Last edited 23 Feb 2016

Supply chain management in construction

Contents

[edit] Introduction

The origins of supply chain management (SCM) lie in the manufacturing industries. The armoury practices of the late 19th century, and later the production methods of Henry Ford in the 1920s, created the SCM system that remains largely unchanged today. The central focus is on the production process of goods through the control of material flows.

Large efficiency gains can be achieved through managing the interfaces between organisations. Latham and Egan recognised this as being relevant to construction in their respective reports.

SCM exists alongside and overlaps with many other management approaches including:

  • Lean thinking.
  • Business process re-engineering (BPR).
  • Mass customisation.

[edit] What is supply chain management?

‘Supply’ is the flow of resources used to satisfy a demand, such as materials, labour, information, skills, and so on. It can also refer to competencies, and represent combinations of resources. Commodity suppliers tend to be more price focused, whilst strategic suppliers are more quality/delivery focused.

‘Chains’ represents the notion of links within and between both resources and competencies. They are based upon relationships between people and organisations, and processes within and between organisations.

‘Management’ is the exercise of formal authority within a structured organisational setting that is directed towards aims and objectives through the efforts of other people using systems and procedures.

Supply chain management requires a holistic perspective and a view of organisations as parts of a process. It requires the ability to look beyond organisational boundaries, and a recognition of the interdependence of organisations.

Most definitions of supply chain management share generic characteristics:

  • Holistic.
  • Networks.
  • Relationship-focused.
  • Attitudinal.
  • Responsibility of managing chain.
  • Necessity for change of culture.

[edit] The need for SCM in construction

Managing the supply chain involves understanding the breakdown and traceability of products and services, organisations, logistics, people, activities, information and resources that transform raw materials into a finished product that is fit for its purpose.

Buildings are becoming increasingly complex, and require more design input by specialist suppliers. At the same there is increasing fragmentation of the industry as can be seen from the growth of specialist suppliers/contractors, the proliferation of products and the fragmentation of design and control activities.

The supply chain is relatively unstable, and the industry is project-based with defined start and end points, and a traditional separation between design and construction. Demand is treated as a series of competitively tendered prototypes constructed by temporary coalitions. This all has an impact on organisational relationships.

Project relationships are short term and have defined start and end points, they are usually informal/ad-hoc and focused on the project not the business. Relationships between competencies vary from project to project. The resulting lack of continuity prevents the innovation and improvement of process as well as the development of more complex relationships. The client may also have an impact on the procurement route and choice of strategic suppliers.

On large or complex projects, responsibility and performance generally cascades down the supply chain to a plethora of suppliers sometimes unknown at the top of the chain. The first and second tier of the supply chain may sign up to fairly onerous agreements but as the chain develops, so the contractual liabilities decrease until suppliers at the end of the chain are often not locked in at all.

Changing the perspective from delivery of a ‘project’ to the process of ‘project delivery’ requires the building of long-term relationships (formal and informal), partnering, and alliancing.

Companies offering continuity in construction have taken an increasing interest in establishing relationships beyond direct, first tier suppliers. Framework contracts and partnering agreements have pioneered this approach, encouraging the involvement of selected suppliers at relatively early stages of projects while offering continuity of work. This has led to greater collaboration between lead designers and product designers to the advantage of all parties.

The Government Construction Strategy, recommended three different procurement routes that aimed to improve the SCM process; private finance initiative (PFI), prime contracting and design and build. With each of these, the client enters into a relationship with a single integrated supply team, which may include the main contractor, designers, sub-contractors, suppliers, facilities mangers and so on.

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