By Doug Carroll
They are electricians, insulators, plumbers, HVAC technicians, carpenters, industrial engineering technicians, auto and diesel mechanics, and landscape designers.
They are rarely out of work, and their salaries often exceed median U.S. worker pay by 30% or more.
How, then, to explain a persistent labor shortage in skilled trades?
Members of Generation Z are increasingly skeptical of the value of a college degree, given the rising cost of tuition, and instead are giving trades such as plumbing and welding serious consideration.
Good pay and job security—plus the opportunity to learn tech skills, such as robotics in some fields—are making occupations in vocational fields an attractive alternative to college and its ensuing debt. Additionally, some members of Generation Z are “drawn to the skilled trades because of their entrepreneurial potential,” The Wall Street Journal reported April 1.1
Vocational training program enrollment “is surging as overall enrollment in community colleges and four-year institutions has fallen,” the publication noted.
And if trade skills can be attained through an apprenticeship program that allows the student to learn while they earn and get hired full time by the employer when the apprenticeship is successfully completed, even better.
A 2023 survey commissioned by Jobber2 found that high-school-age and college-age respondents said they thought blue-collar jobs offered better job security than white-collar ones, given the growth of artificial intelligence.3 Jobber is based in Edmonton, Alberta, and helps small and midsize service businesses with invoicing, logging hours, and other tasks.
“It’s no surprise we’re seeing more young people pursuing these fields today,” said Kelcie Wong, interim Vice President of Training Programs at career training nonprofit JVS, based in San Francisco, California.
Vocational training is a pathway for many young job seekers to a career, she noted, that “offers room for advancement, family-sustaining wages, and stability without the significant student debt burden often required for a four-year degree.”
“With interest in these types of careers heating up, young people should focus on how they can differentiate themselves from the competition,” Wong advised. Despite the increasing use of AI and automation, “employers are looking for candidates with good interpersonal communication, teamwork, and problem-solving skills,” she said, citing a JVS and Jobs for the Future analysis of the job market4 for the skilled trades and health-care sectors.
SHRM Online collected the following articles on apprenticeship programs and Generation Z’s growing interest in vocational occupations.
America needs more plumbers, and Gen Z is answering the call.
Long beset by a labor crunch, the skilled trades are newly appealing to the youngest cohort of U.S. workers, many of whom are choosing to leave the college path. Rising pay and new technologies in fields such as welding and machine tooling are giving trade professions a facelift, helping them shed the image held by some of being dirty, low-end work. Growing skepticism about the return on a college education,5 the cost of which has soared in recent decades, is adding to their shine.
It is no secret that Gen Z is shaking up the established education-to-career pathways system,7 with college enrollment down and young learners skeptical of the cost-versus benefit of a 4-year degree. But neither the K–12 and postsecondary, or the workforce systems, have gone all-in on promoting apprenticeship as a viable alternative. A recent survey8 by Jobs for the Future and American Student Assistance found that nearly two in three high-school graduates not attending college said they would have considered programs like industry certifications, occupation licenses, and apprenticeships if they knew more about them. They also noted that schools are not offering information about non-degree pathways to the same extent as they are about 4-year degrees.
Many young people have been taught to pursue college over vocational school. But now more members of Gen Z are recognizing the potential of a career in the skilled trades.
The lack of a college degree, regardless of the worker’s skill, may be holding U.S. workers back, or they may not have had a chance to acquire additional skills within their existing job that would allow them to advance. In Untapped Potential: How New Apprenticeship Approaches Will Increase Access to Economic Opportunity,10 Multiverse and The Burning Glass Institute advocate for applying new apprenticeship models to the U.S. labor market.
In an ever-evolving landscape where skills and experience are valued as much as academic degrees, apprenticeship programs have emerged as a game-changing solution. These programs are not only transforming the way we prepare the workforce of tomorrow, but also offering a compelling alternative to traditional college degrees.
In the past decade, the percentage of Americans who expressed a lot of confidence in higher education fell from 57% to 36%, according to Gallup.11 A decline in undergraduate enrollment since 2011 has translated into 3 million fewer students on campus. Nearly half of parents say they would prefer not to send their children to a 4-year college after high school,12 even if there were no obstacles, financial or otherwise. Two-thirds of high-school students think they will be just fine without a college degree.
References
1. Te-Ping Chen, “How Gen Z Is Becoming the Toolbelt Generation,” The Wall Street Journal, April 1, 2024 (https://www.wsj.com/lifestyle/careers/gen-z-trades-jobs-plumbing-welding-a76b5e43)
2. Jobber’s Blue-Color Report–Gen Z and the Uncertain Future of the Trades (https://www.wsj.com/lifestyle/careers/gen-z-trades-jobs-plumbing-welding-a76b5e43)
3. Ray A. Smith, “AI Is Starting to Threaten White-Collar Jobs. Few Industries Are Immune.” The Wall Street Journal, February 12, 2024 (https://www.wsj.com/lifestyle/careers/ai-is-starting-to-threaten-white-collar-jobs-few-industries-are-immune-9cdbcb90)
4. Alison Schmitt, Alessandro Conway, Dylan Ruggles, Devon Miner, Bekka Rosenbaum, and Regina Anders-Jefferson, “How Employers Can Prepare Workers for an AI-Driven Economy,” JVS and Jobs for the Future, March 28, 2024 (https://www.wsj.com/lifestyle/careers/ai-is-starting-to-threaten-white-collar-jobs-few-industries-are-immune-9cdbcb90)
5. Douglas Belkin, “Why Americans Have Lost Faith in the Value of College,” The Wall Street Journal, January 19, 2024 (https://www.wsj.com/us-news/education/why-americans-have-lost-faith-in-the-value-of-college-b6b635f2)
6. Maria Flynn, “The Future of Work Needs More Apprentices,” Forbes, November 14, 2023 (https://www.forbes.com/sites/mariaflynn/2023/11/14/the-future-of-work-needs-more-apprentices/?sh=559af3aaf5b7)
7. Joshua Bay, “Gen Z’s Declining College Interest Persists—Even Among Middle Schoolers,” The 74, August 24, 2023 (https://www.the74million.org/article/gen-zs-declining-college-interest-persists-even-among-middle-schoolers/)
8. Success, Redefined – How Nondegree Pathways Empower Youth to Chart Their Own Course to Confidence, Employability, and Financial Freedom, Jobs for the Future and American Student Assistance, updated 16/10/2023 (https://expandopportunities.org/knowledge-hub/success-redefined/)
9. Mark C. Perna, “Why Gen Z Can Solve the Skilled Labor Shortage Crisis,” Forbes, October 17, 2023 (https://www.forbes.com/sites/markcperna/2023/10/17/why-gen-z-can-solve-the-skilled-labor-shortage-crisis/?sh=73ee04c33ac6)
10. Matt Sigelman and Euan Blair, Untapped Potential: How New Apprenticeship Approaches Will Increase Access to Economic Opportunity, The Burning Glass Institute and Multiverse, November 2023 (https://www.forbes.com/sites/markcperna/2023/10/17/why-gen-z-can-solve-the-skilled-labor-shortage-crisis/?sh=73ee04c33ac6)
11. Megan Brenan, “Americans’ Confidence in Higher Education Down Sharply,” Gallup, July 11, 2023 (https://news.gallup.com/poll/508352/americans-confidence-higher-education-down-sharply.aspx)
12. Jill Barshay, “Poll: Nearly half of parents don’t want their kids to go straight to a four-year college,” The Hechinger Report, April 7, 2021 (https://hechingerreport.org/poll-nearly-half-of-parents-dont-want-their-kids-to-go-to-a-four-year-college/)
Massive in size and majestic in stature, the Seattle Convention Center’s recently completed Summit addition nearly doubled the size of the existing convention space. Imposing a footprint of 1.5 million square feet and covering an entire city block, the Seattle Convention Center facilities consist of the “Summit” and “Arch” buildings, and Summit is billed as North America’s first true high-rise convention center. The $2B addition is the largest insulating job undertaken by Heckman Inc., a fourth-generation mechanical insulation contractor.
