Jeff Houtz has spent decades in the construction supply chain, and has seen it evolve from simple purchasing to more a strategic function. Jeff explains the complexities of balancing total cost with simple price, but also how data can truly change how we think of supply chains in construction.
Hugh Seaton: [00:00:00] Welcome to the constructive futures podcast. Today, I'm here with Jeff Houtz founder of Constructing Supply Change a consultancy focused on construction supply chains as the name might imply. , Jeff. Welcome to the podcast.
Excellent. Jeff, let's talk, let's start with what you do. That's an intriguing name and it's an amazing topic that I'm quite interested in. So I'd love to hear what you, what you're up to.
Jeff Houtz: [00:00:26] Thanks. So I have had a supply chain and material management and procurement career. So over 30 years now, and last year launched a consultancy. As you just mentioned centered around modern elevation and amplification of what supply chain can be to capital projects in construction.
My background is in large engineering, procurement and construction contracting. Think of refineries, think power plants, mining projects, et cetera. But I'm now serving various clients through this consultancy focused a lot, primarily Hugh, on data, on the role of material and supply chain data, analytics, modern work processes that are much more than just purchasing and procurement and thinking about the entire supply chain cradle to grave, end to end.
So that's, that's where our focus lies now.
Hugh Seaton: [00:01:22] That's very cool. Let's start with, I want to make sure we mention that you spent a bunch of years at a really big company. Let's talk a little bit about the arc within that company, who they were.
Jeff Houtz: [00:01:34] So I, I did, I was just shy 30 years with Fluor corporation, which is one of the global major EPC contractors.
And I worked on projects as well as roles worldwide across some, several business lines. I mentioned, I mentioned them almost all of them included, even government services and construction services field material management. Across oil and gas, energy and the others. So that was my background and where I learned the craft again, field buying and learning how to buy really well, excuse me, in that really led to, in my mind, understanding the evolution of the supply chain function of what it was decades ago, being really all about back office, project support.
And generating and spewing out purchase order numbers and buying things and not knowing what happened after, after that work process really evolving which I've seen in my career, evolving from that to a much more all encompassing sort of strategy participator. That supply chain has become the, world's seen much talk about COVID related supply chain transparency issues solving big problems relating to global supply disruptions, et cetera.
So I think we're at a great time, in the world right now, Hugh to ride on the coattails of the COVID disruption and understand the full effect and benefit supply chain can bring, especially to the construction game, especially to the big capital project sphere.
Hugh Seaton: [00:03:15] So there's so much in what you're saying that I want to pick some of it apart and kind of dive in one of them is that when things are a crisis, what's the oldest depression never waste a good crisis.
In this case, you know, supply chains really did get across the economy, really did get impacted and it made people ask questions about, where would they get materials where they get sub-assemblies, where you get different pieces and do they need to be quite, you know, so cost driven versus you know, the liability driven versus being available versus, you know, resilience, I think is the word you hear a lot of, talk to me a little bit about how you see, how you see that picture.
Jeff Houtz: [00:03:56] The trend, at least I can speak to my background of course, too, but I couldn't get across the industries, the trend had been for the last 10 to 15 years toward low cost country sourcing for many or most industries even think, even think Walmart and every other industry has gone to Asia or primarily Asia, to find lower priced goods and services.
Certainly in my background, in, in that kind of contracting, that was a shift over the years when I began, none of our clients would accept manufactured goods from outside of North America, Western Europe. And that was even a clause in many early POs. And then as the years went on, we began and our clients began accepting for the sake of the money savings, accepting goods from many other places.
Certainly China, certainly India, it evolved to Vietnam and the Philippines and, and that was done because of money. And in my view, certainly not efficiencies though sometimes you get both, it was really the focus being about money and that led to a lot of people in industry being concerned about: so if we've evolved to this place where we're outsourcing labor services, as well as finding our finished goods, what's the next step after today? What's the next China or the next Asia? And that's a valid concern I believe in construction is that's a never ending race to find the lowest initial price, which I believe is unhealthy.
