AEC Value Chain and Digital Transformation

AEC vs Manufacturing. The separation between these two industries existed for decades. Software vendors specialized to provide a solution for each of the verticals. Earlier last week I shared my thoughts about AEC and Manufacturing Software converging and it raised a bunch of interesting questions. Thanks to all of you who commented online and offline. The immediate conclusion I’ve made that the trajectories of both AEC and manufacturing companies are coming close.

You can think about construction as a kind of manufacturing in the future. High-tech buildings, prefabricated construction modules, sophisticated equipment installed in connected homes, IoT, and smart cities – all these things together make me think about construction on the trajectory to search for more manufacturing ideas, methods, and software. What does it mean for software vendors? Before answering this question, I’d like to think more about the construction value chain. Similar to many other industries, the value chain is a place that helps to understand the industry, business relationships, and challenges.

According to a World Economic Forum report survey asking CEOs and ministers priority in transforming the construction industry, 65% of them pointed out the need to integrate and collaborate across the value chain.

So, let’s figure out what is in the value of the chain of AEC projects and how it can be optimized and connected. In the picture below, I put a simplified value chain of a typical construction project.

There are few interesting points. You can see how two ecosystems of construction and manufacturing are intertwined as part of the value chain. You can see on the left how manufacturing companies combined with their contractors and suppliers are connecting together with trading construction contractors and then moving upstream in their work with engineers, architects, general contractors, and building/project owners.

Understanding the value chain helps also to understand what needs to be done in order to transform these two connected ecosystems using digital tools. A typical construction project is super fragmented and diverse from the contractor’s standpoint. At the same time, disconnect in the data handover causes tons of inefficiencies and mistakes. Bringing the technological platforms capable of understanding and connecting these two ecosystems is super important. At the same time, having a single digital platform capable of connecting all of them together can actually be the only way to transform the industry.

What is my conclusion?

The construction project value chain is a diverse set of companies connected together during the time of the project. These connections are much shorter in duration compared to extremely well-connected vertically integrated manufacturing organizations. At the same time, using manufacturing platforms to connect a disconnected AEC value chain, can be an opportunity for modern digital platforms in both AEC and Manufacturing. Just my thoughts…

Best, Oleg

Disclaimer: I’m co-founder and CEO of OpenBOM developing a digital network-based platform that manages product data and connects manufacturers and their supply chain networks. My opinion can be unintentionally biased.