Unprecedented economic and social changes threaten profitability

A new survey commissioned by OGL Group reveals that Covid, Brexit and the continued reliance on manual processes are the greatest factors affecting profitability for architecture, engineering and building sector wholesale businesses in 2022.

The research focused on those companies that stock products that support these sectors, from handheld laser distance meters, architect scales, power tools, ladders to trolleys, and provide equipment including welding machines, workwear and safety equipment, to providers and commercial businesses.

The market size of the architectural industry is £6.5 billion in revenue in 2022, with the UK construction sector contributing more than £110 billion per annum and nearly 7% of GDP. The engineering and building sector is one of the UK’s broadest with 5.5 million people working in those industries, accounting for 18% of all UK employment. With the rapid increase in the need for housing, there is continued demand for architecture, engineering and building services, made more prominent by the return to work after 2020’s extended lockdown period.

Both the Covid pandemic and Brexit have hit supply chains hard. Exacerbated by stock management pressures, architectural, engineering and business wholesale firms are citing top technology priorities for the next 12 – 24 months as business performance reporting 50%, linking ERP with eCommerce 33%, website creation/update 33% and order management software 33%.

Insecurity around Brexit is affecting profitability at 58%, but this is now being overshadowed by Covid as the top factor at 67%.

The pandemic has led to supply chain shortages with some architecture, engineering and building sector businesses stockpiling products and parts to ensure delivery to clients. Manual processes are still plaguing businesses, leaving them behind the curve with regards to digital transformation, since 75% cited them as a problem that can lead to potential loss of revenue, and inability to correctly assess performance and sales.

Entering another potentially uncertain economic period with continuing supply-chain issues, the Ukraine-Russia war, cost of living and fuel price rises, wholesalers’ efforts to increase profitability are critical. Technology is at the heart of this. 92% of respondents agreed that automating business processes helps their companies stay competitive, up from 70% of engineering companies pre-pandemic.

A key finding of the research was the wide spread of technologies used and the disparate nature of systems that are not necessarily “talking to each other” to provide a full view of operations. Wholesale businesses use a range of software systems to function: more than 95% of respondents use one or more software systems to run their business.

Finbarr Creeney confirmed that his firm, Express Cutting & Welding Services, replaced accounting software, manual processes, inventory/stock control, and sales order/enquiry management with an integrated ERP system. 67% of respondents saw benefits from integrating disparate systems. 58% listing the main reason to use a single system as removing duplication of work across different departments, followed by 58% citing reduced administration time. 50% stated a single system helped achieve growth plans and future proofed their business, while 33% cited enhanced customer service and efficiencies by improved accuracy of information.

Single systems are beneficial for online stores, where stock checks and reporting ensure that customers have a good understanding of delivery timescales and product availability. Survey respondents confirmed that eCommerce has grown exponentially, with 83% stating that being able to sell products online easily is really important to them.

As the pandemic accelerated digital transformation, cloud computing continues to be a driver for change, with 83% of industry respondents agreeing that hosting applications and data in the cloud have improved efficiencies and productivity (or would improve them if cloud were implemented). Despite the benefits of cloud, concerns about security remain, though have reduced marginally from 55% in 2019 to 50% in 2022. This reflects the growing acceptance of moving core applications and data to the cloud.

Critically ERP systems are a key technology with 92% agreeing that ERP systems give greater visibility and control of stock. ERP refers to a suite of integrated software that businesses use to manage day-to-day business activities, such as sales order management, stock control, warehouse management, CRM and more.

One survey respondent comments on implementing a single ERP system: “Since installing an ERP system, the integration has led to far better customer service and efficiency. We can now store customer details and contacts centrally; raise orders based on sales and re-stock to min, max or optimum. This has transformed our stock and also improves customer service by cutting down lead times. Something that became apparent during the pandemic was that during times of reduced staff levels, we were still able to cope in an efficient manner because of the automation built into our ERP system.”

The main barriers to deploying an integrated software solution were cost, with 58% citing it as a factor, followed by 50% with data security and 33% finding a solution that’s right for their business via a reputable provider. Cost is often associated with the misconception that ERP systems are only for larger businesses, and the lack of information about affordable subscription-based models.

Charlie Grant, Head of Operational Product Development, OGL Software commented: “The business model for architecture, engineering and building firms has evolved quickly, with our 2022 survey identifying several changes, including the pandemic and stock availability, that impact profitability; the drop in concerns about security of cloud computing, and the growing realisation that ERP systems are not solely for large enterprises. Digital transformation has no doubt saved many businesses that have pivoted to online sales and it’s heartening to reveal that 92% agreed that ERP systems provide greater visibility and control of stock, especially as part of a multichannel sales strategy.”

NB: survey conducted in March 2022 and any comparison is to the same questions in September 2019. Respondents were given a number of options for each question.