effective supply chain management in construction
TRANSCRIPT
Effective Supply Chain Management in the Construction Industry
Aims and Objectives
The present thesis aims to investigate the various significant impacts that supply chain
management (SCM) has in the construction industry. The main goal of this piece of research
is to discover, to understand and to predict which, more precisely, are the most important
and impacting aspects of SCM that dictate projects’ success in the construction industry. In
order to achieve this goal, an assessment of a number of theories explaining different SCM
aspects of the strategic management of the construction industry will be performed.
The emerging objectives of this research are:
Research and scrutinize the conventional SCM strategies applied in the construction
industry.
Examine and review different strategies for internal and external constructions SCMs
and investigate different business intelligence solutions adapted for the construction
SCM.
Analyse the impact of potential business intelligent systems (BIS) designed to tackle
the SCM and analyse their role and possibilities in the Constructions Industry.
Critically investigate the basic problems encountered by construction supply chains.
Research and examine to which extent SCM is offering practical solutions for an
effective development of the Constructions Industry.
Gather information via desk-based research from a wide range of SCM representative
studies and perform a qualitative analysis.
Make recommendations about a number of potential directions for effective SCM in
the constructions field.
Observe and mention potential improved strategies for further studies and researches.
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Introduction
Background
In present days, the ability to deliver personalised products and services rapidly and in time
all over the world is considerably significant for the performance of any company. As a
result, companies have focused their attention to supply chains solutions in order to satisfy
their clients. A company’s ability to create unquestionable and timeless business connections
with all their specific partners, such as clients or contractors, proved to be a decisive
competitive characteristic (Jespersen, Skjott-Larsen, 2005). Many corporations increased
their activity and compete in an environment surrounded by changeable and chaotic markets;
customers’ necessities change frequently, in different conditions generated by fragmented
markets, where most customers have a lot of demands for products and services, determined
by markets’ continuous need for product diversity and characteristic services. In conclusion,
global competition determines businesses to produce superior but cheaper products and to
have faster services. Based on these difficulties, supply chain management (SCM) was
considered by the corporatist world to be a very useful management tool and a competitive
must have (Jespersen, Skjott-Larsen, 2005). For the last few decades, the examination of
supply chain management (SMC) has been increasing, becoming an intricate discipline on
which many researchers pointed their attention (Mentzer, 2001). The importance and value of
the SCM forced companies to become more alert and, as a result, “there has been increasing
interest in supply chain reporting and enterprise analysis towards establishing the factors that
may be used to achieve business-related goals, such as the control of costs, customer
satisfaction, and the optimisation of resources good relationships with business partners”
(Mentzer, 2011, p 234).
Construction industry’s growing Interest of the in Modern SCM Facilities
The economic literature shows that supply chain management refers to the administration of
interconnected different businesses requesting the supplying of a number of products
packages and services demanded by a particular end customer within a supply chain (Wisner,
Tan and K. Leong, 2008). While the end customers try to remain focused on its main field of
activity, attempting to be more flexible to clients’ demands, they keep under control their
possession of raw materials, collaborating for any necessity with different supply channels
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(Jones& Hill, 2009). The raw material transport and procurement is attributed to outsourcing
entities that have the possibility to execute these actions more effectively and with smaller
financial investments. “The main consequence is a bigger number of organisations concerned
to satisfy the customer demands, while the management authority of basic logistic operations
is reduced” (Vercellis, 2011, p 139). All these activities conducted to the appearance of
supply chain management strategy (SCM), which has as a main purpose the improvement of
flexibility and confidence among partners making part from the same supply chain (Jones&
Hill, 2009).
The typical competitive nature of the constructions industry and its inherent complexity
generated the necessity of successful supply chain management strategies based on balanced
approaches. The majority of experts in the field suggest that subcontractor involvement and
closer relationships between partners could lead to effective improvement solutions of the
SCM within the constructions industry. Nevertheless, relationships between parties seem to
remain quite traditional and “at arm’s length” in this field (Blayse& Manley, 2004, p 146).
Specialists in the field suggested that SCM initiatives within the constructions industry have
been quite superficial and limited (for instance they addressed transportation costs), being
restricted only to a certain part of the supply chain (for instance the construction site). The
most common problem is the fact that the majority of the existing problems are only regarded
from the main contractor’s perspective. Statistical studies demonstrate that in most cases the
main contractor has the most powerful decision because it purchases more material and
labour (Cabinet Office, 2011). Consequently, main contractors become more and more
powerful and subcontractors, suppliers or any other actors in the construction supply chain
have to adapt to their imposed conditions. This situation generates various malfunctions in
the SCM, because the other actors have to reconsider their supply strategies and revise their
trading contracts with suppliers and subcontractors.
