Bull or Bear? Construction is all BULL!

Two weeks into 2018 and the stock markets all around the world are setting record highs on a daily basis. Anyone monitoring his or her 401K has something to cheer about and there’s going to be plenty more to come. This is not just my opinion, but also those of the highly respected economists from Harvard, Yale and JP Morgan/Chase.

As for the construction market, anyone that survived the frantic pace of 2017 know all too well that the pace of project execution is accelerating and opportunities for 2018 are even greater. No longer do you hear of companies struggling to find work, now they are selecting the work they want to do. The other thing I’m hearing is the projects being taken are at premium prices. Companies are choosing to do projects with only their best and most loyal customers, people they can trust. What a capitalistic environment we are in!

So how do you prepare for what’s to come in 2018? Before I suggest what you should be getting ready for, first a few facts that are required to frame up the big picture.

  • 2018 GDP Growth forecast is a conservative 2.5%, expectations are 3%
  • The last 3 quarters reported a growth rate of 3% or greater
  • Unemployment is at historic lows, 3.9% nationally for 2018
  • Inflation expected to rise to 1.9% from 1.7% in 2017
  • US Manufacturing will increase 2.8% in 2018
  • Over 600,000 unfilled high paying manufacturing jobs exist TODAY
  • Prime interest rates will rise to 2.1% from 1.5%
  • Raw material costs are going to rise (Oil, Steel, Plastics, Cement, etc)

With high paying projects on the schedule for the year and competent workers alreScreen Shot 2018-01-14 at 3.57.15 PMady stretched and few prospects on the bench, you should be thinking unlike you have ever thought before. This economy is nothing like we’ve seen in the past two decades. Only those willing to innovate and change their delivery model will capture the sweetest fruits and be more profitable. Here are a few suggestions that are part of the recipe for success in this new environment.

Partnering

If you haven’t already partnered with other businesses that can fill the gaps in your organization, its not to late. Finding companies that can compliment your organizations talents is how to improve efficiency and keep your overworked talented employees happy. Where are the areas you lack resources or skills to get the job done faster and less expensive? Maybe outsourcing some of the tasks to other specialized companies will reduce your overall time and costs for the project.

Plan Ahead

No longer can you rely on last minute ordering of materials or on the fly engineering. Your projects have to be pre-engineered, well planned and executed like a well-oiled machine. Getting and staying ahead of other contractors that are not doing these things will reduce project stresses and potential revenue losses that are attributed to dependent tasks during construction. Find ways to finance your equipment needs and get paid in a timely manner.

Innovation & Disruption

Set the new standard and be a leader! Change is hard and adopting this change throughout your organization is even harder. However, those that put in the hard work to improve on a company wide scale reap the rewards. I’ll use Space Age Electronics as an example, if our owners did not invest over $2 million in new fabrication equipment and build two new manufacturing facilities between 2015 – 2017 we would not have been able to keep up with the pace of our growth and that of our industry. Now we are capable to partner even with the largest customers and deliver high quality USA made products at a moments notice.  (video is available for your viewing pleasure at “Metal Forming at SAE”)

As for disrupting the industry, the time is perfect to be the front-runner in your markets with your customers. 10 years ago it was unheard of to find inexpensive technology that can put a company on the same playing field as the big manufacturers. With economical 3D printing, mass manufacturing techniques and specialized cell manufacturing, prices have fallen and now every company can take advantage of this progress if they are willing to change.

Watch Out – It’s bound to Happen

Statistics show and forecasts are predicting that manufacturing supply chains are going to get stretched in 2018-2019. This is largely attributed to projects that are taking advantage of cheap money (low interest rates) to get their projects completed and sold for good profits. You may have already seen price increases in the cost of doing business; gas, rents and construction supplies are rising.

Companies that can structure purchasing agreements and lock in prices for the coming year can hedge their bets at little or no expense to the overall project. For example, if you can forecast with a reasonable accuracy materials that will be needed for upcoming projects over the next 6-8 months, you can pre-order and have these items waiting for your release or have them released on a predetermined schedule.

Having this discipline to plan ahead can have product pre-fabricated and ready for site delivery and speedy installation. Saving logistical time to mobilize and execute the many repeated steps over and over for all your projects. Do it once at the beginning of the year and then adjust at the mid-point of the year. This exercise will force your project managers and purchasing managers to make sure they are ahead of the curve and not be faced with crucial equipment shortages when you need the material the most.

Floor Control Center Strb.Spkr.DoorWS 5_5_17

I know this information will be helpful to many, if there are any questions or support we can offer at Space Age Electronics don’t hesitate to call or email.

Best of luck with all your projects in 2018.

Mike Ventola, CFPS

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