Groundbreaking on Summit took place in August 2018, and by early 2020 it was time to begin insulating the mechanical pipes. Heckman Inc. owner Jeff Heckman and Project Foreman Jose Arce developed a game plan to install 19.5 miles of HVAC pipe insulation and enough duct wrap to cover 9.75 football fields—including the end zones.
There were many mechanical rooms. They contained huge air handling units that were placed by crane during construction and then the structure was built around them. Insulation is crucial to help this equipment have the longest life possible as they can’t be removed or replaced. Shown on pages 19 and 20, some of the systems used Owens Corning® SSL II® fiber glass pipe insulation with ASJ Max jacketing, and covered them with Speedline PVC and/or No Sweat reuseable valve wraps with insulated pipe supports by Thermal Pipe Shields.
Of course, every team knows that even the most calculated game strategy can be thrown off course by a fierce opponent. As the Covid-19 pandemic disrupted construction sites around the globe, Heckman and Arce had to revise their insulating playbook amid tough and ever-changing jobsite conditions. Implementing social distancing protocols and training team members on how to handle a new insulating material were just a few factors that threatened to slow progress. Yet despite these challenges, Heckman Mechanical strategized solutions to keep the project moving forward day by day, and play by play.
While disruptions may not be enjoyable, Heckman and Arce say that lessons learned often carry over to benefit future projects. Below, they share some of key takeaways from the Seattle Convention Center’s Summit project, conducted in a complex and challenging environment.
Social distancing policies implemented in Spring 2020 created a logjam when it came to the logistics of workers on jobsites. While the staff elevator “baskets” that move workers up and down the exterior of the convention center were limited to carrying just five occupants at a time, up to 1,000 people were at the jobsite some days. Foreman Jose Arce and his team made a point of being first at the site. “We’d show up at 2:30 a.m. so we’d be first in line to get where we needed to be and with the materials we needed at the right locations,” he says. “This allowed us to get started while other trades were still waiting in line.” The team also made ample use of the stairs, scaling the 13 stories by foot instead of waiting for the basket. “Each flight was about 40 steps, so our workers really got a workout,” says Arce. “One apprentice lost 30 pounds during the job and was able to drop his gym membership!”
The mechanical pipes in the Seattle Convention Center include steel pipes, copper pipes, and a lot of ProPress fittings. Arce says that the type of insulating material used helped keep things efficient on the jobsite. “Some insulations are really rigid, but Owens Corning® SSL II® with ASJ Max fiberglass pipe insulation can be compressed to fit around the pipes. There was no need to hollow the material out for ProPress or valves,” he says. From a timing perspective, Arce says that hollowing out insulation can take three times longer than using an insulation that can be compressed to precisely fit the pipe. “It all comes down to compressibility for pipes 2” or smaller,” he says.
An insulating material’s ability to deliver thermal performance will always be the priority when insulating mechanical pipes, but Arce says craftsmen also take pride in the appearance of their job. “Everyone gawks at the exterior of the Seattle Convention Center, but the mechanical room is a really beautiful place,” he says. The Owens Corning® SSL II® with ASJ Max fiberglass pipe insulation installed on pipes in the Seattle Convention Center’s Summit is equipped with a self-sealing system and designed to fit over larger pipes and coverings without wrinkling. Getting workers to select a material with a different fastening system was a challenge at first, but once the crew got a feel for the insulation and the clean, wrinkle-free look it presented, they loved working with the product.
During a period when supply chains saw unprecedented disruption, Heckman says logistics flowed smoothly on the Summit addition. “We stayed in communication with Bay Insulation and coordinated a schedule for a truckload delivery to the jobsite every Wednesday and Friday, with at least 20 boxes of material per trip,” he says. And if the team got ahead of schedule, the distributor would bring in an “emergency truck” as needed.
Heckman and Arce say there is no substitute for taking care of people on the jobsite, including those working on other trades for long stretches of time. Arce recalls an electrician who was on site from the preconstruction phase through completion—7 years. “Long projects can be repetitive, and a lackadaisical attitude can set in,” says Arce. Keeping a positive attitude, along with making surprise tamale deliveries on the jobsite, not only fostered goodwill and camaraderie but made workers eager to cooperate. “Just a little food can open doors,” says Arce.
Aside from practical insights like selecting an efficient and easy-to-work-with insulation, supporting workers’ pride in their craft, and communicating with partners, Heckman says that taking on the challenge of a super-sized project during a global pandemic was a reminder of how teamwork can make all the difference. “If anything has solidified our company, it was knowing that we did it with a team of just four insulators on most days,” he says. While successfully completing the massive installation was a win in itself, Heckman says the project was an opportunity for the team to step into a new arena of competition. Remarking on the project, he said, “After Heckman Inc. successfully completed the Seattle Convention Center with a high level of craftsmanship and efficiency, most mechanical contractors would consider Heckman Inc. capable of tackling any size project. The Seattle Convention Center truly put Heckman, Inc. on a whole new level.”
NIA is proud of the professionalism, creativity, and artistry of our Contractor members. To celebrate the craftsmanship of NIA mechanical and industrial insulation contractors, in 2023 we unveiled the first-ever NIA Insulation Project Art Gallery Showcase and Competition. We invited all NIA insulation contractors to submit photographs and a brief description of projects representing their most creative and artistic efforts. At Fall Summit, we posted all the submissions anonymously, and attendees voted for the top three projects in terms of number of parts insulated, aesthetics, difficulty of installation, and well-installed application. As a new regular column, we will profile the projects submitted, focusing this month on 3rd Place Winner, Argus Contracting, LLC. We encourage NIA Contractor members to participate in the 2024 Insulation Project Art Gallery Showcase and Competition, and possibly be featured in a future article.
Insulation Contractor: Argus Contracting, LLC
Industry Segment: Industrial
Type of Plant/Facility: Natural Gas Distribution Facility
Temperature Range: N/A (Thermal protection was not a consideration for this project)
Region: Southern California
System Designed/Application Type: Sound Suppression and Corrosion Prevention
A natural gas distribution facility sought to reduce the sound from its pipes, vessels, and equipment. In operation for more than 40 years, it saw the surrounding area’s growth and development lead to residential construction over the years. The facility had tried several different methods to reduce production acoustics, but each previous attempt was unsuccessful. The facility turned to Argus to mitigate the problem. Another goal was providing corrosion control. This project was not undertaken for thermal control of the facility.
With this type of facility, shutting down operations while working out an approach was not an option. An effective solution had to be designed and implemented while addressing key practical considerations. One large challenge was the need for ongoing and easy access to parts of the equipment for regular inspection and maintenance. Anything left uncovered would allow noise to escape, but some items—actuator valves, for example—had to be accessed on a daily basis by facility employees.
The project presented additional logistical challenges. The design called for fabrication of
more than 1,000 custom-made sound pads. Expertise was required not only to accurately fabricate the pads to fit the application, but also to cut them in such a way as to minimize material waste.
Finally, the overall solution needed to provide corrosion protection for the surfaces being covered, which already had a layer of paint 6 to 12 mils thick. Simply putting sound blankets atop the existing painted surfaces was not a viable option for long-term corrosion protection, as existing damage and scratches through painted surfaces could allow moisture to come into contact with bare metal, leading to rust.
Craig Skeie, Western Region President of Irex Contracting Group, LLC, Argus’ parent company, visited the site with Argus Construction Manager Curtis Gardner and General Foreman Jayson Bone. They walked the site to assess project requirements and to formulate a plan, which Skeie put together for the client’s approval.
The team started with the vessels, as they made the majority of the noise, working through the larger bore piping next, and so on. To achieve the customer’s noise reduction goals, Argus selected sound blanket materials that provide good sound attenuating properties, installing 17-ounce silicone cloth, 2” Temp Mat insulation, and a layer of 1-lb. density loaded vinyl barium. Temp Mat is a bonded glass fiber blanket that absorbs sounds and resists vibration. Barium sulfate vinyl high-density barriers are commonly used to reduce sound travel from pipes, as well as through floors and walls, and from air ducts. The insulation was held in place with 14-gauge stainless steel anchors and 18-gauge stainless steel tie wires. Table 1 provides a summary of products used in the insulation system.
