The fundamental and strategic trends that are underway in supply chains need further facilitation and acceleration in the construction industry. This means that management need to review each of these major supply chain trends ȓ outsourcing, collaborating, differentiating and compressing ȓ to determine whether their company lies ahead of, abreast of or behind their competition. Information communication technology (ICT) is an essential aid in the optimisation and improvement of the supply chain management.
1. HOW CAN THE SUPPLY CHAIN BE DEFINED?
Traditional supply-chain activity and the nature of its membership tend to be specific to a particular project. This condition, while not being unique, is unlike the majority of other industry sectors where supply-chain membership is largely stable.
The supply chain should not be regarded solely as a procurement process, but should embrace the whole cycle of procurement, delivery and consumption. The supply chain should be regarded as a cross-functional activity between all the inter-related organisations and internal departments involved in the process.
The process should be regarded as a value chain and not solely as a supply chain, given that it was the value added at each stage of interaction in the process that provided the organisations involved with business activity (profit, turnover etc.). The supply-chain members should adopt a ‘replicable rolling business’ approach rather than the current individual one-off project approach. Currently, organisations tend to regard each business venture within the construction sector as being new and project-based. More attention should be paid to the ongoing nature of a business, the lessons learnt and nature of relationships built through past activities.
2. Who should be included/excluded from the supply chain?
At present most organisations operate within a one-dimensional view of the supply chain in that only surface-level relationships are considered. A three-dimensional view is needed to fully understand and absorb the varying interests and requirements from within the supply chain when considered in a holistic manner. Any party that ‘adds value’ should be regarded as being within the supply chain. The context of this approach should be considered however, within a long-term view rather than the current short-term attitude. Issues surrounding what happens after the ‘construction phase’ of the project is completed must be considered (e.g. in the construction of a school building, who might be the future parties involved in the ownership of the end product? This will include teachers, children, and parents and so on. In many cases, such interest groups are left outside the processes associated with the supply chain).
The ICE information systems panel agreed that currently, too many parties that are involved in a supply chain are excluded from power-decision processes due to a range of political, historical and other varied reasons. For example, often the end user is excluded from the supply-chain decisions, (bearing in mind that he/she may not be the client but a secondary customer). In particular, government bodies, joint-venture companies (as being typical of the client groups who are often excluded from the supply chain), ‘supplier’ groups and ‘suppliers to the supplier’ groups should be involved as a matter of course. It was noted however, that the supply chain might become overly complicated through the inclusion of parties that could be regarded as being peripheral to the core chain.
The supply chain and its membership should therefore, be chosen carefully with potentially a main chain structure and a series of contributory chains used to identify areas of input of ‘value’ into the supply chain.
2.1. What potential savings can be raised from removal of wastage and improvement of supply-chain management?
Firstly, the full supply-chain value-adding process needs to be evaluated and understood so that points where value is added can be clearly identified. The chain should be value driven and not cost driven (current practice). The points within the chain where additional value can be added must be identified and the mechanisms for adding the additional value defined.
Key to much of the current lack of best practice within the construction industry is the need for the culture to be developed and raised to be more collaborative, innovative, embrace change, (when for the good) and non-adversarial in nature to form its current levels.
Key issues include the following points.
Decisions should be made on a cost and not a price basis (developing a more holistic understanding of the supply chain).
Where possible, products/materials should be modularised in order to standardise and simplify the supply chain.
All process activity should be evaluated and where possible simplified/improved.
If a process does not add value then it should be removed from the supply-chain process. Many processes are seen as key but do not add value.
The information systems panel agreed that savings of 20ȓ40% of the overall ‘through costs’ involved in the supply chain were possible. The view however, was that to achieve this level of improvement, relatively large levels of investment would be needed.
2.2. What are the drivers involved in the supply chain?
Members of the supply chain must adopt a common terminology and a collaborative approach. In the eyes of some, however, collaboration may be confused with collusion. The agreed drivers and a shared set of values must be openly communicated and embraced by the supply-chain members. Control mechanisms must be homogenised and understood by all parties.
Efforts must be made to accelerate change. All parties must regard change as being necessary for enhanced value to be introduced into the supply chain. Agreement must be reached as to how value is defined. The change process must be led generally by market leaders, (such as the Ministry of Defence, the British Airports Authority, Railtrack etc.) which are in a position to push change ‘top down’. All parties must look to adopt an attitude of shared knowledge and learning and agreed methodologies, communication and processes.
All parties must understand and utilise the same drivers (e.g. that an initial quality driver does not become replaced by a price driver later in the supply-chain process – often drivers change as the supply chain progresses through from client to supplier to delivery).
Currently drivers largely involve financial return. Many construction engineering sector organisations focus on turnover rather than profit. It was agreed by the panel that this attitude lowers the status and tone of the sector in that, as a consequence, the construction process is regarded by many clients as adding minimal value. The industry must look to be regarded by client groups as seeking profit while adding value for the client.
