INTERNATIONAL JOURNAL OF

www.elsevier.com/locate/ijproman

International Journal of Project Management 25 (2007) 150–157

PROJECTMANAGEMENT

Coordination mechanisms for construction supply chainmanagement in the Internet environment

Xiaolong Xue a,c,*, Yaowu Wang a,c, Qiping Shen b,c, Xiaoguo Yu a,d

a Department of Construction and Real Estate, School of Management, Harbin Institute of Technology, P.O. Box 1243, No. 13, Fayuan Street,

Harbin 150001, Chinab Department of Building and Real Estate, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, China

c National Center for Technology, Policy and Management, Science Park, Harbin Institute of Technology, No. 2, Yikuang Street, Harbin 150001, Chinad Harbin Institute of Technology, Shenzhen Graduate School, HIT Campus of Shenzhen University Town, XiLi, Shenzhen 518055, China

Abstract

The construction industry in general is characterized with high fragmentation, low productivity, cost and time overruns, and conflictscompared with other manufacturing industries. Supply chain management as an innovative management mode provides a new solutionfor resolving these problems from systems perspective. Coordination is the core issue to improve construction performance in construc-tion supply chain (CSC). In this paper, the concepts of CSC and CSC management are defined. Furthermore, the inter-organizationproblems that effect CSC coordination are identified. Considering the Internet fosters the integration of construction processes and pro-vides an efficient platform for CSC coordination, this paper presents two types of Internet-enabled coordination mechanisms: marketmechanism, such as auction and contracting, and coordination flow, including information hub and electronic marketplace, for improv-ing construction performance and to accelerate the innovations in the construction industry.� 2006 Elsevier Ltd and IPMA. All rights reserved.

Keywords: Supply chain coordination; Construction supply chain; Internet; Construction industry

1. Introduction

Recent years have seen a growing globalization ofmarkets and the concentration of companies on theircore competencies resulting in increasing supply chaincoordination in supply chain management (SCM).No industry is left untouched. The construction industryin general is characterized with high fragmentation, lowproductivity, cost and time overruns, and conflictsand disputes compared with other manufacturingindustries. These characteristics also are major

0263-7863/$30.00 � 2006 Elsevier Ltd and IPMA. All rights reserved.

doi:10.1016/j.ijproman.2006.09.006

* Corresponding author. Address: Department of Construction andReal Estate, School of Management, Harbin Institute of Technology, P.O.Box 1243, No. 13, Fayuan Street, Harbin 150001, China. Tel./fax: +86 45186402181.

E-mail addresses: xlxue@hit.edu.cn (X. Xue), ywwang@hit.edu.cn (Y.Wang), bsqpshen@polyu.edu.hk (Q. Shen).

causes of performance-related problems facing the indus-try [1].

These problems in general are supply chain managementproblems. This urgently requires coordinating constructionsupply chain (CSC) to improve construction performancein construction supply chain management (CSCM). Thebarriers that obstruct coordination and integration ofCSC are identified as follows [2]:

� Attitude-related issues: such as narrow minded ‘‘win-lose’’ attitudes and short-term focus, arrogant attitudes,exclusion of the subcontractors and suppliers from theearly involvement phases, lack of praise for good perfor-mance, and lack of understanding of the subcontractorsand suppliers problems.� Quality of information-related issues: such as poor

information quality from general contractor and lesstransparency coupled with inadequate informationexchanges and limited communications.

X. Xue et al. / International Journal of Project Management 25 (2007) 150–157 151

� Financial/cost-related issues: These are related tocompetitive tendering based on price (with inadequatefocus on life-cycle costs and ultimate value), which hasdeveloped adversarial relationships among clients,general contractors, subcontractors and suppliersthat result in serious problems with regards topayments.� Programming/time-related issues: such as false expecta-

tions on part of the general contractor, unrealistic pro-gram times, and unrealistic and uncertain lead time ofmaterials and equipments.