Gardner explains that they completed one sphere assembly first as a test case, making sure the approach gave them the results they wanted. They then “mass produced” the rest of the job following the successful test case.
Gardner and Bone oversaw the coatings and custom fabrication and installation of the pads, primarily fabricated off site, although additional customization occurred on the jobsite for some components. Fabrication, coating, and installation all were performed in assembly-line fashion, which was practical as well as efficient. Just the weight and bulk of all the fabricated materials made transporting them to the jobsite all at once prohibitive, for example, and then there would have been concerns over storage.
Although the sound pads would typically be sufficient to mitigate noise, the facility has many pieces of equipment that need to be accessed on a daily basis—e.g., ports/gauges for workers to check flows. Leaving them uncovered was not an option. Gardner explains it is the nature of sound to transmit, so “muffling it in one part forces it to another,” where it will escape. The team opted not to use the same approach on these items as on the equipment/piping. Argus did not want to risk the likelihood that sound pads would be removed and then left off for employee convenience during their daily checks. Gardner and Bone decided to go bigger and insulate a space around the existing equipment for the employees to work. They came up with the idea of designing and installing mobile sound enclosures around the equipment that workers needed to access frequently. They built the enclosures—essentially sound-proofed boxes—welding and attaching the sound-proofing to the inside of each of the enclosures. They were designed to be rolled out of the way if needed (hence the term “mobile sound enclosures”), with removable tube steel and box rib. The enclosures were lined with 2” duct liner board, with sewn door flaps that were loaded vinyl with silicone cloth, and installed over instrumentation, actuator valves, and other pieces of equipment that needed to be accessible, giving workers the ability to get in to check gauges, etc. as often as they needed.
To tackle this challenge, the team applied Trenton wrap and VISCOTAQ wrap over the existing paint to provide water resistance and corrosion prevention, ensuring the approach worked with the owner’s existing specifications. They used a coating designed to be used underground. As Skeie explains, “The owner’s engineers recommend if pads are installed on metal surfaces, their specification for underground work needs to be followed. Applying Trenton wrap and VISCOTAQ wrap yields a coating that is between 70–90 mils thick, compared to the above ground paint being only 6–12 mils thick. Both wraps have a self-sealing property, so if the surface is scratched or damaged, the wrap seals itself, whereas if you scratch paint, it doesn’t fix itself… The breach migrates along the pipe and you have a problem.” The layer of coating also contributes to overall sound reduction, although that is not its primary purpose here.
Because the project was designed to address acoustics, rather than thermal properties, the client needed a mechanical insulation contractor experienced with both the design goal and this type of facility. They reached out to Argus because the company had done mechanical insulation projects for them in the past, with a solid working relationship going back more than 20 years. Long relationships are not new to Argus. Gardner comes from a family of mechanical insulation professionals. With his 35 years, his father’s 37, and his older brother’s 40 years, the Gardners represent more than 100 years (112, to be exact) of expertise in, and service to, the industry. While the first in his family to pursue the profession, Bone brings an impressive 20 years of experience to his work. Craig Skeie asserts that in addition to representing their company well, both men are “a great asset to Local 5 and the industry.” The decades of experience of Gardner and Bone allowed their team to image, design, and craft an innovative solution the mobile sound enclosures. They worked alongside Raul Alvarez, Rafael Castro, John Harrell, Andy Madrid, and Doug McGill, also members of Local 5 of the Heat and Frost Insulators and Allied Workers Union.
This project is a perfect example of how an experienced mechanical insulation contractor can serve as a consultant, applying knowledge and creativity to solve customer problems. Argus was not only able to address the noise reduction goal, but also did so in a way that met the requirement for facility workers to have easy, continuous access to the parts of the system they needed. At the same time, Argus ensured its solution would last, providing corrosion protection wrap on steel surfaces, covered by custom UV and weather-resistant removable covers.
From start to completion, the project took Argus just under 4 months. When sound experts measured decibel levels coming from the facility after the work was finished, they found the noise was significantly reduced. “Our client was happy with the outcome,” concludes Skeie.
Argus was able to turn the challenges of a large, complicated project into an opportunity to make a positive difference for its customer and for the surrounding community.
Argus Contracting is a company of the Irex Contracting Group, an organization that consists of a parent service corporation and an affiliated group of specialty contracting companies operating throughout the United States that provide services including installation and maintenance of mechanical insulation; sheet metal lagging; architectural finishes; passive fire protection; energy audits; and the removal and abatement of asbestos, lead-containing materials, mold, and other hazardous materials. An expanding number of other services are also provided where complementary to these core businesses. As a prime contractor or a subcontractor, Irex contracting companies provide new construction and maintenance services to commercial, industrial, marine, and insurance markets. Contracts include all types of office, residential, and institutional buildings; manufacturing facilities; power plants; process plants; and other heavy industrial installations. The group also provides Certified Energy Appraisers, Certified Infrared Thermographers, a Quality Assurance/Quality Control Program in compliance with NQA-1 and ISO-9001, and Certified LEED Professionals. For more information, visit https://www.arguscontracting.com.
NIA congratulates 2023 competition winners:
First Place: Elite Insulation, Inc.
Second Place: Thermal Solutions, Inc.
Third Place: Argus Contracting, LLC
We thank all the entrants who helped highlight the diversity and creativity of the mechanical insulation industry:
Watch for future articles with details on other projects submitted.
Each month the U.S. Bureau of Labor Statistics (BLS) issues a jobs report, and the March 2024 report garnered quite a bit of attention from the construction industry. In general, the BLS report covers:
Overall, the March jobs report highlighted robust job growth in the construction industry and the broader economy, coupled with challenges such as labor shortages and potential inflationary pressures from wage growth. Here are the top takeaways from three construction-related organizations.
“Today’s release was a blockbuster jobs report and indicates that recession is not arriving anytime soon,” said ABC Chief Economist Anirban Basu. “The 39,000 jobs added by the nation’s construction segment was roughly twice the monthly growth observed over the past year. If one focuses purely on nonresidential construction, monthly job growth was nearly 80% faster than the one-year average.
“Structural transformations in the economy, including replenished domestic supply chains, expanded data center demand and augmented infrastructure, are making it difficult for many project owners to wait for lower construction delivery costs,” said Basu. “Despite the effects of worker shortages, still-elevated materials prices, newly emerging supply chain issues, and the high cost of project financing, both privately and publicly financed segments produced substantial employment growth in March. This comports with ABC’s Construction Confidence Index, which shows that a large share of contractors intend to grow their staffing levels over the next 6 months.
“As always, the jobs report was not completely positive,” said Basu. “Those in search of lower inflation and interest rates will not be comforted by this release. While economywide year-over-year wage growth softened to 4.1% in March, the monthly wage growth figure suggested a pace of compensation growth that will render it difficult for the Federal Reserve to substantially reduce interest rates in 2024. The notion that interest rates will remain higher for longer remains firmly in place, which means that project financing costs will likely be an ongoing issue for construction demand, especially in privately financed segments, for the foreseeable future.”
“All types of construction firms were hiring in March,” said Ken Simonson, AGC’s Chief Economist. “But the record number of construction job openings at the end of February indicates contractors would have hired even more workers if they were available to keep pace with demand.”
Sage Policy Group COO Zack Fritz noted, “We’re approaching Oprah levels of labor market
performance—you get a job, you get a job, everybody gets a job!” In answering the question, what do we take from this, Fritz wrote, “You can forget about recession. This is about as good as jobs reports get. Sure, you could quibble about the faster-than-ideal growth in average hourly earnings, and this report ups the odds that we’ll be waiting until the second half of the year for rate cuts. Still, employers are hiring, unemployment is low, and the labor force is growing. What more could you want?”
