Coronavirus Impact on Construction

By Max Venuti, LEED® AP

As we move forward through these uncertain times, the overwhelming theme is to continue social distancing and follow the directives issued by State and Local governments. An updated executive order was issued by Governor Cuomo’s office this past Friday morning 3/27 at 9:15 am – Within the executive order, the importance of public safety protocol and the definition of “essential services” were further defined. We have come upon dangerous times indeed, and the need for us to follow actions mandated are essential to the speedy recovery of our human population and, of course, our way of life. Initially, I was going to devote my post to the potential impact on the supply chain, and still, I will be covering that topic. However, I felt it essential to include the executive order in my opening as this governs our business behavior and will have supply chain impactful consequences associated with it.

Fellow contractors and business partners are deeply concerned about the welfare of their workforce and the supply chain at large. Undoubtedly impacts will be felt, but to what degree remains an uncertainty. Dr. Fauci laid out our current situation in straightforward terms, “You don’t make the timeline; the virus makes the timeline.” As responsible neighbors, co-workers, and citizens, it is up to us all to observe the rules mandated by our State and Local governments. We must remain vigilant in protecting each other’s welfare; it’s the only way we can give the medical professionals a fighting chance to treat the sick, as our scientists relentlessly work toward a cure.

I recently read an article written by James B. Rice, Jr., deputy director of the MIT Center for Transportation & Logistics. The material is entitled, “Prepare Your Supply Chain for Coronavirus,” and was included in the Operations Management section of the Harvard Business Review, February 27, 2020. In the interest of brevity and relevance to the construction industry, I boiled down Mr. Rice’s work to hit the key points. I believe the following synopsis offers a logical approach to preparing business leaders to formulate a strategy to deal with the uncertainty ahead.

What We Can Do Now

Start with our people: The people that work for us are a critical resource; therefore, the welfare of the employee is paramount. We have had to rethink typical work practices as non-essential employees now may work remotely from their homes. Essential workers will continue to manage their roles in the office. Similarly, essential trade workers will continue to cover their positions in the field under new health and safety protocols.

Maintain a healthy skepticism: Accurate information is a rare commodity in the early stages of emerging disasters, especially when governments are incentivized to keep the population and business community calm to avoid panic. Impact reports tend to be somewhat rose-tinted. However, local people can be a valuable and more reliable source of information, so try to maintain local contacts.

Run outage scenarios to assess the possibility of unforeseen impacts: Expect the unexpected, especially when core suppliers are in the front line of disruptions. In the case of the coronavirus crisis, China’s influence is so wide-ranging that there will almost inevitably be unexpected consequences. Inventory levels are not high enough to cover short-term material outages, so expect widespread runs on common core components and materials.

Designing for Response

Know all of our suppliers: We must map our upstream suppliers several tiers back. Failing to do this will make us less able to respond or estimate likely impacts when a crisis erupts. Similarly, we must develop relationships in advance with critical resources before the disruption has fully erupted. The coronavirus story will undoubtedly add to our knowledge about dealing with large-scale supply chain disruptions. Even at this relatively early stage, we can draw valuable lessons about managing crises of this nature that should be applied down the road.

Create business continuity plans: Our plans should pinpoint contingencies in critical areas and include backup plans for transportation, communications, supply, and cash flow. We must involve our suppliers and customers in developing these plans.

Don’t forget our people: A backup plan is needed for our people too. The plan may include contingencies for more automation, remote-working arrangements, or other flexible human resourcing in response to personnel constraints.

Revisit Your Supply Chain’s Design

Redesign with second sources: This supply-chain design provides backup capacity for supply, production, and distribution outages. The backup capacity spreads the risk of disruption across two sources (as long as the disruption does not also affect the second source location). Consequently, it is better to have a second source outside the primary source region. Although this supply chain design lowers risk levels, it incurs higher administrative, quality monitoring, and unit costs. Also, economies of scale vary according to the amount of supply allocated to each supply source.

Redesign to source locally: This design calls for a company to have production facilities with local sources of supply in each of its major markets. Like the above option, it spreads the risk. Since these sources are dispersed, the economies of scale are lower, and the capital costs are higher, but the transportation costs are lower.

Consider: These are gross simplifications of many design options that our company can take to reduce risk and ensure response capacity. More detailed analysis and assessment will be necessary as we continue to move forward. Obviously, in selecting a design, we must weigh the costs of each and how it will affect their ability to serve our partners and compete against other firms. Deciding which model is optimal is not a one-time process. To remain successful, we must regularly revisit and challenge our design choices and the strategies that underpin them.

The epicenter of the current pandemic is roughly 300 miles from us. The hospitals are filling, and the health care professionals and first responders are overwhelmed. The coronavirus spread is increasing at an exponential rate. Without a doubt, we are frustrated in dealing with a crisis that has no immediate solution. The time frame and sacrifices we need to make to flatten the curve remain unknown to us. But, by faithfully doing our part, we can keep the spread under control. Scientists are reporting that within several months the stabilization of controllable treatment procedures can be reached. However, the development of the vaccine is still 12-18 months away. These are serious times, and how we make it through the other end is ultimately upon our shoulders. Let’s get through this together – best to you all, and be safe!

Max has returned to the Southern Tier with more than 30 years of experience in the construction industry and rejoins the Welliver team as Vice President, Business Development & Construction Services. He leads strategic initiatives for sales and client outreach, drives revenue, and works closely with clients across current market sectors as well as explores opportunities in additional project segments. Max is an accomplished construction professional with extensive knowledge of preconstruction, project development, and management. He can be reached at [email protected]