The Internet fosters the integration of constructionbusiness processes across the CSC by facilitating theinformation flows necessary for coordinating constructionbusiness activities [3]. In the traditional CSC, for reasonsof information asymmetry and uncertain factors inter-vened by people, the construction processes frequentlycannot be controlled well, easily resulting in inefficientmanagement and poor project performance. However,the rise of the Internet has thoroughly changed the tradi-tional market’s business rules and has brought a revolu-tion in transaction practices. The use of Internet-basedtechnology initiatives makes the exchange of informationsimple, fast, accessible, and accurate, and brings a new,pivotal opportunity and force to development of the con-struction industry [4]. The omnipresent Internet providesa rich environment as well as an effective tool for CSCcoordination.

This paper presents the concepts of CSC and CSCMand analyzes the inter-organization problems in CSCbusiness activities. An Internet-based framework forCSC coordination is described, which emphasizes ontwo Internet-enabled coordination mechanisms, i.e. mar-ket mechanism and coordination flow. Another purposeof this paper is to suggest a research agenda in CSCMfor improving construction performance.

Flow of Information Flow

Supplier 2

Supplier 3

Electricaldesigner

Architecturaldesigner

Structural designer

Otherdesigners

Design Docs

RFI

Demands Owner

$$

Designer

Supplier 1

Supplier I Supp

$

Fig. 1. General structure of co

2. CSC and CSCM

2.1. CSC

Construction is a multi-organization process, whichinvolves client/owner, designer, contractor, supplier, con-sultant, etc. It also is a multi-stage process, which includesconceptual, design, construction, maintenance, replace-ment, and decommission. From this perspective, CSC canbe defined as flowing:

CSC consists of all the construction business processes,from the demands by the client, conceptual, design andconstruction to maintenance, replacement and eventualdecommission of building, and organizations, which areinvolved in the construction process, such as client/owner,designer, general contractor (GC), subcontractor, supplier,consultant, etc. CSC is not a chain of construction busi-nesses with business-to-business relationships but a net-work of multiple organizations and relationships, whichincludes the flow of information the flow of materials, ser-vices or products, and the flow funds between client,designer, contractor and supplier, as shown in Fig. 1.

2.2. CSCM

SCM is a concept that originated and flourished in themanufacturing industry. It was developed from innovationsuch as just-in time (JIT), as a part of the Toyota Produc-tion System, and the field of quality control and total qual-ity management (TQM). Now, it has become a buzzword inthe field of operation management. Although a number ofscholars have provided contributions to understanding ofSCM, there is a lack of agreement among educators, consul-tants and practitioners on the precise definition of SCM.SCM in general can be defined as an integrative philosophyto manage the total flows of the entire business process. Sys-temic, client-oriented, win-win and cooperative manage-

of Materials Flow of Funds $

GC

Facility

Equipment subcontractor

Civilsubcontractor

Supplier A

Supplier B

Supplier C

$

$

$

$

Othersubcontractors

lier II Supplier III

nstruction supply chain.

152 X. Xue et al. / International Journal of Project Management 25 (2007) 150–157

ment strategy is the core philosophy of SCM. Based on theunderstanding of SCM, CSCM can be defined as:

Construction supply chain management is the integra-tion of key construction business processes, from thedemands of client, design to construction, and key mem-bers of construction supply chain, including client/owner,designer, contractor, subcontractor and supplier. CSCMfocuses on how firms utilize their suppliers’ processes, tech-nology and capability to enhance competitive advantage. Itis a management philosophy that extends traditional intra-enterprise activities by bringing trading partners togetherwith the common goal of optimization and efficiency.CSCM emphasizes on long-term win-win, cooperative rela-tionships between stakeholders in systemic perspective. Itsultimate goal is to improve construction performance andadd client value at less cost.

We identify eight key construction business processesthat are implemented within the CSC cutting across orga-nizational boundaries. The eight key construction businessprocesses are project management, client service manage-ment, supplier relationship management, demand manage-ment, order fulfillment, construction flow management,environment management and research and development.Fig. 2 presents a schematic view of CSCM.