To learn more from these three organizations, visit www.abc.org, www.agc.org, and www.sageecon.com.
The U.S. Department of Labor has announced a final rule clarifying the rights of employees to authorize a representative to accompany an OSHA compliance officer during an inspection of their workplace. The final rule was published in the Federal Register on April 1.
The Occupational Safety and Health (OSH) Act gives the employer and employees the right to authorize a representative to accompany OSHA officials during a workplace inspection. The final rule clarifies that, consistent with the law, workers may authorize another employee to serve as their representative or select a non-employee. For a non-employee representative to accompany the compliance officer in a workplace, they must be reasonably necessary to conduct an effective and thorough inspection.
Consistent with OSHA’s historic practice, the rule clarifies that a non-employee representative may be reasonably necessary based upon skills, knowledge, or experience. This experience may include knowledge or experience with hazards or conditions in the workplace or similar workplaces, or language or communication skills to ensure an effective and thorough inspection. These revisions align OSHA’s regulation with the OSH Act and enable the agency to conduct effective inspections. OSHA regulations require no specific qualifications for employer representatives or for employee representatives who are employed by the employer.
The rule is in part a response to a 2017 court decision ruling the agency’s existing regulation, 29 CFR 1903.8(c), only permitted employees of the employer to be authorized as representatives. However, the court acknowledged that the OSH Act does not limit who can serve as an employee representative and that OSHA’s historic practice was a “persuasive and valid construction” of the OSH Act. The final rule is the culmination of notice and comment rulemaking that clarifies OSHA’s inspection regulation and aligns with OSHA’s longstanding construction of the act.
“Worker involvement in the inspection process is essential for thorough and effective inspections and making workplaces safer,” said Assistant Secretary for Occupational Safety and Health Doug Parker. “The Occupational Safety and Health Act gives employers and employees equal opportunity for choosing representation during the OSHA inspection process, and this rule returns us to the fair, balanced approach Congress intended.”
The rule goes into effect on May 31, 2024. For more information, visit www.osha.gov.
With each new year comes a new (and/or continuing) set of supply chain successes and challenges. In early 2024, geopolitical developments and technological advances continue to affect how supply chains and companies conduct business. Internally, businesses must also adjust to more staff reductions and retirements, and further develop their new and mid-career supply chain staff. Organizations continue to reevaluate their approaches and look for ways to improve.
At the beginning of 2024, the American Productivity & Quality Center (APQC) concluded its 10th annual Supply Chain Management Priorities and Challenges research, including a survey of more than 350 professionals from around the world and across multiple industries. As in previous years, the research examined organizations’ supply chain management priorities, performance, and anticipated trends.
The results reveal that fewer organizations achieved their business goals in 2023. Yet organizations remain focused on the future, with many anticipating further digital developments and investments in their supply chains.
Although many aspects of business returned to something resembling a pre-pandemic state in 2023, the majority of organizations in APQC’s research did not achieve all their business goals for the year (Figure 1). Looking back on 2023, we see that a majority of organizations (62%) missed their 2023 targets, and four in five organizations reported falling short of their competitors’ or peers’ performance.
These drops in performance reflect the ongoing uncertainty that supply chains have been facing and continue to face. The results are a cause for concern, given that a larger proportion of organizations fared worse in 2023 than in previous years. In 2024, as organizations try to catch up to their peers, they will need to seek new ways to meet their goals while dealing with new and different challenges. Organizations should evaluate which factors make the most impact on their business and determine whether there is the potential for these to affect business goals long term.
Diving deeper into the data, APQC finds that compared to the previous few years, organizations are trending more positively in terms of performance on specific goals related to customer satisfaction and return on investment (ROI). It is an encouraging sign to see performance on several additional goals trending upward from 2022 to 2023, even though overall achievement remains low. To continue to see improvement in these goals, 2024 needs to be a year of improved flexibility and adaptability for supply chains as global uncertainty continues.
In terms of trends affecting supply chains, research participants anticipate that technological advancements and stronger data and process management practices will make the biggest impact over the next 3 years (Figure 2). Big data and advanced analytics, supply chain digitization, data management, and process standardization make up the top four trends anticipated to make the greatest impact.
For the third year in a row, big data and advanced analytics is in the top spot. Emerging technologies are helping supply chain professionals make sense of ever-increasing amounts of data, but it is hard to keep pace with all the internal and external sources. With the digital supply chain, organizations are integrating physical processes with digital data; and implementing digital workplace tools, focusing on achieving the desired ROI from these investments.
Strengthening foundational data and processes are in the third and fourth spots for anticipated impacts on supply chain. In its first year on the survey, data management highlights the importance of having well-managed underlying data models, clear data governance, and more critical data-related processes. If the underlying data is not reliable, the decisions the organization makes based on that data are questionable. Just as organizations need a good data foundation, they also need a solid process foundation to maximize efficiency and technology investments. Standardized processes are also key for effective business continuity plans as organizations cope with continued uncertainties and rapid changes in the external environment.
Changes in legal and regulatory requirements, and pressure from other stakeholders (e.g., customers, and investors), are driving the impact of sustainability and environmental and social issues on supply chains. But as organizations make public net zero promises, many of them are scrambling to create an actionable plan to hit those targets in time, especially for the more complex Scope 3 emissions from the value chain.
In addition, it is notable that the percentage of respondents anticipating these trends to have a major impact on supply chains has increased substantially over the last year. In the previous year’s research, 34% of respondents expected that big data and advanced analytics would make a major impact, whereas in the most recent survey, an astounding 65% of respondents said this would make a major impact. Similarly, 41% of respondents last year believed supply chain digitization would make a major impact within the next 3 years, and in the latest survey, that amount jumped to 64%.
APQC also asked supply chain professionals about obstacles to improving their organizations’ supply chain processes. The top four obstacles experienced by respondents are the following:
Given that technology had such a prominent spot among trends for the next 3 years, it is not a surprise that the implementation of new technologies has surfaced as an obstacle for 52% of survey respondents. There has been a lot of buzz around new technologies such as the internet of things (IoT), artificial intelligence (AI), and autonomous vehicles. It can be difficult to identify how to operationalize these technologies within the supply chain—especially AI. Additionally, with the adoption of any new technology comes the need for organizations to address cybersecurity to prevent disruptions caused by security breaches. This obstacle also reflects the increased need for strong change management as organizations sort out their process changes, new roles and responsibilities, and more.
Fifty percent of research participants rated a lack of collaboration across functions and externally as an obstacle to improvement. This obstacle has consistently been rated highly in APQC’s annual research. To address this challenge, APQC advocates for using knowledge management approaches and techniques to provide support and guidance for collaboration. Disconnects in the supply chain can lead to ripple effects that impact customers and their ability to receive orders on time, in full, damage free, and with accurate documentation. With increased uncertainty, supply chain leaders need effective collaboration to be resilient and responsive. Poor data management and governance also present a foundational issue to supply chains. Having clean, well-managed data is critical to the success of systems across the organization. Having inaccurate data can affect a company’s ability to use analytics effectively, automate activities, and more.
Last year, labor concerns held the top ranking for organizational obstacles. Although 2024 has already had its share of labor challenges, supply chains are not alone when it comes to dealing with labor concerns such as strikes, lack of qualified candidates, unfilled vacancies, layoffs, etc. However, given the business-critical role that the supply chain plays in getting products and services to the customer, addressing this obstacle needs to be an organizational priority.
APQC found that organizations are taking a variety of measures to address their supply chain obstacles. Most try to be adaptable in the face of volatile conditions, with 84% of respondents saying that their organizations have reevaluated or modified their supply chain strategy to overcome obstacles.
In addition, 55% expect to increase their budget for supply chain tools, technology, innovation, and initiatives in 2024. In light of the inflationary environment for businesses, this ensures that supply chains can continue to meet the needs of the business while implementing and operationalizing new technologies.
In addition to examining major trends and supply chain obstacles, APQC’s annual research includes insights about organizations’ overall supply chain areas of focus for 2024. An area of focus is one targeted for investing resources, innovation, and hiring. For each area of focus, respondents provided two more detailed priority areas. Figure 3 shows the top five areas of focus for 2024, as well as the corresponding results from 2023.
