Addressing Rising Lumber Prices

stack of lumber

A case for smarter building material sourcing.


Summary

In recent months the price of softwood lumber has skyrocketed more than 30 percent, adding pressure to a building market already challenged by labor productivity issues and cost overruns. Builders face a difficult choice: pass the added costs onto customers, cut costs by choosing lower quality materials and/or reducing product offerings, delay projects indefinitely while monitoring prices, or cancel projects altogether.

The unprecedented rise in construction materials costs, including softwood lumber, steel and concrete, due in large part to new import tariffs, underscores how conventional buying of building materials leaves developers exposed to unnecessary risk. Katerra’s innovative, end-to-end construction process, which offers a fixed price per project for materials in advance, provides developers increased project certainty and competitiveness.

The Status Quo: Inefficient and Risky

According to McKinsey Global Institute, because of inefficiencies in today’s construction procurement and supply-chain practices, companies can overpay by up to 15 percent for materials and services, while poor supply-chain management typically accounts for 10 to 30 percent of cost and time overruns. In multi-family construction, a market where Katerra is largely focused, a rule of thumb is that over half a building’s cost is materials; therefore, managing the supply chain is as critical as optimizing labor. 

In the current construction model, contractors make local material purchase decisions, based on specifications from licensed design professionals. This one-off approach is inefficient because it always results in less purchasing power for the buyer.

Once a project is planned and costs are budgeted, invariably unforeseen expenses arise and are accounted for by contingency fees, which are typically charged upfront above the quoted rate, or change orders, which are ultimately passed on to the buyer. If builders cannot pass on those cost increases, it pushes them to look for lower-priced alternatives at the risk of sacrificing quality and customer satisfaction.

“Katerra’s approach is grounded in the development of a revolutionary end-to-end software solution – one that encompasses site selection and configuration, building design, optimization for manufacturing, price quoting, and project tracking from concept through completion.”

The Katerra Model: End-to-End Building Services

Katerra has introduced an entirely new model for construction, which integrates expertise in development, design, technology, material sourcing, manufacturing and construction, within a single offering to deliver superior, fully-componentized, energy efficient buildings. Katerra applies a systems approach to remove unnecessary time and cost from building development, design and construction, to dramatically improve productivity and enhance value.

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