3. Inter-organization problems in CSC

Over the last decades, although there have been somechanges in construction industry with the development ofthe technology and culture, much research projects suggestthat construction is still ineffective and many problems inCSC can be identified. Analysis has shown that a majorof these problems are supply chain problems, which origi-nate at the interfaces of different organization or stagesinvolved in the CSC [5], as shown in Fig. 3.

4. Internet-enabled coordination mechanism for CSCM

4.1. Impacts of the Internet on CSCM

Construction is one of the most information-dependentindustries amongst others, with its diversity of forms of

Fig. 2. The conce

information, which include detailed drawings and photos,cost analysis sheets, budget reports, risk analyzes charts,contract documents, planning schedules. Constructioninformation can be group into three categories: generalinformation, organization-specific information, and pro-ject-specific information. Two-thirds of the inter-organiza-tion problems in CSC were caused inefficient means ofcommunication of project information [1]. Wasting of timeand cost in construction projects can be traced back topoor co-ordination caused by inadequate information-insufficient, inappropriate, inaccurate, inconsistent, lateor a combination of them all. Timely and accurate infor-mation is important for all project participants as it formsthe basis on which decisions are made and physical pro-gress is achieved. Thus, communication is always the keyfactor leading to the success or failure of a constructionproject. The use of the Internet as the communication plat-form can help information transfer more effectively duringthe construction process. Besides its speedy transmission,open, easy to use, it also saves money in communicationcompared to the traditional information handling methods[6], e.g. electronic data interchange (EDI).

The Internet is causing a paradigm shift in the wayCSCM is being performed. It plays an important role inCSCM by providing all participants with visibility anddecision support via advanced decision support systems.Internet-enabled CSCM facilitates decision-making,increasing flexibility, responsiveness and speed in opera-tions. This, in turn, enables the project manager to createvalue for client.

Generally speaking, the Internet results the transforma-tion of old organizations and the creation of new networkbased enterprises, provides an open collaboration environ-ment and platform and changes the construction businessstructure and management methods [7].

4.2. Internet-enabled coordination mechanism

The Internet-enabled coordination mechanisms in gen-eral can be grouped into: market mechanisms and coordi-nation flows [3]. A market mechanism is used to conducta business transaction, to purchase something at a given

pt of CSCM.

Participant Owner Designer General Contractor Subcontractors Suppliers

Owner Intra-problems Difficulties finding out owner’s wishes Changes of owner’s wishesLong procedures to discuss changes (OD)

Unresolved quality problemsDelayed occupation due to late completion. (OGC)

Designer (OD) Intra-problems Incorrect documents Design changes Extended wait for architect’s approval of design changes (DGC)

Don’t have directrelationship

GeneralContractor(GC)

(OGC) (DGC) Intra-problems Subcontractedwork not deliveredaccording to main design, contract and planning(GCSC)

Inaccurate data Information needs are not met Adversarialbargaining Order changes (GCS)

Subcontractors

Don’t have directrelationship

(GCSC) Intra-problems Deliveries not according to panningWrong and defectivedeliveriesLong storage periodAwkward packingLarge shipments (SS)

Suppliers (GCS) (SS) Intra-problems

Fig. 3. The matrix of problems in CSC.

X. Xue et al. / International Journal of Project Management 25 (2007) 150–157 153

price. Frequently, market mechanisms are used to fosterprice competition among potential suppliers. Therefore,market transactions are often one-time transactionsbecause a different supplier can be selected for each trans-action. We identified five Internet-enabled market mecha-nisms: auctions, contracting, purchasing groups,electronic purchasing aids and agents. In contrast withmarket mechanisms, in coordination flows, purchasingdecision has been made and information is shared to coor-dinate the flow of products. Coordination flows are imple-mented when managers do not need to search the marketand evaluate alternatives for each transaction. Coordina-tion flows usually have a greater impact on the organiza-tion that market transactions and, therefore, are suitablefor more stable relationships. Coordination flows can beclassified into: information hub and electronic market-

Fig. 4. Internet-enabled CSC c

places. Fig. 4 shows the basic components of Internet-enabled CSC coordination mechanisms.