The 2024 top five areas of focus are the same as in 2023, but in the most recent research, more organizations indicated each as a priority. The top area of focus, supply chain planning, was named an area of focus by 90% of respondents—increasing 4 percentage points from 2023. For all other areas, there was at least a jump of 12 percentage points for respondents rating each as an area of focus. This increased focus marks an important time for the profession. Supply chains are in the spotlight; now they have to shine and rise to the occasion.
Supply chain planning. Respondents focusing on supply chain planning indicated integrated business planning and demand planning and forecasting as their top two priority areas. To address disruptions and global uncertainty, companies need to pull their resources together to ensure that they align business goals and supply chain operations. This leads to the creation of an effective consensus forecast and supports scenario planning to prepare for potential disruptions.
Organizations intend to conduct benchmarking against similar companies, improve collaboration, implement new technologies, and standardize processes to start addressing their supply chain planning priorities.
Sourcing and procurement. Respondents focusing on sourcing and procurement named supplier relationship management, risk mitigation, and sustainability as their top priority areas within this function. Supplier relationship management has consistently been a top priority area within procurement over the years.
This speaks to the need for companies to focus on developing close relationships with key suppliers. APQC advocates for shifting procurement from a focus on transactions to fostering strategic relationships that benefit all parties involved. With increasing regulation related to sustainability, voluntary disclosure in the past has now become required. Many businesses now must disclose and verify their suppliers’ sustainability data or face the threat of financial penalties or disrupted shipments.
The actions organizations intend to take with procurement include implementing new technology and capabilities to increase supply chain visibility. They also intend to further standardize their procurement processes and identify and implement proven practices.
Innovation. Innovation helps organizations stay ahead of the curve even when facing rapid changes, multiple disruptions, and rapid technological advancements in a global context. The top focus area in innovation for 2024 is operational or process innovation, which enables organizations to find new, different, and more effective ways of going to market and operating their organizations and supply chains. It is followed by product and service innovation and creativity as top priorities. There is a large difference between the percentage of respondents selecting operational or process innovation (46%) and those selecting product and service innovation (30%). This speaks to the desire organizations have to find better ways to drive more effective supply chains versus introducing new products or services. To make these process improvements stick, leaders must adopt change management practices that address staff concerns and resistance.
Organizations intend to integrate innovation into organizational goals and implement new technology and capabilities to meet their priorities. They also intend to increase open innovation ecosystem collaboration, embrace new business models, and identify and implement best practices. Overall, companies are looking for new, more collaborative ways to innovate and drive supply chain and enterprise-wide improvements.
APQC’s latest research in priorities and trends for supply chain professionals indicates that 2024 is shaping up to be another challenging year for supply chains. Disturbances continue, such as the volatile freight costs caused by shipping disruptions at the Suez and Panama Canals.
As such, supply chain professionals anticipate that a greater number of trends will make a major impact on supply chains. To address potential obstacles, at least 55% of organizations plan to increase their supply chain budgets. They are also focusing attention on more aspects of the supply chain in 2024.
The theme for supply chains this year is preparation in the face of uncertainty. To support resilience, organizations aim to tackle data governance and management, and to leverage new technologies that enable greater visibility and create more effective scenario plans. They also aim to tighten their processes to support clear roles and responsibilities.
In a recent article, Supply Chain Management Review discussed the need for organizations to consider disruptions to be the new norm, and APQC agrees. Strong organizational leadership remains essential for supply chain preparedness and talent management. Leaders can support supply chain professionals who collaborate effectively while embracing the full use of technology. They should also create a culture of preparedness that ensures the entire organization is ready to face almost certain uncertainty.
Marisa Brown is Senior Principal Research Lead at APQC.
About APQC
APQC helps organizations work smarter, faster, and with greater confidence. It is the world’s foremost authority in benchmarking, best practices, process and performance improvement, and knowledge management. APQC’s unique structure as a member-based nonprofit makes it a differentiator in the marketplace. APQC partners with more than 500 member organizations worldwide in all industries. With more than 40 years of experience, APQC remains the world’s leader in transforming organizations. Visit www.apqc.org to learn how you can make best practices your practices.
Sources:
1. https://www.scmr.com/article/apqc_infographic_preparedness_in_2024
(Editor’s Note: At the time of the project and publication, this company was Thermal Solutions, Inc., but has since become JT THORPE. The personnel, positions, and project reflect Thermal Solutions, Inc. at that time, however, this article’s title and text have been updated to reflect the company’s current name. Images are from the original publication and therefore show the original name.)
NIA is proud of the professionalism, creativity, and artistry of our Contractor members. To celebrate the craftsmanship of NIA mechanical and industrial insulation contractors, in 2023 we unveiled the first-ever NIA Insulation Project Art Gallery Showcase and Competition. We invited all NIA insulation contractors to submit photographs and a brief description of projects representing their most creative and artistic efforts. At Fall Summit, we posted all the submissions anonymously, and attendees voted for the top three projects in terms of number of parts insulated, aesthetics, difficulty of installation, and well-installed application. As a new regular column, we will profile the projects submitted, focusing this month on the 2nd place winner, JT THORPE (Formerly Thermal Solutions, Inc.). We encourage NIA Contractor members to participate in the 2024 Insulation Project Art Gallery Showcase and Competition, and possibly be featured in future articles.
Insulation Contractor:
JT THORPE (Formerly Thermal Solutions, Inc.)
Industry Segment: Food Processing
Type of Plant/Facility: Distillery
Temperature Range: Above-Ambient System
Region: Southeast
System Designed/Application Type: Cellular Glass Covered with Stainless Steel Metal Jacketing (see Table 1 through Table 4 for all product types used).
A large distillery in the Southeast had a new construction/expansion project that involved insulating new mash cookers, stills, and vessels. Goals for the project included achieving energy savings; personnel protection; and process, condensation, and corrosion control.
This was a highly complex project that presented challenges on multiple levels: size, scope, complexity, and scheduling, as well as the complications presented by the onset of the Covid-19 pandemic.
The new construction/expansion effectively doubled the size and production capability of the distillery, but the facility continued operation uninterrupted during it. It was a project of massive scale involving all of the trades working together. JT THORPE (Formerly Thermal Solutions, Inc.) Project Foreman Dan Lowry complimented the project managers and the General Contractor, calling them “stellar,” saying he was impressed at how well they handled the safety and scheduling of everyone. Lowry explained the insulation contractors and tradesmen had to keep out of the way of facility staff but also take all the necessary steps to ensure the distillery stayed within code for food production—for example, diligently establishing and maintaining barriers to keep insulation and other construction materials from possible contact with the processes in production.
The project also presented physical challenges that made JT THORPE’s corporate focus on safety paramount to successful completion. Lowry described vessels “6 feet in diameter and 50 feet tall,” adding that because grading on the site did not allow for the use of lifts, “the first hurdle was to get to the job.” Given the height and size of the vessels, “everything had to be done off very large ladders, using beam straps, retractable lanyards, and harnesses tied off above 4 feet.”
Mother Nature kicked in to make things interesting, too. In a project that Lowry estimated was overall 60% outside and 40% inside, weather conditions can be critical. For example, while new construction was underway, a cold snap moved in that threatened
existing outdoor process elements. JT THORPE’s team insulated more than 3,000 feet of piping in the course of 5 days, working in below-zero temperatures to keep production rolling.
And, of course, Covid-19 hit just as the project was slated to begin, which delayed full startup almost a year. Lowry gave General Contractor ABEL Construction Company, Inc. high marks for their coordination of schedule, safety, and workflow involving multiple trades—all impacted by shortages of labor, supply chain issues, and the need to accommodate new, pandemic-related requirements—so that despite starting a year late, the overall construction finished on time. For its part, Lowry credited JT THORPE for being as prepared as possible and having a solid strategy to keep to its schedule. On the production side, John Stevens’ and Managers Jude Malone’s and Tony Kirk’s proactive approach to project management meant that when other companies were scrambling to get materials, JT THORPE’s team already had what they needed to get to work. Lowry noted materials were back-ordered 3 to 6 months, and “you could not buy duct wrap,” but JT THORPE had everything in stock. When Covid restricted the number of people allowed on site, they sent in a limited team to get measurements so they could prefabricate some of the equipment, and they established smaller teams of work crew units to limit possible exposure to the virus.