The Construction Industry has particular characteristics that demand specific SCM strategies,
different from some other industries. These refer to “the physical nature of the product, the
structure of the industry and the organisation of the construction process” (Petrovic-Lazarevic
& Djordjevic, 2006, p 2). Products in the construction industry are generally large and more
difficult to transport. Considering all the aforementioned characteristics, the interest for
appropriate SCM strategies is growing. Some other global factors such as increasing
competition in the market place, are also contributing to the growing necessity of SCM
strategies. Consequently, nowadays there are more and more organisations which are
choosing to employ business intelligent systems (BIS) in order to address different problems
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in their supply chain. Over the time, BIS had a tremendous evolution, from the basic
assistance of only a few decision makers to the point in which these systems are offering
management services to thousands of users such as companies from the construction industry,
companies that are operating with internal databases or make use of external information
(Moss and Ate, 2003).
Additionally, global consultancy corporations such as “ IBM Business Consulting
Services”, “A.T. Kearney”, “ Ernst & Young”, “KPMG”, “Accenture” or “Cap Gemini” have
also decided to use supply chain management solutions, considering that SCM represents a
significant business tool. Also, a great amount of schools and universities, counting the
Copenhagen Business School Cranfield Scool of Management, University of Cologne or
Erasmus University started to include supply chain management classes in their curricula
(Chopra and Meindl, 2007).
Literature review
Theoretical Framework and Transformation of supply chain management (SCM)
Nowadays, it is a common fact that the increasingly globalising industry generates new ideas
or concepts, which consequently generates constantly misunderstanding about their content,
definitions and fields of applications. The notion of “supply chain management (SCM)” had
appeared in the 1980s, but it began to be acknowledged within the business environment after
the 1990s (Leeman, 2010). Until then, notions such as “logistics” and “operations
management” were being used as being similar and the changeover to modern SCMs raised
many controversies and arguments. Due to fact that this notion covers a very large area in
which it can be applied, the subject of SCM is highly studied and there is a large number of
theories in the literature review. The definitions that have been found in the research studies
on SCM may be helpful for a more profound and holistic understanding of this concept
(Leeman, 2010). While researchers and specialist from all economic areas tried to come up
with a definition for the notion of SCM, more detailed literature investigation is mandatory,
because there are many approaches which are presenting only some specific characteristics of
the SCM.
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Logistic-related approaches:
“A supply chain is the alignment of firms that bring products or services to market.”
(Lambert et al., 1998, p. 307).
“A supply chain is a network of facilities and distribution options that performs the functions
of procurement of materials, transformation of these materials into intermediate and finished
products, and the distribution of these finished products to customers.” (Ganeshan and
Harrison, 1995, p. 1).
“Supply chain management is the coordination of production, inventory, location, and
transportation among the participants in a supply chain to achieve the best mix of
responsiveness and efficiency for the market being served.” (Hugos, 2011, p. 80)
“The Supply Chain encompasses all organisation and activities associated with the flow and
transformation of goods from the raw materials stage through to the end user, as well as the
associated information flows. Material and information flows both up and down the supply
chain. Supply Chain Management (SCM) is the integration and management of supply chain
organisations and activities through cooperative organisational relationships, effective
business processes and high levels of information sharing to create high-performing value
systems that provide member organisations a sustainable competitive advantage” (Jespersen
and Skjott-Larsen, 2005, p. 11).
Other experts in the field (Boyer and Verma, 2009; Handfield and Nichols, 2002) claim that
the notion of supply chain management differs from the logistics one. A supply chain refers
to a whole network of companies that collaborate in order to deliver a product to the market
and logistics means that the activities are taking place in a single company. Furthermore,
dissimilarity between the two notions is that logistics deals mostly with inventory
management, procurement, maintenance and distribution, while SMC also deals with
marketing, customer service, finance development of new products and other related interest
that include fulfilling the customers’ requests. The company and the supply chain are
considered a single unit, according to the instructions of supply chain management (Boyer,
Verma, 2009).
