Thesis: Warehousing for Construction?
Construction is a supply chain game. The first principle is that it will always need buffering. Today, the site is the buffer. Tomorrow? For years we have been discussing this interesting opportunity in construction. It's time a dedicated founder diligenced this opportunity, and found out whether this thesis is for real.
For years we have been discussing this interesting opportunity in construction. It's time a dedicated founder diligenced this opportunity, and found out whether this thesis is for real. Here's why:
Construction is a supply chain game
Construction isn't an operations business like real estate management, where you optimize the utilization and efficiency of a static asset in a static controlled environment. Construction is a project business and as a result, it is a supply chain business, where every project has unique characteristics and constraints. You find your optimum by organizing the interdependencies and logistics of suppliers, materials, and equipment around the site.
It is anything but just-in-time
Despite being a supply chain business, construction is far from "just-in-time". There's always a lot of inventory lying around sites, big and small. Making construction truly just-in-time without any inventory somewhere in the supply chain is extremely difficult due to the project-based nature and complexities.
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Resulting in massive inventory, creating operational + commercial issues
The lack of just-in-time leads to piles of inventory on sites. This isn't just unsightly - it creates real issues:
Theft, leading to insurance claims. Weathering damage, especially to high-end finished goods. Spatial obstacles requiring unnecessary material handling. These are all big no-nos that you want to avoid in an already complex and interdependent supply chain.
Buffering will always be required
With 100 workers, 100 suppliers, and 100 subcontractors on an average medium-sized site, that's a million combinations of potential interactions and bottlenecks. Standardization like in automotive isn't possible. Buffering is the only way to handle the interdependencies, but today it happens sub-optimally on-site or in trucks.
Manufacturers + 3PL's won't be the buffer
Manufacturers and third party logistics providers want to ship out ASAP due to cash flow and space constraints. The contractor has only so much influence on their schedules and inventory preferences. So the site almost always ends up being the buffer by default - exactly what a contractor will want to avoid.
Thesis: The Opportunity?
Here's the potential play: Offer medium to large contractors an off-site depot to use as a buffer. Rent secure space outside the city. Let contractors direct manufacturers and 3PLs to deliver there instead of the site. Provide software for contractors to schedule just-in-time delivery from the depot to the site with a day's notice.
The numbers could be compelling. Improving supply chain visibility can boost a project's resilience to disruptions by 25%. Logistics costs are 1-2% of project value, and optimizing the supply chain can reduce that by 40% - netting the contractor an additional 0.4-0.8% to their margins. That's $200-400K in revenue for a $100M project.
Contractors might gladly give you the full cost savings for the improved visibility and reliability. If you want to diligence and (de-) validate this further, hit me up - I’d love to help find out.
The first thing a great founder should diligence: Is this a buy-ready market today? If yes, this could be massive. If not, it might be just a thesis.