The Australian construction industry is facing many challenges right now. If it’s not global supply chain disruptions, it’s adverse weather conditions, staff shortages and rising costs.
The good news — there is something you can start doing today to keep moving forward. And that’s to use the power of data.
KPMG looks at how the mid-market construction industry can face challenges head-on by leveraging the power of data.
Four major challenges facing the construction industry
Profit growth has stalled in the construction sector despite solid performance elsewhere in the economy. Insolvencies in the sector have tripled this year and we’ve identified four key reasons:
1. Shortage of skilled labour
- The national unemployment rate is at the lowest it’s been in years. There are more than 30,000 job vacancies in the construction industry.
- Attracting and retaining talent is a struggle for many mid-market businesses. Wages in construction rose 1.4 percent in Q2 alone (double the national average).
- While migration to Australia is slowly picking up, net arrivals are still about half their pre-Covid-19 level.
2. Rising costs
- The cost of raw materials is going up and energy inflation is skyrocketing. This is partly due to the ongoing lockdowns in China and the conflict in Ukraine.
- In the last year, timber prices have risen by more than 24 percent and steel products are up by 39 percent.
- Given the energy intensity of construction work, the surge in electricity, gas and oil prices are also adding to costs.
- The prevalence of fixed-cost pricing in the construction industry, coupled with the increase in the pace of rising costs is affecting business profitability.
3. Supply chain disruptions
- Supply chain disruptions and limited availability of materials and labour have caused project delivery timelines to blow out.
- The total value of work started, but not completed, has risen 45 percent since the start of 2021.
- Non-residential work yet to be completed is up by around 40 percent since 2021 and the residential construction backlog is up by nearly 50 percent.
- There are also delays in public infrastructure – around one quarter of the New South Wales Government’s 2022 planned work has been pushed out to 2023 because contractors are unable to meet original timings.
- Easing demand and rebounding migration should eventually reduce constraints. But, given the huge backlog of vacancies and work to be done, the construction sector is unlikely to feel any relief soon.
1. Shortage of skilled labour
The lack of timely and effective data controls, or a single source of truth, can lead to private businesses facing additional pressure, like:
- poor visibility, timeliness, and accuracy of project profitability
- impersonal customer and stakeholder experiences
- delinked supplier and sub-contractor ecosystems
- lack of real-time supply chain transparency
- under-utilised assets and a skilled workforce putting energy into unprofitable activities.
How leveraging data can help solve these challenges
To navigate this complex environment effectively, mid-market construction companies need to gain better visibility across the value chain by improving their data capabilities.
Key benefits
Access data driven insights within the business
Delving into the data around your business’ cost levers will help you find opportunities to optimise.
Take a portfolio view of projects to establish tighter controls
You can use data to understand the performance across your success factors, allowing you to identify dependencies and effectively plan for your future.
Improve your tender responses and marketing
Accessing insights from your data will give you key information to support your marketing and sales efforts.
Get better visibility across the supply chain
By connecting all your data points for a single source of truth, you will be able to identify potential issues before they arise and take corrective action.
How we can help
The combination of our economists, advisory practice, and business-first approach to data will provide you with the insights your business needs, to support your journey to market leader. We can help you navigate the current market and understand fundamental demand and market forecasts to remain resilient in the face of challenges, while being proactive about future costs and uncertainty.
