Last edited 08 Jun 2018

Supply chains in construction

'Supply chain' is the term used to describe the interconnected hierarchy of supply contracts necessary to procure a built asset. 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.

Unlike the automotive industry, the construction industry has the particular difficulty that every building is different, a unique prototype, developed by a team of consultants, contractors and other suppliers that may never have worked together before and may never work together again.

To add to the complexity, different procurement systems place elements of supply chain management with varying disciplines and organisations.

On a 'traditional' building project, design consultants are first tier suppliers, working for the client, and the contractor has a supply chain of sub-contractors and specialist suppliers. On PFI or design and build projects, however, there may be just one first tier supplier (sometimes the contractor) and design consultants will work for them as part of their supply chain.

On large or complex projects, responsibility and performance generally cascades down the supply chain to a plethora of suppliers sometimes unknown to management at the top of the chain.

One of the problems in the construction industry is that the first and second tier of the supply chain 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.

The key to supply chain management is to provide a strategy that aligns it with the project programme. This starts at the design stage, scoping the work into packages. Early evaluation based on feedback from the supply chain can produce enormous cost benefits and value. Capacity and production capability in a market controlled by supply and demand are particularly significant if programme bottlenecks are to be avoided.

In recent years larger 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.

'Integrated supply team' is a term used by the government to describe the integration of the complete supply chain involved in the delivery of a project. This may include the main contractor, designers, sub-contractors, suppliers, facilities mangers and so on.

The integrated supply team is particularly relevant on public projects as the recommended procurement routes proposed by the government are private finance initiative (PFI), prime contracting and design and build. Under these routes, the entire supply team are appointed after the project brief has been prepared, often under just one contract rather than separate contracts with each individual company.

For more information see: Supplier.