4.2.1. Market mechanisms

(1) Auctions. An auction is a market mechanism inwhich the buyers and seller agree on the item to be auc-tioned, and on payment and delivery conditions. Each auc-tion can be regarded as a one-time transaction because thebidding process can output a different winner each time.

There are three participants in an auction: the seller, thebuyer, and auctioneer. Usually, no relationship-specificassets between buyer and seller are needed in an on-lineauction on the Internet. Additionally, sellers and biddersrequire little assets that are specific to the relationship withthe auctioneer. Online auctions are a good example of howthe Internet changed the business environment.

oordination mechanisms.

154 X. Xue et al. / International Journal of Project Management 25 (2007) 150–157

Reverse auctions are popular in business-to-business(B2B). In reverse auction, firms sell a contract for the pro-vision of an item and suppliers bid for the contract. Areverse auction fosters price competition among potentialsuppliers promising lower unit cost to the buyer.

Since auctions are one-time transactions, the transactionrisk associated with the closeness of the relationship is low.The operational performance risk for auctions can be highand might be the highest of all mechanisms reviewed in thispaper.

(2) Contracting. Optimal CSC performance requires theexecution of a precise set of actions. However, thoseactions are not always in the best interest of the membersin the CSC, which often results in poor performance. Opti-mal performance can be achieved if the firms coordinate bycontracting.

Contracting has been used as a means to coordinatingbuyers and suppliers in the supply chain to achieve highersystem efficiency. There are two types contracting: classicaland relational contracting. The identities and personalattributes of parties are irrelevant in classical contracting,which do not attach significance to coordination and fallshort in considering aspects such as needs for continuingrelationships, collaborative and cooperative managementor risks and uncertainties. In contrast, in relational con-tracting, the identities and personal attributes of partiesare crucial and written documentation is treated as a recordof what has been agreed, which can promote the coordina-tion between the parties in CSC. Furthermore, contractualcompleteness level has a great impact on CSC coordina-tion. Unfortunately, the drafting of complete contractscould only be possible for very simple procurement exer-cises. Under most situations, construction contracts areincomplete in nature. Fig. 5 depicts a matrix of coordinat-ing potentialities in different levels of relational contractingand contractual completeness [8].

(3) Purchasing groups. The buyers in purchasing groupsbuyers can agree on pooling their individual purchasingvolumes and let the group management negotiate on theirbehalf. However, buyers need to accept the rules of the pur-chasing group. Additionally, the members have to stan-dardize their purchasing needs and batch theirrequirements. Standardizing and batching requirementsmight cause disruptions to some organizations; however,many have already done this to leverage their purchasingvolume internally.

High High power exploitations; high potentials forconflicts and contractual non-commitmentsleading to breach of contract and litigationcompensation/penalties are normally definedby the contract.

Contractualcompleteness

level

Low

Higher potentials for conflicts, claims anddisputes; higher transaction costscompensation/penalties are normally decidedby the law and litigation

Low Relational

Fig. 5. Coordinating potentiality in different levels of re

In purchasing groups, complexity of product descriptionneeds to be medium to low. No specific assets are neededfor joining a purchasing group. Transaction risk is lowbecause using a purchasing group is similar to a one-timetransaction and no barrier restricts a firm’s managementfrom purchasing independently from the group.

Since the group management may decide to change sup-plier without notice, operational performance risk is ashigh as conducting a one-time transaction in purchasinggroups. Additionally, because high frequency of purchaseindicates that a closer relationship with some suppliers isneeded, low to medium frequency is appropriate fir usinga purchasing group.

(4) Electronic purchasing aids. Electronic purchasing aidsare some kinds of software, such as price search engines,recommendation agents and comparison matrices, thathelp buyers to find the right product at the best price avail-able. Price search engines are extensively used in business-to-consumer e-commerce for products such as books,music and computer components. Using price searchengine can find the lowest price of products that fit withthe input description. Recommendation agents use self-reported information of the user to recommend the prod-uct that fits the buyer’s needs. Comparison matrices areused to compare the product features side-by-side on a sin-gle page.

