In a construction contracting business, where margins are typically less than 5%, it’s essential to maintain tight control of anything that wastes money.
Some areas where waste can occur include poorly executed procurement, inefficient scheduling and improper management of labour & materials. Not so obvious maybe are those processes that waste time, which increases financial risk and reduces the chance of turning a profit.
This is certainly true of supply chain management, where contractors may be procuring materials and services from thousands of suppliers and sub-contractors. In fact, it has been calculated that the products and services provided by the companies in a construction project’s supply chain typically account for about 80% of the cost of the project.
Therefore, the procurement and management of these products and services can have a significant impact on the project’s profitability.
Areas of potential inefficiency
During the course of a construction project, the breadth and complexity of the supply chain may mean that the contractor is managing potentially tens of thousands of documents. Across several large projects this could mean that the company as a whole is dealing with millions of transactions.
Each of these transactions with a supplier or sub-contractor has the potential to waste time and money if improperly managed.
The following are just a few examples where such waste can occur:
- Disjointed and highly manual processes for managing the 2 or 3-way matching process
- Managing information from supply chain partners in a wide range of different formats, including paper of different sizes, PDF and data files
- The necessity to archive the transaction information for auditing and HMRC purposes
- Time required to find archived information
- Time required to deal with invoice queries
- The need for members of staff to re-key information from invoices into back office systems
- Disjointed purchasing processes that include requisitions by phone, email and paper
- Disjointed manual issuing of purchase orders e.g. by post, email or transfer of data files between systems
In addition, these vast volumes of data in a wide range of formats make it very difficult to access timely and meaningful information that could be vital to efficient cost management as the project proceeds.
An alternative to the wasteful processes described above is to implement electronic trading (e-Invoicing), where trading documents are exchanged electronically and matched automatically. As well as creating a smooth, efficient workflow throughout the transaction processes, this also facilitates visibility of the key financial data that is required to maintain tight control of cash flow and predict future commitments.
In selecting an e-Invoicing system (and e-Invoicing partner) there are a number of questions that should be asked.
Does the e-Invoicing solution allow automated matching of invoices to POs and/or goods receipts, eliminating the need for manual matching? It should also support multiple input methods from suppliers with a single output method to the contractor’s back office system.
Does the system produce e-requisitions from hosted, priced supplier catalogues so that data feeds and descriptions are consistent to improve matching during the invoicing and import process?
Does the system enable automated electronic storage of documents, processed both within the e-Invoicing solution and/or as PDF documents stored in the contractor’s document management system?
Ease of implementation
Will the chosen solution integrate with your own back office finance system so that automated validation can be used to streamline the entire trading process and provide a live feed of transaction data? This will also help to ensure that the information required for cash flow forecasting is accurate and readily available.
Getting the supply chain on board
Does the system make it easy for suppliers to connect? The typical supply chain for a construction project encompasses companies of very different sizes and with a diverse range of IT resources. The benefits your own company enjoys will be proportional to the number of suppliers and sub-contractors you get on board; it is therefore important to ensure that the e-Invoicing solution is easy to adopt with a number of different connection options.
In this respect, will the chosen supplier provide a full onboarding service that includes full project planning, professional services and a dedicated connection manager?
Integration with other hubs
Some of your suppliers will probably be using a different electronic trading platform so rather than expecting them to change, or operate with two platforms, will your chosen solution integrate with other commonly used systems?
Meeting your requirements
The construction industry is unique, with many particular requirements that are not found in other market sectors. Does your e-Invoicing partner understand the construction industry and have a proven track record of working with contractors?
The Tradex e-Invoicing solution
The Tradex e-Invoicing platform hosts the largest business trading community in the UK construction sector, with more than 35,000 companies trading 5.5 million electronic documents per year. It is flexible and easy to deploy and delivers significant cost reductions as well as underpinning efficient management of transaction data.