The expansion project was completed in phases, with the mash cookers built first. Once they were completed, the facility was actually erected around them.
The application includes a high-heat cooker that requires a quick cool-down. JT THORPE utilized a cellular glass application with stainless-steel jacketing. Cellular glass was chosen because of its heat retention, rigidity, self-supporting nature, and the environmental conditions of the facility. In addition to meeting the customer’s goals regarding energy savings, process control, personnel protection, and condensation and corrosion control, the design provides for system longevity, which reduces long-term maintenance costs for the customer. Table 1 offers an overview of the mash cooker
insulation solution.
With a distillery, because even slight fluctuations in temperature can affect viscosity and other factors that make the difference between a smooth bourbon, for example, and a ruined batch that possibly also causes damage to expensive process equipment, mechanical insulation is mission critical. At the same time, the production processes involve equipment that needs to be maintained. Recognizing that removing insulation to give workers access for preventive maintenance often results in damage to the insulation (or worse—insulation destroyed and not replaced), JT THORPE’s proposed covering elements such as flanges and valves with removable insulated blankets to allow easy access and insulation replacement once maintenance was finished. Table 2 lists elements of the removable cover solution.
Table 3 lists elements and products used for the thumper.
JT THORPE was also responsible for insulating a centrifuge tank, chill water tank, and process water tank. Table 4 details the insulation system components and products used for each.
Key takeaways from this project reinforce themes mechanical insulation contractors stress are important with every job.
From using ceramic spray on piping to provide thermal control for process performance and facility personnel safety in areas where space was confined to covering equipment such as flanges and valves with removable blankets to facilitate access for preventative maintenance, to changing the original spec from smooth stainless steel to a thicker gauge of embossed metal for improved durability (and appearance, as smooth stainless steel would show scratches that would inevitably result from mechanical and human abuse over time), JT THORPE was able to work with the Project Engineer and customer to identify materials and applications that would best meet project objectives.
JT THORPE’s corporate culture of safety made a huge difference on this project. For example, in addition to the site challenges, and the added concerns of protecting everyone from a dangerous, pandemic virus, working with stainless steel can be extremely dangerous. The team spent thousands of manhours crafting and installing the stainless steel elements without a single injury. Calling up the image of how easy it is to get a serious cut from just the lid of can of tuna, Lowry said the company’s impressive performance statistic resulted from their commitment to safety. “Every piece of stainless steel had a safety edge. [We made sure there would] never be a sharp edge on any of the stainless steel jacket we installed.” All personnel wore necessary protective equipment without fail, including Kevlar gloves and arm guards.
The project benefited from having a team with outstanding experience, skills, and training, including a supervisor with more than 19 years of experience and a talented and committed 19-year-old apprentice. As just one example of the complexity of the installation, Lowry explained how “the ceramic coating used starts out very thick—almost like drywall mud—and has to be mixed to a specific consistency.” A large, industrial paint sprayer was used for application, with different tips and nozzle sizes as appropriate. Anything within 8 feet had to be completely covered to protect it against overspray. Two layers were required to ensure thermal retention, for both process efficiency and personnel protection, and each layer needs to be of a precise thickness. Additionally, each layer needed to dry before application of another layer or equipment use.
Due to the number of protrusions, this complex required precise design and application. In every aspect of installation, the project illustrated the exemplary craftsmanship of JT THORPE’s team of insulators.
Lowry noted, simply properly insulating steam lines pays for itself in a year or less. When you run through all the ways using the appropriate materials and installing them properly saves energy and money—including the human and financial costs of not providing adequate personnel protection, and the cost of process inefficiency or downtime—the benefits are obvious. Still, some projects seek to cut corners, which makes projects with customers who recognize the value and budget the up-front cost for short- and long-term gain so satisfying. This customer was focused on the quality of the project and saw the benefit of insulation. They were very interested in having a system that would last for decades.
Lowry called this project “one of those jobs that’s just perfect for a good mechanical insulator” because it called for a full range of capabilities and experience. “From fabrication to the materials used—polyiso, ceramic, material wool, you name it—we took measurements and cut our own. We got to run the entire gamut of skills.” JT THORPE submitted this project to NIA’s competition because it illustrated the exemplary craftsmanship of the company’s insulators. Lowry said the project’s success truly depended on the outstanding performance of a core team that included Vincent Benningfield, Rodney Dreher, Gary Hahn, Jason Hillerich, and Tyler Langley. Lowry summarized, “It was just a fantastic project. The materials were correct, the installation was solid… things just flowed very well.” The competition was created after this project was concluded. Lowry emphasized that the insulators were not thinking about winning a prize; this was just a normal project for them. When thinking back, he said what really stands out to him was how the entire team worked well together during a difficult time, from the Lead Project Engineer to the General Contractor to all the other trades. Lowry is extremely proud of the work his team accomplished. “We have a core group that are animals when it comes to teamwork… All the guys knew it, too. This was one of those jobs where the project manager more than one time thanked me. Everybody respects what you’re doing for them.”
In the end, that makes this a truly rewarding project for everyone.
NIA congratulates 2023 competition winners:
First Place: Elite Insulation, Inc.
Second Place: JT THORPE/Thermal Solutions, Inc.
Third Place: Argus Contracting, LLC
We thank all the entrants who helped highlight the diversity and creativity of the mechanical insulation industry:
Watch for future articles with details on other projects submitted.
Over my 20+ years of experience, here are some of the comments I have heard from my customers when I share my knowledge and help spread correct insulation information.
After increasing by more than 20% last year, spending on nonresidential buildings will see a much more modest 4% increase in 2024 at a pace that will slow to just over 1% growth in 2025. Spending on commercial facilities will be flat this year and next, manufacturing construction will increase almost 10% this year before stabilizing in 2025, and institutional construction will see mid-single-digit gains this year and next.
These are key conclusions from the AIA Consensus Construction Forecast panelists, a group composed of the leading construction forecasters from across the country. This survey provides the most recent update of nonresidential building forecasts for 2024 and provides the first look at 2025.
This past year produced a surprisingly strong performance for the building sector of the economy. The healthy spending rebound of almost 12% in 2022 came on the heels of only modest growth in 2020 and a decline of almost 5% in 2021, before spending accelerated to an estimated 22% in 2023. Manufacturing construction accounted for a large share of these gains, as this sector alone produced almost 30% of overall spending on nonresidential buildings last year. However, manufacturing was not the only bright light. On the commercial side, spending on offices was up an estimated 8%, retail and other commercial facilities 7%, and hotels 21%. The institutional sector did equally well, with health- care and education spending both up an estimated 13%. Religious and public safety facilities each increased at a double-digit pace, and the amusement and recreation category grew to more than 8%.
Recently enacted federal programs provided some of the latest boosts to construction spending on buildings. The CHIPS and Science Act, enacted in August 2022, has boosted manufacturing spending by providing funding to high-tech hubs and semiconductor manufacturing. The Inflation Reduction Act, also enacted in August 2022, has provided funding for the electrification of homes as well as financial incentives for energy-efficient commercial reconstruction and building. Finally, the Infrastructure Investment and Jobs Act, enacted in November 2021, provides funding for traditional infrastructure,
which eventually will encourage more building construction in conjunction with these infrastructure investments.
Even with the additional funding provided by these federal programs, building construction activity is projected to slow. Behind the projected slowdown are several economic headwinds facing this sector, mostly affecting commercial facilities. These include tighter credit conditions, high input costs, falling prices for commercial property values in several sectors, and structural changes in demand for key commercial categories.