(5) Agents. An agent in computer field usually is a soft-ware entity, which is characterized with environmentawareness, ongoing execution, autonomy, adaptiveness,intelligence, mobility, anthropomorphism and reproduces.Agents can monitor and retrieve useful information, anddo transactions on behalf of their owners or analyze datain the global markets. It can also try to find the best dealfor the customer with less cost, quicker response, and lessuser effort, make rational decisions for humans, and nego-tiate the price of the trade with peer agents strategically,and manage the supply chain network of a company at alow cost [9].

Agents are semi-autonomous pieces of software that areconstantly searching for business opportunities based on aset of rules. They can be used to automate time-consumingstages of the purchasing process reducing the transactioncost for buyers and sellers. For example, buying agentscan automatically collect information on vendors andproducts that may fit the need of the company evaluatethe various offerings, make a decision on which merchants

;

Lesser conflicts and claims; lower transaction costs; disputes/claims could be settled by arbitration; enhanced harmony; improved product quality; and overall best value in win-win atmosphere

;

Higher trust to enhance contractual relationships; conflicts and contractual non-commitments settled through local adjustments and/ or renegotiations; disputes/claims could be settled by mediation

contracting level High

lational contracting and contractual completeness.

GC Agent

Name Server

Address book

Coordinator

Abilities & PreferencesDatabase

Owner Agent

Design Agent

Subcontractor2Agent

Subcontractor N Agent

Supplier1Agent

Subcontractor1 Agent

Supplier N Agent

TE

NR

ET

NIM-Negotiation

M-Negotiation noit

aito

geN-

M

M-NegotiationMonitor (GUI)

TE

NR

ET

NI

eca

fret

nI r

etup

moC-

namu

H

Fig. 6. An agent-based framework for CSC coordination.

X. Xue et al. / International Journal of Project Management 25 (2007) 150–157 155

and products to investigate, negotiate the terms of transac-tions with these merchants, and finally place orders andmake automated payments. An agent-based frameworkfor CSC coordination is shown as Fig. 6 [10].

In this framework, the domain agents include both ‘ser-vice’ agents i.e. coordinator agent, monitor agent, andname server agent and ‘specialty’ agents i.e. owner agent,design agent, GC (General Contractor) agent, subcontrac-tor agents, and supplier agents. All agents communicateand cooperate through the Internet.

The specialty agents are designed to delegate corre-sponding behaviors of CSC participants. The GC agentstands for GC to perform its responsibilities including costcontrol, schedule, quality, safety, and environment perfor-mance of the project through coordination with subcon-tractors, suppliers, owner, and designers. Thesubcontractor agents simulate the decision-making processof subcontractors to negotiate with GC and their suppliers.The owner agent tracks the real schedule, cost, quality ofthe project and duly send the information of designchanges (new demands) to the designer agents and theGC agent. The designer agents will respond to the demandsand send information and design change drawings to theowner and the GC. The GC agent re-schedules the project,makes new decisions, and sends the information to subcon-tractor agents, supplier agents and owner agent. In theframework, all coordination processes are based onmulti-attribute negotiation (‘‘M-Negotiation’’ as shown inFig. 5 between specialty agents. According to Andreas[11] agent-based automated negotiation provides an effec-tive mechanism to coordinate the decision-making activi-ties in supply chain.

All specialty agents advertise their abilities, knowledge,and preferences in the acquaintance database maintainedby of the coordinator agent, and their addresses in theaddress book maintained by the name server agent. Thespecialty agents use the coordinator agent to identifyagents with the required abilities, knowledge, and prefer-

ences. They also use the name server agent to determinethe addresses of the identified agents.

The coordinator agent has a mailbox and message han-dler for receiving and responding to queries from agentsabout the abilities and preferences of other agents, andan acquaintance database for storing the abilities and pref-erences of the agents. It functions by periodically queryingall the agents in the society about their abilities and prefer-ences, and storing the returned information in its acquain-tance database. The minitor agent is used to view, analysesocieties of agents. It functions by querying other agentsabout its states and processes, and then collating and inter-preting the replies to create an up-to-date model of theagents’ collective behaviour. This model can be viewedfrom different perspectives through visualisation tools.The name server agent provides a look-up service foragents’ addresses and has a mailbox and message handler,the component needed for receiving and responding toagents’ requests for the addresses of other agents [9].

