WTW surveyed 100 risk and supply chain leaders engaged in construction activities globally, to understand their supply chain risks and challenges, their organization’s approach to risk management and what future supply chains will look like.
Credit and Political Risk||Environmental Risks|Direct and Facultative
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Learning the lessons of disruption
Construction companies are used to dealing with supply chain disruption. Large projects are often planned years in advance with contingency built in and most contractors are adept at finding
workarounds to keep them on track.
That meant the industry bounced back from the pandemic better than some other sectors. However, the supply chain crisis that followed created serious shortages of labor and raw materials which are only now easing.
Meanwhile firms are dealing with a range of emerging challenges from inflation to geopolitical and climate risks.
How are construction businesses adapting?
To find out how the sector is navigating a changing landscape, we surveyed 100 risk and supply chain leaders engaged in construction activities ranging from residential and commercial to large infrastructure and civil engineering projects globally, and project management.
How do they see the supply chain landscape? How are they building resilience? What are the main challenges and risks they face? And what will the supply chains of the future look like?
Firms face a widening range of supply chain risks
As we’ve discussed, large construction projects today are bigger and more complex, with more contractors and longer supply chains than in previous decades.
These changes have widened the range of supply chain risks that construction companies face, from climate change and geopolitics to cyber security.
Climate change and environment
Climate change and environment emerged as the leading global trend affecting supply chain risks, named by (58%) of respondents among the biggest factors.
More than a third (37%) said environmental risks would have a high impact on their supply chain. These findings reflect awareness of the need to decarbonise supply chains and reduce risks of pollution, which is a growing source of claims related to construction projects.
71%named natural resources as the environmental factor posing the greatest supply chain risk.
Many firms are also looking to transition to greener materials such as cross-laminated timber that are less carbon intensive. More than two thirds (71%) named natural resources as the environmental factor posing the greatest supply chain risk, an indication of concerns over the future availability of raw materials and water supplies.
Geopolitical risks
Geopolitical risks was among the factors thought to
have the greatest impact on supply chain risks, rated by 57% as medium and 30% high impact. More than a third (37%) named it among the leading global trends affecting supply chain risks.
As well as the impact of conflicts, trade disputes and embargoes can have an immediate and devastating impact on projects. For example, during the recent embargo placed by Gulf states on Qatar, firms had to take long and convoluted routes to get supplies into the country, adding delays and cost.
Cyber risks
Concerns over cyber risks in the construction supply chain are growing. In our survey 51% rated cyber as having a medium impact on supply chain risks and 32% high impact.
Digitalization of project management and the rise of smart building technologies can increase the risks of cyber-attacks on suppliers.Large construction sites are increasingly cloud-based with every piece of equipment digitally monitored.
Greater data sharing and partners using linked systems can also add potential weak spots for cyber criminals to exploit.
Shortages and disruption
Although most of the critical shortages that emerged during the pandemic have eased, the risk of further supply constraints is still top of mind for many companies.
Supplier difficulty attracting and retaining talent topped the list of underlying factors with the greatest role in supply chain risks at 35%.
This reflects the difficulties second tier contractors are having getting the right skilled workers, and the knock-on impact on big projects.
Construction delays (37%), energy or other service interruptions (36%), raw material shortages (34%) and logistics and warehousing shortages (34%) were all among the risk factors thought to have the greatest impact in the next two years.
Public liability
Public liability is a constant concern on construction projects, named by 61% of respondents as having a medium impact on supply chain risks and 25% a high
impact.
These risks are growing with the scale and complexity of projects and sites and the number of suppliers and sub-contractors involved, any one of whom could potentially cause an incident resulting in a high value claim.
ESG and reputation
As well as meeting climate responsibilities, construction firms are under regulatory and public pressure to source responsibly and sustainably and make sure suppliers follow codes of conduct.
In our survey 88% said sustainability was a key goal for their supply chain, while 76% said that ESG is a specific selection criteria when selecting new supply chain vendors.
These concerns may also feed into perceptions of reputation risk: 82% said reputation had a either a medium or high impact on their supply chain risks.
4 key findings
80%businesses said they have made at least some improvements in their approach to supply chain management in response to the pandemic.
66%agreed or strongly agreed that a lack of suitable alternative suppliers restricted their ability to implement an effective dual or multi-source strategy.
84%cited a lack of insurance solutions among the greatest challenges to addressing their risks over the next three to five years.
71%named natural resources as the environmental factor posing the greatest supply chain risk to their business.
Managing supply chain complexity
Construction isn’t like other businesses. To some extent, new supply chains are created each time a project is started.
Along with the increasing scale and complexity of large schemes, this creates more potential for things to go wrong.
Over the last few years, even the most meticulous planning has fallen victim to supply chain disruption, causing delays, losses and in some cases, cancellations.
Added to the risk of further shocks, the sector also needs to juggle a range of external factors, from cyber threats to geopolitical instability, climate and sustainability.
Our survey suggests that businesses are working to overcome problems and considering a range of strategies to increase resilience.
But they’re hampered by a lack of appropriate insurance solutions and the data needed to accurately assess and manage their risks.
Working more closely with sub-contractors and suppliers can help companies understand their supply chains better and address these risks.
“
Diagnostic mapping and monitoring tools and analytics can help to visualize, quantify and assess risks across the chain and in specific locations.”
Dinh Ngoc Long | Corporate Risk Broking, Hanoi
Diagnostic mapping and monitoring tools and analytics can help to visualize, quantify and assess risks across the chain and in specific locations.
WTW has an experienced team of experts with the tools and competencies to help clients understand their supply chain vulnerabilities and align their operations to reduce financial risk.
We can also help you manage and transfer risks for both property-related and pure economic losses, helping you build greater reliance against future shocks.
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