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How a Texas Construction Company Minimized the Supply Chain Risk

It is possible to supply a facility’s construction by yourself or to establish a supply chain using a contractor. While the first option consumes a lot of time and additional resources, the second includes many risks because the supplier can provide low-quality products, fail to fulfill obligations in full, or disrupt deadlines. It is important to choose a reliable contractor in order to minimize these risks. In this case, we will show you how a Texas construction company was looking for a supplier of materials for construction.

The source data

Company information: Construction Company A from Texas conducts engineering survey work, designs facilities, and performs engineering and technical works. It is directly involved in the construction and finishing buildings on a turnkey basis. It works with residential, industrial, and commercial facilities.

Problem: Over the past year and a half, Company A has almost doubled their volume of orders. For this reason, there was a need to establish a supply chain of building materials through a contractor in order to focus their efforts on construction works entirely. Before this, Company A provided the supply for facilities on their own.

Objective: Establish a supply chain of building materials.

Tasks: Find a conscientious contractor.

What did we do?

From a large list of candidates, three companies were left: Company B, C, and D. The first was of interest from their large amount of experience, the second, because of its collaboration with major construction companies, and the third, because of their loyal pricing policy. With the help of Datapo, we decided to study the possible contractors in more detail. The following actions were done:

  1. Verified registration data. Organization B had been operating since 2009. It had two different addresses: legal and actual. The full name of the company corresponds to the name provided by its representatives.

    Company C was registered in 2014. It had only one address, but the name had been changed twice. It could be assumed that this was due to rebranding.

    At that stage, Company D had more questions attached to it because it had existed for only 8 months. This was probably the reason for the loyal pricing policy that its management adhered to.

  2. Verified the heads of the companies. The Organization B changed 3 of its leaders. For a company with ten years of experience, this was a completely natural figure. Analysts of Company A didn’t become suspicious because of the total number of such changes, but rather because something strange occurred over the past year. In a relatively short period of time, 2 heads had been changed.

    There was nothing suspicions about other companies in this regard: over the entire period of existence, the structure of their executive personnel did not change.

  3. Verified licenses and permits. Everything was fine here. All three companies had necessary documents to conduct their activities.

  4. Studied the financial statements of companies. We assessed profit and loss before tax, obtained information about cash flow, the size of the authorized capital, and the value of shares.

    The reports of Company C and D showed positive dynamics. Company B had a slightly different financial situation. The size of its authorized capital had been declining for the last 2 years. It was another disadvantage of this candidate.

  5. Analyzed participation in tenders. Company B had the largest percentage of participation in tenders. This was logical because the enterprise had existed for 10 years. Having studied the report in more detail, we noticed that the number of applications they had won in the last 2 years had a steady downward trend in this company.

    On the other hand, the same indicator for Companies C and D gradually increased. Notably, a large number of state organizations were among the partners of Company C. Undoubtedly, this was an advantage to the candidate.

  6. Assessed the potential risks. In order to do this, we collected data on the sanctions against each company and verified if they were going through liquidation or bankruptcy proceedings.

    None of the organizations that participated in the tender were under sanctions and were not in the status of a potential bankrupt.

  7. Verified the companies’ lawsuits. Organization D had never appeared in court cases at all. Company C was a claimant twice. The subject of the dispute was the failure of the clients to fulfill their initial obligation under the contract; or simply put, they refused to pay. Company C won both of these cases and received their compensation.

    The most interesting situation was in Company B. The company was involved in 11 court cases.

    The company was a defendant in 8 of them. It was alarming that the last 2 cases were internal corporate disputes. One case hadn’t been closed yet. Given this fact, there was a high probability that the company was troubled.

Conclusion

The leaders of the construction Company A carefully examined the results of the analysis before choosing a contractor. Company D was an underdog because it existed only 8 months and still didn’t have enough experience. In the result of the analysis, no negative moments were found in relation to the company, but nevertheless, the leaders of Company A decided to refuse this company’s services. The main reason was the potential risk because it was impossible to predict the reliability of the candidate due to insufficient information.

At first glance, Company B seemed to be the most suitable candidate because it had been working for 10 years, had a decent customer base and a large percentage of victorious tenders. However, a deeper analysis showed that not everything was going well inside the company. Over the past 2 years, the size of the authorized capital had been steadily declining and two people had replaced the head of the company. Most importantly, the company was involved in internal disputes. It would be illogical to use the services of a company that had several internal problems to solve.

Company C was the most suitable candidate. The company had been operating since 2014. It had a growing indicator of authorized capital and good customers in its portfolio. The company had repeatedly collaborated with state-owned companies. That was a good indicator of the potential reliability of the contractor.

As a result, Companies A and C signed a profitable contract for both parties. As it turned out, the choice of the construction company ended up to be 100% accurate. The contractor ensured a stable supply of materials and never violated the terms of the contract.

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