4.2.2. Coordination flow

(1) Information hub (IH). IH is an information system.The members on supply chain use it to share business data.It presents a single information communication pointenabling data sharing and facilitating coordination in sup-ply chain. Fig. 7 shows the different communication trans-ferring efficiency (CFE) between using IH and not using IHin CSC. However, the following four challenges that existfor those wanting to use IH should be overcome:

� Information asymmetries can lead to exploitation.� Sharing information with a supplier that is also a com-

petitor can jeopardize confidentiality.� Many managers are not ready to share information with

other supply chain members.� Management has not achieved internal integration of

information systems and business processes in manyfirms.

Owner

Architect

Contractor

Engineer Supplier

Project Manager

Owner

Architect

Contractor

Engineer Supplier

Project Manager

InformationHub

CFE

Low High

Fig. 7. CFE compare between using IH and not using IH in CSC.

156 X. Xue et al. / International Journal of Project Management 25 (2007) 150–157

(2) Electronic marketplaces (EMs). A marketplace isgovernance mechanism. An EM, also call Internet-drivenor Internet-based EM [12] is an information system drivenby Internet that allows buyers and sellers to exchangeinformation about product offerings and prices bid andasked. EM also is an Internet-based solution that linksbusinesses interested in buying and selling related goodsor services from one another [13]. The main objective ofan EM is to facilitate trade: buying and selling. Further-more, EMs can create value by aggregation and matchingmechanism. EMs bring together a large number of buyersand sellers under one virtual roof through using the aggre-gation mechanism. They reduce transaction costs by pro-viding one-stop shopping. The aggregation mechanism isstatic in nature because prices are pre-negotiated. Thematching mechanism that can work in the form of auctionsbrings buyers and sellers together to negotiate prices on adynamic and real-time basis. Matching is a more powerfulbusiness model than aggregation. However, the matchingmechanism is far more complex as well [14].

EM in general can be grouped into four types: verticaland horizontal marketplaces; a more stakeholder-focusedway divides markets into buy-side, sell-side, and neutral;an economic and price-focused classification divides mar-kets into markets with fixed or variable pricing mechanism(fix or variable); and open and closed markets [12].

5. Conclusion

The world of business is being changed to an e-economyby new forces global competition, increased informationavailability, changing relationships, rapid innovations,and increasingly complex products. No industry is leftuntouched. Coordination has been become the key issuein SCM and enterprise strategy, especially in CSCM toimprove construction performance.

Construction industry has been characterized with frag-mentation and poor coordination among project partici-pants in long time, and there are many inter-organizationproblems, such as inaccurate information transfer andwrong deliveries in CSC, which result in the dissatisfiedperformance. Internet provides a rich environment andplatform for the coordination in CSC. It has the potential

to enable the integration of construction business processesacross the CSC.

Of course, CSC coordination is a systemic constructionbusiness strategy which involving all the stakeholders inconstruction process. It requires the partners set up com-mon business goal. Thus, managers need to choose suitablecoordination mechanisms that can promote the effectivecoordination in CSC. Market mechanism, which incorpo-rates auctions, contracting, purchasing groups, electronicpurchasing aids and electronic agents, and coordinationflow including IH and Ems in general are two foundationalInternet-enabled coordination mechanisms.

CSC coordination is a valuable research opportunity forscholars. This paper only presents a general framework forCSC coordination. There is a lot of significant work, suchas how to measure the coordination performance, how tocalculate the coordination cost, etc, that waiting for us todo for effectively implementing this framework in practice.

Acknowledgements

The work described in this paper was funded by theTenth Five-year Plan Key S&T Project of China(2004BA209B03) and the Research Grants Council of theHong Kong Special Administrative Region, China (PolyU5114/03E). This research was also supported by the Na-tional Center for Technology, Policy and Management,Harbin Institute of Technology, China.

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