Construction E-Commerce: Need and Implementation Process

In this post, we discuss the advantages of E-Commerce in the Construction industry and now we are highlighting the need for change and how it can be adopted.

Introduction

The construction industry is the most important sector of the country’s economy and is considered to be a major player in making up the GDP. Its estimated annual turnover is around $36 Trillion that is 10% of the world’s economy but still, it has the lowest and variable profitability if compared to any other industry. Due to the low profitability, the industry spends a very minor portion on research and development for innovation and technology.

In-house research and development have fallen due to which the industry is lacking the adaptation of the latest ICT tools and processes. Similarly, the construction project has very limited use of ICT during the design and construction phase which ultimately leads to a less profitable project as most of the tasks are time-consuming. In a construction project, approx. 40-45% of the cost is typically for materials only, and selecting the construction material as per the client value system is a very complicated and time-consuming process due to the abundance of data. During the construction, the main concern of the material procurement process is to procure the right material at right time within a specified budget.

 

Need of E-Commerce in Construction

For the procurement of material clients, architects, engineers, suppliers, and contractors have to go through a complex network of communications in order to ensure the material selection process as per the client value system. The flow of information between all the parties is a time taking process and requires management for the bulk of documents. Due to the absence of automation and complicated communication, there is always a high chance of human error.

The communication process which is involved during the material selection and procurement is indirect and not real-time. There is a need for a system that can bring all stakeholders of the project into one single platform in which all the communication shall be directly between the concerned parties. The traditional material procurement process in a construction project usually starts with the award of the tender to the contractor.

After going through the contract documents, the contractor starts to search an abundant database to select the suppliers and to send out inquiries to different suppliers in order to obtain the best quotes for the materials which meet the project requirements. Once the quotations are received, they are reviewed by the procurement department to ensure that all the quotations are matching the project requirements. A comparison is done between different quotations on an apple to apple basis to ensure that all the suppliers are providing the same quality, units, and specifications which are as per the project.

Once the review is done the supplier is selected by the procurement department of the contractor which raises and issues the purchase order under the specified terms and conditions. The supplier on the other part once receives the purchase order, starts to arrange for the material delivery and the procurement department will begin to track the delivery via emails or calls. It is very essential to the construction project that the materials are delivered on time as there are many activities in a construction process that are based on the procurement of material. If the materials are not delivered on time it can lead to a delay in the project.

This whole process is time-consuming and involves a lot of communication between the parties. The flow of information is very high and there is a possibility of not providing the information at the same which can lead to a delay in the delivery of material. Libraries of all required documents need to be maintained as well in order to access the information when it’s needed. For the procurement of one product, there is an involvement of three departments of the contractors and the whole process is huge and unnecessary.

In this process, the site office raises a material requisition form to the buying department and saves a hard copy of the requisition in the site office. Likewise, when the buying department types out the purchasing order it is first sent to the accounts department which needs to be confirmed and examined, and then a copy of the receipt is filled in both the department. Once the buying department and account department approves the purchasing of the order it is sent to the supplier to prepare and dispatch the goods.

When the material is delivered on-site the material is inspected and once approved the supplier raises the invoice which first goes to the site office and then is transferred to the buying department and accounts department for releasing of the payment. The amount of paperwork required and the complicated communication leads to a possibility of making an additional human error which later on can result in the terms of cost.

Implementation Model of E-Commerce

Since construction material is complex in nature e-commerce systems require some extra modules to exactly meet the requests of the buyers. Figure 5 shows the different modules which are used in the E-commerce system. The first module is for bidding in which the buyer requests different suppliers to bid for a specific item that cannot be found in the E-Catalogue.

The second module is the requisition module in which the buyer chooses a product from E-catalogue and then requests the supplier for discounts or payment methods. The third module is the quotation module in which the buyer requests a quotation of the specific items for the project and suppliers provide the quotation for the product.

The modules in E-commerce meets the demands of the complex industry requirements as the material in the construction project are not simple in terms of specification. All the materials have different specifications and very little standardization exists between them.

Conclusion

the traditional methods of material procurement are very time-consuming and involve a lot of unnecessary communication which creates a chance of mistakes and delays due to the absence of automation.

The architects/clients/contractors spend most of the time organizing the obsolete and abundant databases to meet the requirements of the project. Additionally, due to the complexity of manual communication, which takes place from the order placing to order receiving, marks in greater usage of paper which is very difficult to handle and results in wastage of paper.

The libraries for the material which are to be procured are kept in a hard form that becomes obsolete rapidly and effortlessly due to evolving nature of the projects. All these issues reduce the profitability and increase the time for completion of the projects.