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However, finding themselves in a continual changing process, the constructions industry is
faced with the necessity to rely on efficient supply chains, beyond their theoretical
definitions. They need effective SCM strategies in order to respond to the increasing
competition generated by the global market economy. This different management paradigm
and business network concept transcends the frontiers of any classic enterprise and attempts
to systemise the whole business level throughout the value of chain of a number of
companies (Blecker, Kersten& Herstatt, 2007).
Activities and Functions of SCM
Supply Chain Management Systems (SCM) hold a wide range of functions and purposes
helping managers and other professionals in the supply chain business to develop new
methods to improve their operations (Basu and Wright, 2012). SCM’s are usually
commissioned to: a) offer suppliers and production planners ways for developing their
strategies and programmes and allow a more efficient way of reacting; b) enable executives
to examine essential elements of the supply chain, such as warehouse inventories, transport
operations, material requests or outstanding balances; d) examine an enterprise’s status
regarding present stock or the costs of stock on location with distribution information as well;
e) supervise stock variation that reflects on customer demand; f) create statements of the
company’s productivity and efficiency or costs involved; g) evaluate product cycles, use of
material, routing configurations or inventory age; h) establish tendencies and operate areas of
distribution or inventory for developing the supply chain; i) estimate the progress of
supply/demand balance; j) provide the monitoring of the supply chain system and provide
automated alerts that offer decision makers the possibility to solve issues in their incipient
phases (Basu and Wright, 2012).
The literature search in field of supply chain management revealed several important models
used by companies and organisations. Among them, SCOR (issued and supported by Supply
Chain Councils) and GSCF’s model (issued by the Global Supply Council). CSCMP
(Council of Supply Chain Management Professionals) sustains the American Productivity &
Quality Centre (APQC) (Leeman, 2010).
Creating an efficient supply chain management involves the conveying of individual
functions management into the supply chain system. The way in which the system functions
involves placing the orders by the purchasing department when they receive the client’s
request. The marketing department which addresses client’s demands forwards their requests
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to other retailers and distributors so that their requirements can be fulfilled. The information
within the supply chain system can be controlled only through the integration of all services
and departments a company relies on for its performance. It is evident that in order to achieve
a competent supply chain application it is crucial to develop a strong relationship between
buyers and suppliers while in the same time sharing systems and information and a joint
approach for product development. Hugos (2011) advises on the criteria for working with an
established prosperous supply chain is the constant exchange of information. Global
management has come after decades of experience to the conclusion that in order to enhance
the circulation of a product there is need for the implementation of a process strategy within
the company.
The procedures involved in the main supply chain include:
a) Offering support for the preservation and development of the relationship between the
company and its customers. This refers to the use of interfaces for providing the
customer up-to-date information about product availability. This process depends on
the company’s operations regarding manufacture and distribution. Strategies chosen
by organisations to shape their relation with the clients are:
- Identifying goals that need to be achieved by both the company and the
client
- Applying a constant customer rapport
- Developing a confident and optimistic environment within the company
and in the relation with clients (Hugos, 2011).
b) The purchasing process involves the development of thorough plans constructed in
partnership with suppliers in order to ensure the production flow. Managing
development approaches and designing original products are also elements of the
procurement process. For companies that function on a global level it is important for
the sourcing process to be based on a global foundation. The main goal is to obtain
advantages for both partners and to optimise time resources which are invested in
cycle design and product launch. The purchase function also enhances the growth of
fast communication chains such as Internet tools used for managing potential
demands in a fast pace or the electronic data interchange (EDI).
c) The process of developing and selling a product involves integrating customers and
suppliers in activities that will lead to the decrease of time spent for launching the
product out on the market. In order to maintain competitiveness products need to be
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designed and successfully launched in a very short period of time. The decision
makers that work at developing and selling a product need to find themselves in a
constant communication process with the customer support department. This will
bring valuable information concerning the client’s needs and requirements and
through an assessment process will generate the selection of suitable materials from
appropriate suppliers. These stages will ensure the production and integration of
products in an efficient supply chain (Hugos, 2011).
d) Administering the production process has as purpose the creation of products that
will reach the distribution market after analysing previous forecasts. Flexibility is
required in this particular stage as market fluctuations need to be considered for
adjusting to mass customisation. The continuous changing of the market reduces the
life cycle of a product; therefore adaptability of companies is required as well as
enhanced skills for responding to its customer’s requirements (Hugos, 2011).
e) Distribution is a procedure specific to supply chains which entails delivering the
finalised product or service to the customer who represents the endpoint of marketing
chain (Leeman, 2010).
f) Another practice in the supply chain process is outsourcing. Companies choose to
externalise a part of their services that until then have been delivered by their own
company in order to create a focused approach on services that can be better handled
by their organisation and in the same time are crucial the effectiveness of the chain.
