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Supply chain management in construction industry

There is no doubt that construction sector always has a strong impact on the entire economy and social activities of any country and the application of supply chain strategies are considered to be helpful in achieving higher competitiveness of construction companies. Construction is a worldwide activity with many special characteristics and it includes projects of dramatically different types, sizes and complexities. It seems that the generic supply chains should be simple and linear, however, the construction sector is quite different. The construction supply chains and markets need to be integrated by any construction firm when it delivers a solution to an end customer/client.

Predominantly the concept of Supply Chain Management (SCM) was originated from Just-In-Time (JIT) production and logistics, from manufacturing. However, now the SCM represents an autonomous managerial concept and covers the whole latitude of the supply chain. Furthermore, it deals with the approaches and methods to achieve the broader perspective in the supply chain.

Broadly speaking, the supply chain is “the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer.”

The ever growing problems of supply chains in construction industry are due to the narrow approach and myopic control. The waste and problems in construction supply chains are persistent due to interdependency; largely interrelated with causes in other stages of the supply chain. The physiognomies of the construction supply chain strengthen the problems in the construction supply chain and may well hinder the application of SCM to construction.

The practical solutions offered by SCM should have been developed in construction practice itself and taking into account the specific characteristics and local conditions of construction supply chains. The ingenuities belonging to the domain of SCM have been rather partial covering a subset of issues like transportation costs in a limited part of the construction supply chain.

There are two broad categories in construction industry; General Building Construction and Engineered Construction.

General Building Construction comprises of residential, commercial, institutional and industrial buildings. This includes residential construction produces buildings for human habitation, single family houses, cooperatives societies, town houses, flats and apartments and high-rise apartment buildings. The commercial construction includes retail and wholesale stores, markets and shops, shopping centers, office buildings, warehouses and small manufacturing facilities. The institutional constructions are medical clinics and hospitals, schools and universities, recreational centers and athletic stadiums, governmental buildings and religious buildings.

The Engineering Construction is designed by engineers rather than architects and the provision of facilities usually related to the public infrastructure. As they owned by public sector, therefore funded by government. A high degree of mechanization and the use of much heavy equipment and plant in this construction process. For examples PSDP mega projects in Pakistan. Two common subcategories of engineered construction are Highway/Motorway Construction and Heavy Industrial Construction.

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SCM looks across the entire supply chain (Figure1), rather than just at the next entity or level, and aims to increase transparency and alignment of the supply chains coordination and configuration, regardless of functional or corporate boundaries. The traditional way of managing is essentially based on a conversion (or transformation) view on production, whereas SCM is based on a flow view of production.

Supply chain management in construction

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In normal situations much waste and problems exist in the construction supply chain. However, this is not seen or often ignored. In the chain, most stakeholders appear to be managing just their own parts, securing their own businesses. Most of the waste and problems are caused in earlier stage of the construction supply chain other than where they are found. The root causes of the waste and problems were rarely found in the activity where they were encountered, but rather in a previous activity often operating on a higher organizational level. The waste and problems are largely caused by myopic control of the construction supply chain. Many stakeholders in the chain seems not be able or interested to see the impact of their behavior on other activities in the chain. In most cases, stakeholders are not prompted to consider the effects of their activities. Instead, they are encouraged to optimize their own part of the chain, not taking into account other activities and stake holders in the supply chain.

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Actual practice in construction not only fails to address issues of supply chain, but rather follows principles that make supply chain performance worse.

SCM can play major roles in construction. The principle roles of SCM are covered by the generic SCM methodology. The SCM offers general guide lines that can be used to analyze, reengineer, properly coordinate, and constantly improve virtually the complete construction supply chain, resolving basic problems and the myopic control that have been plaguing the supply chain. This would be practically impossible to realize in the short term. Therefore, initially, the SCM methodology is properly deployed on a lower scale, addressing partial supply chain problems, involving a limited number of supply chain actors. Due to its recurring character, the SCM methodology implies a continuous improvement process of which the scope can be enlarged over time, involving an increasing number of areas of application.

Some areas of application, which may be, and to a certain extent have been subjected to SCM, include the reduction of costs (especially logistical costs), lead-time and inventory in the supply chain. In view of the large share of these costs in construction, this focus is often fully appropriate. Secondly, the focus may be on the impact to the supply chain on site activities. Here, the goal is to reduce site costs and duration. In this case, the primary consideration is to ensure material and labor flows to the site for the sake of avoiding disturbances in the workflow. Thirdly, the focus may be on transferring activities from the site to upstream stages of the supply chain.