I think there has to be a balance between price and cost. Or price and value that I think to your question, COVID and disruptions have made global supply chain rethink the initial push to save as much money as possible. Rethink that and take a step back, erring more toward a balance between cost, price, value.
Hugh Seaton: [00:06:15] So taking this in a broader managerial context, what happens is people try to abstract functions as much as they can to as few numbers as they can, because there's so much to look at. And I think when, when people take something a little bit for granted, they try to reduce it into as few numbers as possible. And what, in this case often just one which is cost and then things go wrong and you realize we've got to pay more attention. We need more numbers. We need more dimensions to look at, and it sounds to me like it was already kind of happening because of some trade issues that had happened and just general, I think the evolution of business, but COVID really accelerated a rethink of how many dimensions we look at when you think about supply chain. Does that sound like something that you've seen? And if so, let's talk a little bit about what you think those dimensions are.
Jeff Houtz: [00:07:08] Thanks. I think in my mind, response to that question, I think about what complete and proper bid evaluations can look like.
Hugh Seaton: [00:07:18] That is cool.
Jeff Houtz: [00:07:19] And I, I really, you know, it's not rocket science, anything I'm saying, but the concept of having an evaluation truly be all about partnering with a supplier to really understand the options and then factoring in all of the soft things. Right. It's not just the money. It's not just the delivery lead time.
It's not just being in compliance with specifications. It's... what about value engineering? What about the supplier helping the buyer to maybe craft a new idea about what they could be supplying. How about all those other soft factors? Like the cost of quality? Help you get to understanding your decision a little better is you will, you will maybe weight one factor over another, if you investigate it more fully, instead of just having there be a bottom line price for all the soft stuff out the window, your client doesn't care about that. They just talk about money. That's not a full evaluation. That's not a well thought out. Proactive approach to to collaboration at all.
Hugh Seaton: [00:08:23] You remind me a little bit of something called the challenger sale. And this comes from research that was done like 15 years ago or more by the corporate executive board where they looked at, I don't know, 20,000 salespeople, I believe it was. And they interviewed all of them and, well surveyed them and asked them what was most important and what came out as most important wasn't that someone's a good, a good you know, technical person or that they're a relationship person. What actually, that they would bring the knowledge they had their domain, whether it was windows or whether it was shoes or whatever. And they would bring that in almost as a consultant for their client and said, look, listen, "Obviously, you know retail in a way that I don't, you know, buildings in a way that I don't but I really understand this sliver of your business.
And let me tell you what you don't know about how you can do a better job. Again, only in the sliver of what I'm talking about. So you think about that in terms of what you said, evaluating and partnering really with the suppliers, you start to get hopefully some of their viewpoints on how the way you use their products or the way you organize things can be more efficient, more effective, you know, better long-term however, it might be. That's an exciting idea. I'm not sure all of the suppliers are interested in it, but it, but that dynamic is really powerful.
Jeff Houtz: [00:09:40] I think, I think we both might be surprised at just how much suppliers are interested in, in helping buyers of all kinds to understand more options, how to how to help the buyer to become the expert in what's getting sold because the suppliers are the experts at what's getting sold. It's their R and D that makes the products better. It's it's my experience that while we've erred away or, or shifted away from supplier alliancing and collaboration over the years.
There's still a lot of it happens, but less than I had seen in my past. I think even these disruptions that we were talking about are already beginning to make supplier alliancing, collaboration, value engineering, et cetera, more than it's been in the last five or eight or 10 years. And I love that.
I love it because if, if the designers, the engineers, the buyers, the clients are only focused on initial PO value and spend, the suppliers, in my experience, are very willing to come in early and talk about the project, talk about the design.
It's the buyers or the engineers side of the table that's unwilling to accept that offer of help... much of the time. I love that I'm beginning to see, and people are telling me, the trend is more toward, let's get back to 10, 20, 30 years ago when work process improvements and collaborative improvements could be more the norm. And and so that's another by-product of maybe bringing some of that spend back home, closer to the job site, than searching the world for the lowest price you can find.
