Why E-Commerce Has Gotten a Slow Start in the Construction Industry

Over the past few years, a lot of hoopla has surrounded the concept of online purchase of building and construction materials. The benefits seem obvious: lower costs, better management of the process and more efficient delivery to name a few.

But before you go throwing all your money into the next construction-related e-commerce IPO, a word of caution: The procurement process for the U.S. construction industry is far more complex than that of virtually any other industry. Those complexities make the full implementation of online product procurement within this industry difficult at best.

Online procurement is - at its most basic level - simply a form of distance buying. The Internet is certainly an enabler that can improve the process. But, if you look at industries and consumer-product categories where online procurement is taking hold, most had solid models for distance buying in the pre-digital age. The same barriers that kept the construction industry from adopting distance buying before the Internet era will slow the industry's adaptation to online procurement as the Internet continues to make inroads in other industries.

The specification process

To understand why online procurement has been slow to take hold in the construction arena, it is important to understand the paradigm under which the industry operates. Specifications drive the construction process, particularly on the commercial side of the house. An architect or an engineer writes a specification, and from that document, a contractor or subcontractor selects and purchases products.

If the specification simply said, "give me a wood window," the process of converting to online procurement could be relatively easy. But, by necessity, specifications must contain far more detail, and that detail is where the difficulties begin.

It's one thing to get a listing of all the manufacturers of wood windows; dozens of web sites and publications provide that information. It's a much greater challenge to determine all the manufacturers who make a product that meets a particular set of specifications, or even which product in a selected group of manufacturers' lines meet the specs. CSI-formatted specifications and other types of formatted product data listings provide a start, but converting this information into data that can be used by multiple applications and can ultimately drive the e-commerce process is a much bigger challenge.

The problem lies mainly in definitions. To date, no one has come up with a universally accepted means of classifying detailed product information. Each manufacturer has its own system, and often the formats do not translate easily into a database structure.

Transactionable data

Without this underlying schema, building a detailed database of building products is impossible. And without that database, true e-commerce that crosses multiple product categories, multiple manufacturers and multiple vendors cannot happen.

Note that this is different from a single manufacturer or retailer coming up with an internal schema that works for its own set of products and processes. Many have done this today, and thus, you can buy from their catalogs online. But unless design professionals are willing to create tools that can parse information out of specifications and other construction documents and convert it to each of these proprietary systems, broad-based e-commerce within the construction arena will be limited.

In order for e-commerce to get a foothold in the construction industry, the industry as a whole must accept a universal way of defining product information that is capable of defining products at a transactionable level. Industry groups like the International Alliance for Interoperability, through its Industry Foundation Classes and its aecXML initiatives, offer some promise. Private initiatives may offer a solution, as well, particularly given the need to be able to respond rapidly to changing needs.

Ultimately, these systems may allow users to extract quantity takeoffs from a set of drawings and submit bids at the click of a button. But we are a long way off from that kind of functionality.

Changes in processes

Perhaps an even greater challenge is that moving the construction industry toward online procurement will require a significant shift in the model by which most contractors - particularly small contractors - do business.

The underlying assumption is that contractors do not derive any value from the current system. In fact, many subcontractors gain significant intangible benefits from the daily interface with the person behind the counter at a local supply house, as well as through the interaction with colleagues and competitors they might meet there. It is difficult to replicate that kind of human interaction in an electronic environment.

Moreover, many subs purchase materials on a just-in-time basis. They derive no advantage from lining up the purchase ahead of time, and, in fact, they may lose flexibility in doing so. If the job is delayed, a small contractor certainly does not want to take delivery of inventory and carry the cost of those materials any longer than he has to.

On critical long-lead-time items, contractors probably are already working directly with the manufacturer, and the nature of these types of transactions suggests true e-commerce would add little value to the process.

To be sure, many larger subs - and perhaps a handful of the smaller ones - will benefit from online procurement. And many large owners are beginning to purchase some materials, particularly commodity items, themselves.

However, unless and until the benefits of online procurement outweigh the benefits of the current system - despite all its flaws - adaptation of online procurement in the construction industry will continue to be slow.

For more information, contact:
Paul Beck
Editorial Director

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