The rationale may simply be to avoid the inferior conditions of site, or to achieve wider concurrency between activities, which is not possible in site construction with its many technical dependencies. Here, the goal is again to reduce the total costs and duration

In practice, these areas are intimately interrelated. It is often difficult to improve the dependability of the deliveries of a supply chain without addressing the total supply chain. If activities are transferred from site upstream the supply chain, it is requisite that the resultant, more complex supply chain is orderly managed and improved in order to have the benefits intended.

In view of these roles, gaps in prior initiatives to advance the supply chain can be identified. For instance, the logistics initiatives, stressing (average) costs, have often failed to address the impact of supply chain variability on site assembly. In addition, industrialized construction, with its long and complex supply chain, has often been lacking even basic principles of SCM.

The generic body of knowledge accrued in the framework of SCM leads to improved understanding of the characteristics of construction supply chain problems, and gives direction for action. However, the practical roles for SCM have to be developed in construction practice itself, taking into account the characteristics of construction and the specific situation.

 

Construction industry has been characterized with fragmentation and poor communication and coordination among the project participants. There are many inter-organizational problems, such as late deliveries of materials, wrong deliveries and inaccurate information transfer in materials supply chain process, which results in missing targets. Efficient material supply chain process is crucial for the success of any construction project and can be the deciding factor between a successful project and a project full of delays and claims.

To develop a material supply chain process framework, that enables contractors to have the materials needed, the right quantities with the quality would be required and of course with time resources.

This could be achieved by having the following objectives:

  • Studying the current practices of the MSCP and the important factors that constitute it.

The MSCP comprises of six phases:

  • Bidding phase
  • Sourcing phase
  • Procurement phase
  • Construction phase
  • Evaluation phase

Each phase contains a set of activities that should be viewed as integrated activities rather than only a series of individual activities.

  • Studying contractor/supplier relationship. It has been found that the contractor/supplier relationship is based on project by project basis. Most of the contractors do not form long term relationship, lead to increasing the material prices, increasing the project total cost, delaying materials deliveries to the job site and delaying the project completion and unavailability of the main materials.
  • Developing solutions for some of the uncertainties and risks inherent in the construction industry. In this respect, two concepts have been addressed which are:
  • Buffer Stocks
  • Buffer Time.

It has been concluded that minimum level of the buffer stocks should be kept to ensure that the work progress is not delayed by the supplier’s failure to provide the right materials at the right time. Contractors gave different level of buffer stocks for the locally available materials and the imported materials in stable and unstable conditions. Furthermore, contractors advocate that materials should be ordered in advance by certain days before the related tasks start to safeguard against failure of supplier to deliver the materials on the specified time. Contractors provided different level of buffer times for the locally available materials and the imported materials on the stable and unstable conditions.

  • Identifying the most occurred problems facing contractors through the MSCP, diagnosing the root causes of these problems and developing possible solutions for them. It has been found the most occurred problems encountering the contractors were:
  • Bidding Phase
  • Lack of communication between the parties involved
  • Ambiguities between plans and specifications
  • Incomplete drawings and details are missing Sourcing Phase
  • Incomplete proposals
  • Poor communication between the parties involved
  • Unavailability of required material
  • Incorrect of submittals by the suppliers
  • Late approval of submittal by the Supervisor Engineer Construction Phase
  • Late deliveries ( Materials do not arrive as scheduled)
  • The delivered materials do not comply with the required specifications

It has been found that most of the problems are caused in another (i.e. earlier) stage of the MSCP other than where they are detected. The root causes of the most occurred problems are found in previous activity executed by a prior actor.

  • Determining the key factors that may contribute in integrating the project phases of MSCP.

It has been found that the most factors that contribute in integrating the project phases of the MSCP are:

  • Understanding the client needs and objectives
  • Committing for these needs and objectives
  • Establishing a protocol for dealing effectively with disputes and problems
  • Establishing a system between the project participants for communication and share project information in timely and accurate manner
  • Negotiating contracts with the suppliers and subcontractors rather than using competitive tendering
  • The participation of the designers should not end at the design phase but continues during construction phase.
 The writer is a freelance columnist and is an educationist by profession. He could be reached at nazir_shaikh86@hotmail.com.

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