Cause anybody can find a lower price. Anytime they wish that is a given in, in this industry, in any supply chain you can always find a lower price, but you don't get much besides the savings or you get nothing besides the savings. But a lot of suppliers are very willing to participate, even for free to try to help it become the best, the best supply that they can can do.
Hugh Seaton: [00:11:57] I wonder if some of that is the, the engineers and, and/ or the specifiers or the architects, not necessarily wanting to put the man-hours into it. And, and it isn't all the way, their fault. We've seen other, other areas or other ways where, you know, people don't want to switch suppliers because they already know how a given supplier's product performs, and it's not nothing untoward about it. It's just, that's that's X number of man hours that aren't, that don't need to be spent learning something new, and that can be booked on something else. Do you think that dynamic drives this lot?
Jeff Houtz: [00:12:29] Yes, I do very much. Even in the engagements that I've had with CSC construction, supply chain so far, what's really bourne that out is the inefficiencies we're used to having people are willing to put up with because the unknown of change as well, to your point, having to spend time and money and effort to make a change. People are more willing to put up with the, the bad situation, the inefficiencies that they, that they currently live in as a normal versus the unknown of a change.
I've interviewed a lot of companies in the last two, three months as part of a research project. We saw that on most of the conversations was, yeah, we know it's not great, but that's okay. And I've just seen him want to just reach out and choke somebody and just go "come on! We can make this better." And and so we fight, we fight against that that stubbornness of not wanting to invest a little bit in something that could be much, much better.
Hugh Seaton: [00:13:34] Well, I think this comes down to who benefits. Right. And, and I think the, the issue is if everyone is aligned to a short-term benefit or payoff then nobody's thinking about the longer term benefit and payoff. And you know what I mean? Like th the timeframes might be not as aligned as they could be where the person specifying is maybe not thinking as hard about constructability.
And the person who's then sending back a submittal, that's saying, well, this is easier to install or whatever has absolutely no interest in how easy it is to maintain or to power or to supply whatever it, depending on what the thing is, you know what I mean? Like, and at the end of the day, this is some of this has to be driven by owners who have the sophistication, which some absolutely do.
Jeff Houtz: [00:14:19] So I'm sure you've talked about this with other people too Hugh, but it's inherent to this project slash construction industry. I don't care what, what business line or whatever, but any part of this, this is about projects. Whether you're building a high rise or oil refinery, it's a project. So improvements brought about by one project, rarely find a home in the next project.
It's sort of an inherent problem that we deal with and the companies like my former company, like, like any big firm might try to drive them for all of their projects, but a lot of the times they fail to make it to the second project, those changes and improvements.
Hugh Seaton: [00:15:00] Yeah, so I saw an analogous issue where there's a company who talked a little bit about their application of Procore across all of their projects. And I they're a mid- Atlantic GC, but the point is that the guy who led the process of instituting you know, they basically said, look, we're using Procore, but the data coming in from different projects is different and we can't aggregate it into a dashboard. So go out there and get everyone to do it the same way it took them 18 months. So I think one of the issues that you're taking the learning from one to the next is by the time the person who had learned that lesson hears about it, they spent 25 years solving problems, figuring it out on their own, really being, this is there's a sense of I'll figure it out and kind of joy in solving problems that I think is one of the cool parts of construction.
But the downside of that is, is that sometimes at least people know how to do things and more to the point, they sense the risk, they understand the risk of their approach, and they may not understand it of another one. And I think that both of those two, the fact that you've got folks who got a couple of decades experience and really, you know, are commanding an army of people.
They all have their own opinions, but it makes them a little bit prone to the, the way they did it last time. And it's not a stupid response. It's a, it's a response that you can understand the pressures that are driving that. And again, the fact that you've got, you know, a hundred or 200 people moving around, all of them kind of going in their own trajectory makes you want to make, want to keep the story as simple as possible so that you can have them all reading from thesame sheet of music as the same.