Secondary services are directed towards other companies who are specialised in
particular domains and who can offer high quality consultancy and expertise. This
strategy is often used in construction industry where activities such as transport,
storage or inventory control are forwarded to logistic suppliers. In order to be able to
manage the wide network of suppliers and collaborators central as well as local
involvement and partnership is required. In most supply chains important strategic
decisions are made by central management, while local management is left with
making decisions regarding secondary issues (Leeman, 2010).
g) Assessing performance relies mainly on the relationship quality between supplier and
client, their insertion in the market as well as the company’s profit and performance.
In order for a company to be profitable it is important to make use of supplier services
and to create a stable relationship with the client. Logistics are today one of the most
influential factors in the development and protection of competitive benefits. When
undergoing an internal evaluation factors such as costs, quality, productivity are taken
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into consideration. External evaluation on the other hand relies solely on the effect
internal procedures have on the client. Therefore, the customer’s interpretations and
opinions regarding the product or the services delivered to him are essential in
creating a realistic assessment (Leeman, 2010).
h) In the process of finding efficient methods for reducing costs and expenses,
warehousing management became a useful strategy for diminishing manpower costs,
providing appropriate storing, monitoring the promptness of delivery activities and
offering a stock management area (Leeman, 2010).
After analysing and understanding the complex process of supply chain management
activities conclusions can be drawn on the density of management tasks. However,
supply chain management is today a vital approach for companies worldwide no
matter the industry they operate in (Wang, Heng and Chau, 2007).
Supply Chain Management in Constructions
The Construction Industry
The construction industry represents a particular form of business because of its
divided specific which generates important negative effects such as decreased
productivity, exceeding of costs and timeframes, various conflicts and disagreements.
All of these issues lead very often to legal claims and lawsuits that exhaust financial
and time resources and are considered to be the crucial elements of performance-
related difficulties which the construction industry is confronted with. Fragmentation
in the construction industry makes the delivery process to be considered inefficient in
comparison with other industry segments (Fernie and Thorpe, 2007).
Among consequences that rise from the fragmentation issues, the most recurrent ones
are:
- Poor identification, ranking and implantation of client’s needs
- Creating design solutions which are under the level expected by the client
- Fragmentation of construction data, design and fabrication
- Inadequate integration and partnership between operations which are part
of the project’s life cycle
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- Feeble communication of the design plan and the reasoning for undergoing
a certain process. This generates design changes, liability claims and
overrunning the time and cost frame (Lavelle, Hendry and Steel, 2007).
Under these circumstances the application of a supply chain management can generate
vertical integration in the design and production process. This function would connect the
process to a chain with the purpose of exploiting opportunities for increasing value and
diminishing total costs. As adopting this kind of application calls for a change in the
perception of teamwork, collaboration and shared benefits, the construction industry has
limited examples of applications registered. Integration methods have been used so far in the
attempt to surmount industry fragmentation. These strategies have been used as a practice
model because of their success in the manufacturing or other industries. Among them, the
most recurrent one have been “design-and-construct, design-for-construction, concurrent
engineering, lean construction and business process reengineering” (Fernie and Thorpe, 2007,
p.321). Nonetheless, lacking the support of information technology these methods didn’t
adapt to the growing complexity of construction projects. Research addressing the causes of
inefficiency in construction projects has revealed the fact that the issues that generate
conflicts waste are related to the process and not the product. The above mentioned
approaches are known for their focus on aspects of times, costs or quality. This could also
explain the failure of adopting these strategies in the construction industry (Hughes, et.al,
2006).
In the process of delivering a construction project there are multiple stages and people
involved. The professionals gathered to work on the project come from different backgrounds
and from diverse areas of expertise. The project organisation, also known as a “temporary
multiple organisation” is what defines the process of delivering a construction project. Being
a project-focused organism the organisation has a limited life expectancy and is based on
competitive bidding as the main means of communication and assessment. As a consequence,
the relationships between supplier and client are not stable or strong. The competition
through bidding generates an awareness of the fact that future work cannot be assured in a
system where the lowest bidder wins the project (Lavelle, Hendry and Steel, 2007).
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