architectural marvels that seem to challenge the laws of physics, every day on a construction site ends with visible, measurable progress toward a defined goal.

But who defines that goal? Who decides what needs to be done, when, and by whom? Who makes sure equipment and consumables are at the site when needed, and are then returned promptly when used? Who crunches numbers to make sure costs are in line? That “who” is the collective—and often unheralded—internal operations staff. They are the back office, yard and warehouse teams who plan, manage, monitor and analyze every project from start to finish. Without them, no project could even be undertaken, much less successfully completed.

Yet too many construction companies fail to take full advantage of the talented staff who keep things running smoothly and profitably. As a result, global construction sector labor-productivity growth averaged 1 percent a year during the past two decades, compared with 2.8 percent for the total world economy and 3.6 percent for manufacturing. Less than 25 percent of construction firms matched the productivity growth achieved in the overall economies in which they work throughout the past decade, according to a McKinsey analysis.

Part of this shortfall can probably be explained by the nature of the construction industry. Historically, the industry grew up from tradespeople who knew how to build—and build well—but were not educated about business or process. They relied on antiquated spreadsheets and back-of-the-envelope methods and were reluctant to adopt new technologies like cloud computing, RFID tracking, Bluetooth Low Energy (BLE) and interconnectivity, at the expense of their companies’ bottom lines.

Fortunately, that attitude is changing dramatically. The new generation of construction operators have a voracious appetite for technology—we talk to very few younger operators who are technology-averse—and they not only grasp the fundamentals of operating an efficient business but are educated in business management and know the importance of their internal operations team in making the business maximally profitable. They understand that a connected business is a profitable business. To this new generation of construction industry leaders looking to optimize their internal operations, I suggest a four-step process:

Supply Chain Analysis
The supply chain is more than just buying an item from a vendor. It’s also the internal movement of equipment and consumables to worksites. So look at everything that moves, whether procuring from outside vendors or in-house transfers, and make sure that no step or item is omitted. Consider the whole loop from needing something to acquiring it and then deploying it. In construction, sometimes it can take two weeks to get an item back from the field; this process should be measured in minutes or hours, not in days.

Cost Review
Construction companies need to know the true costs for their projects so they can pass that expense on to their customer in the next billing cycle. This includes the cost of the tools used and that of moving them to the site and back. They need to develop solid processes that are supported by interconnected, accurate job cost and billing systems for each team that update in real time. Interconnectivity makes all teams more cost-effective because they’re collaborating in the moment.

Data Analytics
With interconnectivity, a management team has instantaneous, comprehensive and accurate information to make vital decisions and improve performance in the field and in the back office. If you want to push your thinking, ask yourself, “What piece of data do I need to change my business?” Without reliable performance data, a company is flying blind.

New Technology Adoption
New technologies relevant to the construction industry are growing rapidly, and they are changing how quickly companies can rise to the top. Look at all the new technologies that can support internal operations, as well as warehouse, yard and worksite operations. Every aspect of a construction company needs to be interconnected, and well-established technologies like cloud-based software and BLE resource location monitoring systems are essential to managing the overwhelmingly complex and time-consuming details involved in construction projects.

The overall idea is to connect internal operations so they contribute maximum efficiency in the field, resulting in increased profitability. As an example, oil field service company Saulsbury has done an amazing job of streamlining its internal operations using interconnected technology. In its warehouse, the company has large monitors showing what equipment is in the field, what is being delivered and what is being returned. All necessary information is displayed in real time on those status boards so staff members know exactly what is going on everywhere in the field, the warehouse, the yard and the entire supply chain—as well as the instantaneous cost implications of every data point.

So by improving performance in the back office, you’ll improve performance in the field. When all aspects of a company work within a single cloud-based system that is fast and accurate, you can reduce waiting times and phone calls, warehouse and yard operations can keep up with the speed of the project, and all processes can be streamlined so every request is fulfilled quickly and accurately.

As a construction industry veteran of more than 30 years, Don Kafka, the CEO of ToolWatch and a construction executive thought leader, has a lot to say when it comes to educating construction companies about the importance of internal operations to their overall productivity and profitability. Denver-based ToolWatch is a technology firm that provides tool and equipment systems to track and manage resources throughout an entire construction organization. For more information, visit toolwatch.com or call 1-800-676-4034.