Jeff Houtz: [00:16:46] You know, and that we're riding and experiencing a big wave now. And then you, you wrote about this in your book, the Construction Technology Handbook and you call out Procore and Autodesk and the things that are happening now that are just almost a whirlwind of attention to solve this problem that's inherent to the projects industry, is all this disparate data that's sitting there in silos and nobody can integrate anything, and yada yada. Well, even in like the I'll call it the process plant business, like I had, I had been in for so long too, Procore and tools like that, and I've talked to Procore, a few months ago I was talking this through with them.Material management and material data isn't as important to the GC industrial commercial world, because the goods getting bought are easier to find. They don't take two years to build a really big custom process stuff like I, I experienced.
So while, while material management is a part of those systems and it is, and don't get me wrong and it works great. And Procore has made such great strides and Autodesk and others about being a common platform for all of this really important data and visualization and analytics and all of that.
Well, there's also a lot of work being done on the process plants side and Hexagon Intergraph is pretty much the leading platform for being sort of a, all of that, even to the process plant industry. But nobody's done it perfectly across all construction across all businesses. It doesn't exist yet, but boy, is there a lot of attention being paid to it now?
It's pretty hard to keep up with how these efforts are similar and different from one another. But we're in a good wave right now because the attention is on it and we'll all be better for it so that we can use all this data that's sort of been sitting there unused.
Hugh Seaton: [00:18:41] Yeah. I look at the wave right now as you're digitizing paperwork flows, which manufacturing really did in the nineties.
And it was, we were lucky because what manufacturing went through is brutal because there was SAP and some of these other big, really, really big software platforms that, that enforced changes of process they made you do with the SAP way, because that's the only way their software worked, which obviously wouldn't have gotten very far in construction, but also modern software should be better. It's just 20, 30 years on.
But I think that that where I'm going with this is it's only a step it's not as solution or there isn't really a solution. It's just that evolution and continually getting better. But I think we're where we'll see ourselves is once we've got things digitized and you've worked the inevitable kinks out, and again, that, that, that mid market GC they, they really got a lot out of it. What wound up happening is the next level. It's not just that you can document RFIs better, which is of course important. It's not just the change orders. You win, you kind of win more arguments because you've got better documentation.
That's absolutely important. What they got to is a place where, senior management could more or less real-time understand how well a project is going and send resources to ones that aren't going well. You think about this in terms of where you are with supply chain, where I don't think it's as digitized, at least on the, on the consumer, on the, on the construction company end..
But you could imagine in time the same thing starting to happen, where as it gets digitized and as information gets into a format where people can look at it. They're able to manage their resources a lot better than they are right now, where they over order and have stacks of surplus products and surplus material, which is God forbid, someone has to sit there and not do anything.
Jeff Houtz: [00:20:35] Yeah, I I think of analytics and I, and I know I'm no data scientist, I'm not, but I understand the the value of that work. And so as I'm shooting for the stars and trying to get companies to get this about supply chain and the role we can play in using the data that is ours, material data. The flow of material data, the influence of that work process on constructions efficiencies.
We should be using data that exists today on big projects, especially, the bigger the projects, the more this is impactful, the predictive analytics that can be brought to bear, to say the effect of say the home office or the design work and how things are getting bought. And in what order are they support work packaging at the job site can influence staffing decisions.
Of course engineering workflow and change occurrence change rate occurrence to design changes the effect that will have on the order of construction at a job site. That's data Hugh that's data we already have and have had for years, but we're not feeding it into any analytics. Once I realized that predictive analytics are already built into inexpensive tools that you and I can go get off the cloud today.
Then it sort of made my eyes open and I go, we can actually do this with the data that we have and sits in our reference tool and nobody ever does anything except wanting to know "when's most of showing up at the job site", but not what the effect of that or the health of that is. This is today and you don't need a bunch of expensive data scientists to do it necessarily, right.