Even though construction spending remains strong in virtually all nonresidential construction categories, other indicators confirm that a construction slowdown is underway. By the latter part of 2023, construction starts had either slowed dramatically or turned negative in virtually all construction sectors. The value of nonresidential building starts increased a mere 2% through the first 11 months of 2023 as compared to the same period in 2022, according to ConstructConnect. Starts in the commercial sector declined 1%, with double-digit declines in retail and warehousing, but were largely offset by growth of 20% in the hotel sector. Manufacturing starts were down 4%, while institutional starts increased by 10%. Within the broader institutional category, education starts increased by 20%, while health-care starts saw a fairly significant decline.
Architecture firms also saw weaker business conditions last year. Through November of 2023, the AIA’s Architecture Billings Index (ABI) showed declining billings at architecture firms in seven of those months. More significantly, the September through November readings were all in the 44 to 45 range, indicating a more significant decline in billings in those months.
Architecture firm billings are unlikely to rebound anytime soon. New project work coming into firms has also seen a slowdown, with declines each month over the August to November period. These declines in new project work have cut into backlogs at firms. While reaching 7.2 months on average in early 2022, firm backlogs had edged down to the 6.5-month level by the third quarter of last year.
However, the status of billings at architecture firms varies considerably depending on their specialization. Firms specializing in multifamily projects reported strong billings through mid-year 2022. They have been slowing steadily since then, with significant declines by the fourth quarter of 2023. Firms specializing in the commercial/industrial sector likewise were reporting strong growth in billings through mid-year 2022, and modest decline since then. The downturn in billings moderated through most of last year.
Institutional firms, in contrast, have fared much better in recent quarters, alternating between modest growth and modest declines in billings over the past several quarters. Institutional projects are largely immune from the headwinds confronting commercial and industrial facilities. Funding is generally more heavily dependent on government and nonprofit commitments as well as private philanthropy. Therefore, it is generally more insulated from changing market conditions.
Additionally, institutional projects often are more dependent on broader demographic trends. For example, the number of people in the school and college population will influence the size of educational construction budgets. Also, people aged 65 and older tend to be major consumers of health-care services and, therefore, the number in this age range will influence the need for health-care facilities. In contrast, demand for commercial and manufacturing facilities is heavily influenced by regular economic cycles and less so by the demographic characteristics of the population.
The AIA Consensus Construction Forecast panelists are expecting relative stability in spending on institutional facilities to follow this pattern. As a result, all the major institutional sectors are projected to see modest growth this year and next. Education and health-care facilities generally account for about 60% of construction spending in this category. Spending in the education sector is projected to increase 6% this year and 4% in 2025, in part to make up for deferred spending during the pandemic. Health care was one of the few major construction sectors that did not see a decline during the pandemic. This pattern of stable growth is projected to continue, producing an increase in spending of around 3.5% annually both this year and next.
To view the full report, visit www.aia.org/ccf and read the AIA article at https://tinyurl.com/5z53cmph. Reprinted with permission from AIA.
By Chris Daum
Being resilient means various things to different people, but at its core, it is about being able to withstand or recover from adversity. And one thing is certain, the built environment experienced its share of challenging conditions in the past 3 years, making resiliency more important than ever. While historically being resilient meant focusing on the fundamentals, internal operations, and other variables within our control, that definition is now evolving to also mean being flexible, innovative, and adaptable.
The operating environment during the past 3 years amplified labor challenges, demonstrated constraints in the supply chain, and altered the types of projects that are getting funded and built. The growth in project sizes and overall funding for both civil and social infrastructure is shifting the entire industry, causing constraints in some areas and excess capacity in others. Therefore, understanding market dynamics and project economics where you operate will be even more critical in 2024 and beyond.
Although inflation cooled during 2023, it continues to be top of mind for regulators, business leaders, builders, and consumers, as it ticked up to 3.4% in December. In addition to rising costs of goods and services, many are struggling with financing as interest rates remain high. As the Federal Reserve considers interest rate cuts, it must be careful to avoid a return to inflation brought on by being too aggressive too soon as well as potential increases in government spending.
Banks are continuing to be more selective about the projects they finance across the built environment. This means companies will need to demonstrate they can manage risk and efficiently execute projects to get the working capital needed.
Despite the economic uncertainty, total engineering and construction (E&C) spending for the United States is forecast to end 2023 up 10%, a slightly slower pace than 12% in 2022. Significant investments in nonresidential building and nonbuilding structures led 2023’s spending, a trend we expect to continue as the residential market remains under pressure.
For 2024, FMI forecasts only a 2% increase in E&C spending levels compared to 2023. This means companies will need to have clear strategies, best-in-class operations, and inspired leaders to capitalize on current industry conditions and create resilient firms.
“Resiliency is all about being adaptive and innovative,” said Ramin Cherafat, CEO at
McCownGordon Construction, an employee-owned construction company in Kansas City, Missouri. “The companies that are going to sit back and say, ‘Well, hey, this is how we’ve always done things’ are the ones that are going to struggle the most with resiliency.”
Creating a resilient business will mean finding innovative solutions to tackle everything from labor shortages and productivity inefficiencies to developing the right talent to lead firms into the future. Executives across sectors and geographies in the built environment continue to look for ways to capitalize on their current opportunities and differentiate themselves from the competition.
Given the current operating environment, many are watching geopolitical developments such as the wars in Israel and Ukraine, China’s economic uncertainty, and global real-estate volatility for indications about the direction of the U.S. economy. Add in domestic factors such as supply-chain issues, election-year uncertainty, and continued high cost and limitations of financing, and more of the bigger picture begins to take shape. Understanding how these global and domestic factors affect the markets where you operate will dictate strategic decisions and help your business adapt to various operating conditions.
We recommend being informed and then focusing on what is within your control. The best firms will do the work to become destination employers, drive operational improvements, create data- and research-based strategic plans, and develop leaders to build the foundations for future success. And while many of these challenges are not new, companies will need to look to innovative solutions, implement new technologies, and adapt to the evolving E&C business environment to be successful. One example of this, according to Les Snyder, President of the Associated General Contractors of America (AGC), is getting creative when thinking about labor and how to attract the next generation of more diverse talent to the industry.
“I couldn’t be more pleased with the younger generations entering this business,” Snyder said. “We have the pipeline open and we’re being more convincing. Younger generations are enthusiastic, diverse, share their thoughts, and have a mastery
of technology.”
The trick will be keeping these individuals engaged, transferring knowledge to them from
those with more experience, and giving them the right tools and technology to be successful, Snyder said. One of the areas where he is most optimistic centers on the innovation and problem-solving that he sees from younger generations. They are working to develop tools and solutions to many of the industry’s challenges, something that will help create more resilient organizations and drive future growth.
As construction technology evolves to better solve business problems, including productivity, communication, and labor issues, it is important to carefully evaluate your options and the desired outcomes of implementing new tools. Developing a clear strategy for how to utilize tools and then giving people the necessary information to act helps drive long-term success.
For Rob Strobel, CEO of Lithko Contracting, one of the largest concrete contractors in the United States, information technology processes are helping to engage employees by quickly getting the right information to those who need it, allowing staff across projects to make better decisions. By getting the information into the right hands, employees can quickly make decisions and know the scope of their roles, helping them to have more ownership.
“We don’t think about engagement via foosball tables and Keurigs,” Stroble said. “We’re talking engagement through providing information to track and adjust outcomes of their plans.”
Labor productivity is the central economic engine that drives profitability for labor-intensive,
self-performing contractors and is at historically
low levels relative to construction spending.
Our 2023 Labor Productivity Study found that
contractors lost approximately $30 billion to
$40 billion to labor inefficiencies in 2022. These labor productivity deficits translate to significant project and enterprise margin erosion industrywide.
Almost half of 2023 survey respondents (45%) saw declining labor productivity, with 79% of contractors indicating they could improve productivity by 6% or more with better management practices. Not only will this help solve labor constraints, but it also creates an organization that is more resilient through better processes, operations, and management.
