Evolution 4.0: What is the future of healthy supply chains?

The lightning-fast rise and fall story of ConTech start-up Katerra has most commonly been retold as a cautionary story for industry disrupters. But, by focussing not on what the firm got wrong but what it got right, much can be gleaned about the future of construction supply chains.

Cost management and product ownership technologies are increasingly key to effective supply chain controls. One need look no further than the rise and fall of Katerra to realise this much. For the uninitiated, Katerra was a US ConTech start up that raised, and subsequently burned through, US$3 billion in venture capital, before filing for bankruptcy last summer. Their Icarus story serves as an instructive lesson to others in the space.

It’s not surprising that the firm’s upward trajectory was so steep. Their USP was full ownership of the supply chain, with products manufactured to fit their standards. Anyone who’d ever been forced to shoehorn an ill-fitting construction product into use could see that they were on to something.

So, were they modern-day Henry Fords, updating their ‘assembly line’ to drive down costs and increase production? What did they get so right to attract billions of early-phase investment dollars? And what can be learned from their eventual fall from grace?

It’s hard to ignore the suspicion that they had the right idea on the big picture. They identified a genuine problem: ultra-diverse construction supply chains don’t always work for the end-user. When managing manufacturers, even minor changes to the details of the project can have severe knock-on effects in the supply chain. When specs for other items are changed, multiple suppliers can be disrupted, and onsite information can become confused and unclear.

By owning the production and supply of goods, Katerra got several things right:

• They knew quality, speed-to-market and innovation sat at the core of what they did;
• They developed products in-house that were competitive with market-leading manufacturers;
• They proved they could rationalise the supply chain without sacrificing quality;
• They cut lead times by producing products in their territory (North America) instead of overseas;
• They used their IT systems to learn from each project and refine onsite processes.

Think about it this way: when you shop for a new car, you may wish to make some customisations. Be it the interior decor, paint colour or wheels, the idea is to build a car that reflects your sense of style and personality. Now imagine that you’re buying a new home or building a new office. Customer experience with the supply chain should run the same way. If the executives want the high-end taps, no problem. Want the panels outside to match your brand colour and identity? Easy. By owning their supply chain, Katerra reduced the time taken by site managers and design coordinators that would otherwise have been spent scouring product catalogues for on-spec items. And when it came to customer service, Katerra delivered for their clients.

All of which begs the question: how and why did it go wrong?

Well, with the benefit of hindsight, it’s easy to pinpoint the problem. The company took on all the risk themselves, in order to gain control over product pricing, manufacture and management. And even as industry disruptors, they were unable to forecast or survive the disruption caused by COVID-19. Ultimately, when it came to their appetite for risk, their eyes were bigger than their bellies. That, combined to the sheer unpredictability of macro-events, saw their meteoric rise become a crash and burn demise. Even still, some companies in the UK are trying to adopt their model on customisation – albeit without attempting to take ownership of the entire supply chain. Imitation, as the saying goes, is the sincerest form of flattery.

While Katerra discovered state-by-state regulatory codes meant there is no one-size-fits-all solution when it comes to modular offsite, they did tap into a growing trend. Large companies are already buying-up offsite manufacturers; the modular construction revolution seems to be ripening. Any firm adopting supply chain management technologies can expedite completion times through access to up-to-the-minute data, which facilitates better decision making.

It’s not unfathomable that a Katerra-like disruptor will eventually come to own this space. Housebuilders with the ability to combine traditional and modern methods of construction could invest in small factories. They could manufacture products according to their specific needs, before expanding into product ownership and distribution. Or they could build great supply chains that more closely align with proactive health and safety, or sustainability concerns – driving down costs as they go. The winners will be better able to manage project risk and safeguard against cost fluctuations. And they won’t need to brief across stages of the construction project, as the information will be readily, openly accessible. But none of this can be achieved without making better connections between the individual links on the chain.