Hugh Seaton: [00:22:19] That's a funny point you make is that I think. There, there needs, there is a need for more realization of how powerful off the shelf tools can be and how little you need to make them work for you. Obviously, if you want to build a new AI model, that's fine. You're going to, you know, and I think what people think AI is often is a little bit overblown, but getting power BI to plug into the data you already have, you know, to your point, you can get someone good at that to set it up for you so that you're seeing things and you know that person's going to have to maintain it and keep an eye on things and all that, but you don't need a PhD to do that. You need, you know, a university actually. Yeah. Let's say university degree in, in, you know, stats or, or being data science, but, but, you know, or get an MBA for that matter to, you know, do it for a year.
But, but I think. The cloud platforms, especially I'm a big fan of power BI and on, and a lot of people, obviously that's why Microsoft bought them, but it hooks in to a lot of documents. People already have pretty natively. So I really liked that point.
Jeff Houtz: [00:23:25] Well, it does, you know, Excel, our lovely Excel. It's still the ruler of data on most projects. And I think everybody, no matter the industry is going to admit that that's still true. And of course, that's, you know, Easily feeds power BI for visualization, but the extent to which Excel is the home of data, I think is huge. We have a project we studied not a year or two ago on a really big capital job that had 1.2 million separate XLS files as part of the project record. And you know, it's all about rev control. Let's you know, how do you even know if the, if the number is 32 in some spreadsheet, how do you even know if 32 is right. Because there's eight other revs that six other people worked on and it's just a big mess.
So, so anyway, that's a whole other subject is about the effect that has on quality, but it's, it's a massive, it's a massive beast, but I think uploads downloads are something that these tools are very, very used to doing and can even help with rev control, cause you can't do that within Excel by itself.
Hugh Seaton: [00:24:40] I want to summarize and shift gears a little bit, cause I want to summarize some of what we've talked about. And this is actually what we led with when we were doing our pregame, is this idea of rethinking what you source locally and why and what you source not so locally and why. This idea of kind of recalibrating near and far as we kind of get to the end of the discussion, I'd love to just, talk that through a little bit, how much are you seeing that and how do you think people should approach it?
Jeff Houtz: [00:25:08] Balance is the right word to start off with Hugh. Balance is healthy. Balance is healthy in anything in life, but trying to balance the savings that you can receive from low risk procurements, even if they're long fabrication cycles, that you can get a balance of low risk, versus knowing, or we'll say the, the art of knowing what you should be sourcing nearer to home, quote unquote projects big and small can benefit from spending more of that planning time that people are so unwilling to do really, but planning time to get really smart about finding that point at which you're, you're comfortable with where the balance stands. I think the best projects are going to do both things. And not that that's a new concept at all, but don't just err, on the side of money, which will lead you overseas for the sake of money, know where that sweet spot is. And we did that for structural steel is a pretty common thing that we would know what scope was going to be near the site and know what scope we could get away with overseas fabricating.
And in the end, the project benefits from, from that, that analysis,
Hugh Seaton: [00:26:22] Are you seeing that that happen more and more? I mean, we've sort of talked about it, but I think I want to dive in a little bit more about know how and where you you're seeing this, this relook.
Jeff Houtz: [00:26:33] It's beginning from, from my, from my take.
And it is because of COVID having effected this re-look at the balance between cost and price. But I think it's beginning pretty dramatically. Nobody knows where the next China will be. And that's, you know, I Googled it that the next China the other day, and there's all kinds of stuff on the internet about that hypothesis, presumably right.
People do talk about Africa, you know, 10 years from now, we're going to borrow our steel from some African country, maybe so, but, but, you know, knowing that that's okay. This is a global economy. You know, I've traveled the world too, most listen to this and we are a global economy. And just saying, if you're Canadian buy Canadian, if your US buy US isn't really the right answer either because the best companies and projects will get creative and study this and study what's best for them and not just have this same old answer every time is just by US or just by overseas. Cause that's really shortsighted.
Hugh Seaton: [00:27:41] Jeff. This has been really cool. I've taken more notes in this than I, than I do in most. So I want to thank you for a really revealing look at the supply chain.
Thanks for your time.
Jeff Houtz: [00:27:51] Thank you. I appreciate the chance very much to participate.