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Identify, critically discuss and substantiate the three most important factors that contribute to successful supply chain

management in the construction industry.


1. Develop and sustain a culture of collaboration and integration 2. Adopt best practice i.e. by adopting the Lean production philosophy 3. Strong leadership by the client to directly manage and influence the supply network

Definition of Supply Chain Management: The management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole (Pryke, 2009) The construction industry has long been recognised as being inefficient in terms of asset utilisation. Construction projects are highly capital resource intensive activities and due to the ad hoc nature of such, there is a natural tendency for opportunism and mistrust to develop, and are therefore significant factors in the manifestation of adversary amongst construction supply chain participants that service the construction project. This is an unfortunate and demoralising situation for the industry and therefore much needs to be done to bring about change in the attitude and culture of the way products and services are delivered to the customers of the construction supply chain. If this is achieved, it will see an exponential rise in the satisfaction of customers requirements and lead to increased profit generation due to productive utilisation of time and capital resources.

The problem with construction works is that each project can be likened to an egg timer, in that, construction projects are short lived with supply chains disbanded once projects reach their climax and therefore, at first sight, there appears to be little scope for continuous learning and building long term strategic alliances between supply chain participants, such as those arrangements that have had considerable success in manufacturing industries.

Major western car manufacturers were astounded when news travelled that their Japanese counterparts were producing and delivering vehicles at considerably lower cost and generating higher levels of profitability with higher levels of quality with efficiency. This news initiated a $5million enquiry headed by an MIT research team which conducted a thorough investigation in the subject matter as to the reasons for such disproportionate levels of difference between Japanese and western car manufacturers. The research team
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identified that the Japanese were using an all encompassing production and supply system which was deeply imbedded in to the culture of the organisation in an integrated system of collaboration between strategic and tactical levels of the organisation and its external supply network. Japanese car manufacturers understood that people close to the production line or shop floor were best placed to adding value to the production process and that an asset that was not being utilised efficiently did not add value to the process and therefore was considered as causing waste and eliminated. This type of holistic thinking allowed the organisation to flourish and become an industry benchmark in terms of delivering world class manufacturing (Womack et al, 1990).

Bose Corporation was quick to capitalise on the lean production systems success and subsequently developed a collaborative arrangement (JIT II) based on the original JIT delivery system by integrating its suppliers into their production system by allowing key suppliers personnel onto Boses factory floor (Cohen et al, 2005). This type of arrangement is called a Vendor Managed Inventory (VMI) programme. In such arrangements the aim is to promote transparency, trust and knowledge sharing between strategic supply chain partners to develop a system of close integration to enable the supplier to closely monitor demand in a virtual setting which allows a constant flow of interaction between the client and the supplier to enable an automated system of quickly servicing the demand at just the right quantity and at the right time.

A similar VMI arrangement had been tested on selected projects in the construction industry by Skanska, which sought to provide an efficient solution for small item logistics at construction sites (Tanskanen et al, 2007) in which, the supplier, delivers to the site a locker containing a range of commonly used small items, and takes the responsibility of replenishing the inventory according to the use at the site. The system is a self service arrangement whereby personnel swipe a bar code scanner on to the item required, which is then logged on to a database to be used for invoicing purposes and alerts the supplier to replenish stock when required. This type of partnership arrangement allows a constant flow of inventory synonymous with the JIT delivery system. Test data showed that site personnel and central administration used 90% less for invoice checking and a 74% decrease in the
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time spent at the site for small item administration and logistics. The supplier reported that the system eliminated rushed orders and the visibility to the site inventory had enabled a more efficient use of resources. The suppliers data could be used further for statistical forecasting for the pricing of materials in future jobs more accurately.

The above observation indicates that the construction industry can learn SCM systems that are successfully being implemented in other industries and adapt them to the needs of the construction supply chain. However, a key criterion for successfully implementing SCM is strong leadership from the client.

If the adage is that the client expects to receive value from the efforts of the supply chain, then it is only natural that the client should be expected to define value and take a proactive approach towards achieving that value. Leadership from the client is fundamental in successfully implementing SCM strategies to meet its aims and objectives. An interesting example of strong leadership and innovation from the client in a construction setting was found in BAAs management of its supply chain that delivered Heathrows Terminal 5 project. BAAs Chief Executive Sir John Egan realised that the task ahead of him was monumental and that conventional procurement would not suffice. In his previous position as chairman of Jaguars Cars, Egan had witnessed first-hand how radical improvements could be achieved by implementing Lean principles to managing supply chains. BAAs procurement strategy was strongly influenced by the recommendations made in the Rethinking Construction report that was chaired by Egan himself. Rather than take the conventional route in procurement, BAA decided to retain considerable risk by eliminating the traditional construction contract with the 1st tier suppliers and partnered them into a T5 relational agreement. This action was the much talked about concept of a no blame culture being put into practice. The aim of the agreement was to create an environment which incentivised problem solving and promoted a behaviour which sought to get the job done correctly first time. By integrating the project teams with the suppliers enabled the latter to move into best practice and achieve exceptional performance.

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Bibliography

Gil. N, BAA: The T5 Project Agreement (A), Manchester Business School, University of Manchester Benton.W.C, McHenry.L.F, Construction Purchasing & Supply Chain Management, McGrawHill,(2010) Cohen. S, Roussel. J, Strategic Supply Chain Management: The Five Disciplines for Top Performance, McGraw-Hill, (2005) Frazelle. E, Supply Chain Strategy: The Logistics of Supply Chain Management, McGraw-Hill, (2002) Hines. P, Silvi.R, Bartolini.M, Lean Profit Potential, The Lean Enterprise Research council, (2002) Koskela. L, Application of The New Production Philosophy to Construction, CIFE Technical Report # 72 September, (1992) Pryke. S, Construction Supply Chain Management, Wiley-Blackwell, (2009) Rethinking Construction: The Report of the Construction Task Force Tanskanen. K, Holmstrom. K, Vendor Managed Inventory (VMI) in construction, Helsinki University of Technology Tommelein. I.D, Ballard. G, Kaminsky. P, Supply Chain Management for Lean Project Delivery, University of California (2008) Vrijhoef. R, Koskela. L, Roles of Supply Chain Management in Construction, University of California, Berkeley, (26-28 July 1999) Womack. J.P, Jones. D.T, Roos. D, The Machine That Changed The World, Maxwell McMillan International, (1990)

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