Do you have plans to start a new construction project this year? Are you looking for a general contractor to assist you? If so, consider partnering with a vertically integrated construction company when you begin searching for qualified contractors.
Not sure what this kind of business is or why vertical integration is so important?
In this blog, you’ll learn more about vertical integration and how it can benefit businesses in the construction industry.
What Is Vertical Integration?
Vertical integration is a business strategy that helps companies streamline their operations.
A vertically integrated company takes direct ownership of various stages of the production process instead of relying on external subcontractors and suppliers.
In other words, a business handles traditionally outsourced operations and brings them in-house.
Benefits of Vertical Integration in Construction
Why should you work with a vertically integrated general contractor for your next construction project?
The following are four of the most significant benefits this approach offers:
Benefit #1 of Vertical Integration in Construction: Reduced Costs
One of the top reasons why clients like working with vertical contractors is that it helps them reduce project costs.
When contractors save money, their clients can also save money.
By taking control of the supply chain and reducing costs and mark ups associated with multiple vendors, contractors can transfer those savings to their clients by offering lower prices.
Opportunities to save money are especially valuable, with a potential recession looming on the horizon in the coming year.
Here are some specific ways vertical integration can lead to increased savings for the contractor and the client:
Reduced Transaction Costs
When using vertical integration, contractors can reduce the transaction costs that occur throughout the construction process by reducing the number of work handoffs.
The vertical approach gives them the power to leverage the economies of scale related to the supply chain, particularly when consolidating the suppliers and vendors as part of the integrated process.
As Stephen R. Covey said, a vertical structure provides “one hand to shake or one throat to choke.” There is no ambiguity as to who is in charge and who makes all of the critical decisions on a job. All phases are represented by a single voice, in pursuit of a common goal. Better project coordination maximizes scheduling efficiencies and leads to more project transparency between the client and the contractor.
Vertical integration can also increase savings by preventing supply chain and project interruptions.
When contractors have more control over various aspects of the supply chain, they’re less likely to find themselves at the mercy of a supplier dealing with a materials shortage.
They will also be less likely to experience sharp decreases in supply and drastic increases in price that accompany growing demand.
Benefit #2 of Vertical Integration in Construction: Enhanced Knowledge and Quality Control
Clients who partner with vertical contractors will also benefit from the contractor’s increased knowledge of all elements of the construction process and their ability to provide superior quality control.
When contractors take ownership of multiple aspects of the supply chain, they gain more insight into various processes allowing for seamless transitions between project tasks.
They also have a deeper understanding of all the work that goes into carrying out projects for their clients.
This knowledge allows the contractor to manage the process and provide better results by reducing errors that can slow down project delivery.
When contractors have a better understanding of the supply chain and more control over the construction sequence, it’s easier for them to ensure quality work through all stages of the process.
This increased focus on quality control leads to better outcomes and increased customer satisfaction.
Benefit #3 of Vertical Integration in Construction: Increased Adaptability and Agility
In the face of adversity caused by economic downturns, environmental catastrophes such as hurricanes and earthquakes, or international health crises like Covid-19, vertically integrated companies often fare better than others. They’re far more agile and able to make real time operating adjustments within a critical time frame.
Listed below are some specific reasons for these outcomes:
Control Improves Adaptability
Vertically integrated companies naturally have an easier time adapting to necessary changes because they have more control over various supply chain elements.
Because they’re less dependent on subcontractors, it’s easier for vertical contractors to make decisions that reduce costs, prevent losses, and work best for their company (and their clients).
Control Leads to Faster Responses
Vertically integrated businesses often see better outcomes in adverse conditions because they can respond more quickly when the tides begin to take a negative turn.
Some companies may have to consult with several subs or other professionals before making decisions. However, a vertically integrated company can make unilateral decisions and get back on track faster.
This enhanced decision-making helps prevent interruptions that could interfere with project efficiency, lead to increased client costs, or hinder project quality.
Benefit #4 of Vertical Integration in Construction: Encourages Multicrafting and Multiskilling
When contractors rely on a vertically integrated approach, they encourage themselves and their team members to develop new skills and expand their understanding of various parts of the supply chain.
A multi-skilled/multicrafted workforce offers numerous benefits to contractors and their clients, including the following:
A multi-skilled team is often more flexible.
A flexible workforce is better equipped to adapt to changes, cover for sick or absent employees, and provide more resources to deal with critical issues.
Multiskilling also increases reliability.
It ensures that core team members have the skills and knowledge needed to handle various aspects of the project.
As a result, the contractor has to rely less on subcontractors with whom they don’t have a close relationship.
Expanded knowledge and increased reliability all lead to more cost savings.
Contractors and team members can use resources more efficiently and productively when they’re multi-skilled/multicrafted.
Vertical integration in construction and multiskilling also reduce the number of times a project is handed off to various team members, increasing efficiency and reducing quality issues.
It’s easy to see how everyone benefits from working with vertically integrated contractors, including the company’s clients.
Flexibility, efficiency, and productivity all lead to faster results and reduced costs.
Diamondback Works: A Technology-Enabled Vertical General Contractor
Now that you know more about how vertically integrated companies function and the benefits this approach offers, are you ready to partner with a vertical construction company for your next project?
Founded in 1999, Diamondback Works provides civil, mechanical, structural, specialty, electrical, and construction management/support services to all major industrial sectors.
Diamondback Works is a vertical contractor that provides the maximum amount of project accountability.
DBW’s dedication to “fanatical” planning, collaboration, innovation, executing, and continuously improving is part of the company’s fabric and is revolutionizing the way construction services are being delivered to the market.
Diamondback Works is here for you if you’re looking for a vertical contractor.
We offer a fully integrated construction process that lets us maintain complete control and seamlessly transition through all phases of project development.
Contact us today to learn more about our services.