By getting a handle on productivity, giving workers the tools needed to be successful, and diligently planning for jobs, companies can improve margins and profitability. In an industry where one bad job can make or break a company, harnessing the power of your biggest asset—your people— will ensure you continue to successfully operate and thrive.
For Matthew Consigli, President at Consigli Construction Co., an employee-owned construction manager in the Northeast and Mid-Atlantic, creating a resilient business means always focusing on the fundamentals of building backlogs of quality work, superior execution of jobs, and hiring and retaining the right people who fit the company culture.
“It always comes down to the fundamentals of budget and schedule and safety and quality,” Consigli said. “The other stuff really doesn’t matter if you don’t do this right.” He also focuses on building an organization that puts people at the forefront and on creating an environment where they can develop throughout their careers.
Improving resiliency often means paying attention to the basics of running a successful business. This includes having discipline around strategy and project selection, adequate capitalization, quality project execution, and investment in your people.
Review your strategy to make sure you understand your markets and where you will win work. Be selective about the projects you pursue. For successful, growing companies, this means considering strategic plans, core competencies, and market conditions to make the best decisions. It requires discipline and understanding of what differentiates your company from others in the industry.
For many looking to move into different sectors or markets, this can mean partnering with another firm or entering joint ventures to pursue successful projects. The key is understanding what you bring to the project and clearly communicating throughout the collaboration.
“We don’t believe that we have to do everything ourselves,” said Strobel of Lithko. “We believe in the concept of partnering and creating joint ventures to help bring complementary core competencies to ours, and then leading in what we do well, which is the project management and project leadership, but bringing other skill sets to bear that apply some advanced manufacturing techniques, some modular techniques that allow us to minimize the amount of labor that’s required.”
Part of that project selection discipline should also consider capitalization and cash flows. Construction projects have limits on the profits you can earn, but the amount of money you can lose is unlimited. Overcoming this risk requires an adequate capital base that allows you to withstand inevitable problems and continue to put quality work in place.
It is this emphasis on quality work that sets the most successful contractors apart from the mediocre. The top executives understand their projects are only as good as the people executing the work on the job site.
The most resilient companies are continually investing in their people, creating the next
generation of project managers, estimators, field leaders, and executives. As more people retire or leave the industry, it is going to be critical to transfer their decades of experience and knowledge to your next generation of leaders.
“Development is something that goes on for your entire career,” AGC’s Snyder said. “But those that master taking the knowledge of the generations that are moving on and getting that to transfer to the new upcoming generations will be most successful.”
Most successful businesses are continuously improving, yet it can be hard to know what is going to provide the biggest boost to the bottom line or set you up for long-term success. It is easy to focus on projects and small improvements. When it comes to being more resilient, it is important to review overall goals and metrics and think about the larger-scale changes that need to happen.
Here are a few tips for keeping business resiliency top of mind:
As the definition of being resilient evolves to incorporate new technologies, processes, and generations of talent, companies that are truly prepared for the future will have strategies for innovating while not losing focus on the fundamentals of what makes a successful business. You will need to be diligent in ensuring you are investing in the fundamentals and the innovations that will set you on a path of continued growth and profitability.
Chris Daum is the President and CEO of FMI Corp. (www.fmicorp.com). Daum oversees the management of all FMI businesses and services and leads the firm’s strategic growth efforts. Visit https://tinyurl.com/5xk9pcfh to download the full report. Excerpted with permission from 2024 North American Engineering and Construction Industry Overview.
The NFIB Small Business Optimism Index decreased two points in January to 89.9, marking the 25th consecutive month below the 50-year average of 98. The net percentage of owners who expect real sales to be higher declined 12 points from December to a net negative 16% (seasonally adjusted), a very negative shift in expectations.
“Small business owners continue to make appropriate business adjustments in response to the ongoing economic challenges they’re facing,” said NFIB Chief Economist Bill Dunkelberg. “In January, optimism among small business owners dropped as inflation remains a key obstacle on Main Street.”
Key findings include:
As reported in NFIB’s monthly jobs report, 39% (seasonally adjusted) of all owners reported job openings they could not fill in the current period. Seasonally adjusted, a net 39% reported raising compensation, up three points from December. A seasonally adjusted net 26% plan to raise compensation in the next 3 months, down three points from December. Ten percent cited labor costs as their top business problem, and 21% said that labor quality was their top business problem.
Fifty-nine percent of owners reported capital outlays in the last 6 months, up one point from December. Of those making expenditures, 40% reported spending on new equipment, 25% acquired vehicles, and 17% improved or expanded facilities. Twelve percent of owners spent money on new fixtures and furniture, and 7% acquired new buildings or land for expansion. Twenty-three percent (seasonally adjusted) plan capital outlays in the next few months.
A net negative 11% of all owners (seasonally adjusted) reported higher nominal sales in the past 3 months, unchanged from December. The net percentage of owners expecting higher real sales volumes declined 12 points to a net negative 16%.
The net percentage of owners reporting inventory gains increased two points to 0%. Not seasonally adjusted, 13% reported increases in stocks and 19% reported reductions, up four points. A net negative 4% of owners viewed current inventory stocks as “too low” in January, up one point from December. By industry, shortages are reported most frequently in the wholesale (18%), retail (12%), and finance (11%) sectors. Shortages were reported least frequently in the professional services (2%) and construction (4%) sectors. A net negative 3% of owners plan inventory investment in the coming months, up two points from December.
The net percentage of owners raising average selling prices declined three points from December to a net 22% (seasonally adjusted). Fifteen percent of owners reported lower selling prices, the highest since August 2020. Twenty percent of owners reported that inflation was their single most important problem in operating their business, down three points from last month and one point behind labor quality as the top problem.
Unadjusted, 15% reported lower average selling prices and 36% reported higher average prices. Price hikes were the most frequent in wholesale (47% higher, 7% lower), retail (43% higher, 11% lower), services (43% higher, 6% lower), finance (42% higher, 14% lower), and construction (36% higher, 9% lower). Seasonally adjusted, a net 33% plan price hikes.
The frequency of reports of positive profit trends was a net negative 30%, five points worse than in December and a very poor reading. Among owners reporting lower profits, 32% blamed weaker sales, 15% blamed the rise in the cost of materials, 15% cited usual seasonal change, and 11% cited labor costs. For owners reporting higher profits, 49% credited sales volumes, 24% cited usual seasonal change, and 9% cited higher selling prices.
Three percent of owners reported that all their borrowing needs were not satisfied. Twenty-six percent reported all credit needs were met, and 62% said they were not interested in a loan.
A net 6% reported their last loan was harder to get than in previous attempts. Five percent of owners reported that financing was their top business problem. A net 18% of owners reported paying a higher rate on their most recent loan, down two points from December.
This survey was conducted in January 2024.
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The engineering and construction (E&C) industry has demonstrated strong resilience in the face of persistent pressure and economic fluctuations. The growing focus on sustainability and efficiency, even amid economic uncertainty, emphasizes the importance of agility and adaptability. E&C companies can remain nimble through the continued adoption of new technologies, analytical methods, and the engagement of a broader workforce. Digital transformation can help E&C companies develop new synergies while improving efficiency, reducing emissions and waste, decreasing costs, generating new value streams, and enhancing talent and program management. Leveraging cutting-edge technologies, such as generative artificial intelligence (AI), can provide a competitive advantage to E&C firms in 2024. Furthermore, E&C companies can compete on both cost and revenue by accessing government incentives offered by the Inflation Reduction Act and the Infrastructure Investment and Jobs Act funding streams likely to hit the market in 2024. Finally, E&C firms should continue to embrace change, not merely as a response to external pressures but as a strategic imperative to better thrive in an uncertain macroeconomic environment.
E&C companies may add the following to their strategy playbook to navigate uncertainty, strengthen competitiveness, and take advantage of the opportunity at hand:
Excerpted with permission from Deloitte Insights (www.deloitte.com/insights). For Deloitte’s “2024 Engineering and Construction Industry Outlook,” please visit https://tinyurl.com/2ytrxjzb.