Generally the construction industry does not utilise best practise and lessons learnt from other sectors. Where culture, process and people change has taken place successfully in other sectors, these lessons should be identified and applied to construction industry organisations.
3. HOW CAN WE IMPROVE SUPPLY-CHAIN PERFORMANCE?
Initially, current supply-chain performance should be measured and understood given that it is evaluated by the criteria ‘is the overall product on time and to budget’? This ‘broad-brush’ evaluation quite obviously does not provide any mechanism to fully understand where the process can be improved, wastage can be reduced and additional value can be added.
A reflective approach must be adopted towards activities where the knowledge gained is stored, shared and applied to the next activity. At present, all efforts are focused on looking forward to the next project rather than attempting to learn from previous activities and applying the lessons learnt to a general raising of value adding activities.
The whole supply chain must look to improve the management of its processes, in particular with regard to the sharing of data and information (which in turn can be utilised to create knowledge).
All parties involved in the supply chain must look to drive change through all areas of the chain by
the education process
a cultural change
an understanding that all parties will benefit/profit
an open and shared approach to the dissection of the associated benefits of improved supply chain performance
an attitude of ‘if you’re in, you win’ with regard to enhanced approach to supply chain participation
pre-planning and visibility opportunities provided by a visible client forward workload well into the future that is shared by the supply chain family
where possible, freezing expectations but including change where necessary through joint agreement through the use of contingency plans.
More effective management of subcontractors can be achieved when parties
regard the subcontractor as being part of the supply chain (key to the value add process)
share a full picture of the project
share the values that are required by the supply chain
invite input where the subcontractor can add value.
Generally, the nature of inter-organisational interaction within the construction industry is based on contractual relationships. These are not conducive to collaborative working relationships and were deemed to develop adversarial attitudes with the general tone of the relationship being based primarily on one that offsets responsibility and liability to parties further down the supply chain.
4. A VISION OF THE FUTURE?
Improvements to the supply chain need to be planned and must form part of an overall strategy. The change processes should start at the very top of the organisation and should be carried out internally first. As progress is made within the organisation, change must then be extended to all parties external to the organisation (but within the supply chain).
Terminology and classification of materials/products and so on must take place to facilitate the exchange of information through the supply chain. The panel agreed that it would be easier to ‘drive change downwards’ into the supply chain rather than to encourage change. While this would be contradictory to the preferred incremental change process, (where willing participants were gradually educated) a step change approach should be ‘forced’ possibly by a major client, (such as the Ministry of Defence, Railtrack etc.). Such change however, may not lead to true ‘ownership’ of the evolved supply chain. The ‘forced’ change must be clearly identifiable as being for the right reasons and not solely for the benefit of single organisations where it could be regarded suspiciously as a mechanism for the client to squeeze out the margin from the supply chain. The change process should involve, where possible, like-minded organisations and should be seen as a mechanism that will bring about change in all directions within the supply chain.
The supply-chain members should look to the following mechanisms.
Apply best practice whenever and wherever possible.
People and culture issues must be addressed before positive results can be expected. These issues are the key to the success of enhanced supply chain performance.
Organisations should look to adopt innovative approaches to their activities and embrace best practice rather than adopting an approach that perpetuates broadly out-dated approaches to supply chain interaction and management.
5. What role can ict play in improving supply-chain performance?
Information is crucial and drives the entire supply-chain system. The concept that moving information is as important as moving product is an essential part of the growth and improvement in ICT capability. The current information systems have given companies abilities that they did not have before the ICT explosion. ICT has been, and will continue to be, the catalyst for change but for ICT to be effective and productive, the human element must be integrated. Capabilities such as flexibility, adaptability and decision-making abilities are executed best using the human mind.
In the construction industry, the greatest opportunity for improvement lies in the optimisation of the building site. An individual installer/operative may be usefully engaged for only 30–40% of their time, often due to incorrect or mislaid materials, wrong specifications or installation/assembly instructions, or missing compatibility information. These problems can be solved, at least in part, by improved management of materials and information flows, which in turn leads to looking for help in available supporting technologies.
5.1. The internet
The internet is bringing a major contribution to the evolving field of supply-chain management. Despite the decline of the dotcom start-ups, major manufacturing and supplying companies are continuing to fund and install e-commerce systems. The primary benefits of e-commerce involve the reduction of clerical transaction costs, such as those involving contracting, ordering, confirming, invoicing and settlement. In addition, fewer errors may occur through automating offline business procedures.
Other benefits include innovation and general improvements because through their website, a manufacturer can transmit the latest product information, safety/regulation news and test results directly and economically.
Information moved via the internet has a number of characteristics that can change the way in which supply chains are managed and configured. In comparison with traditional modes, internet-based communication is low-cost; more easily shared by multiple parties, available earlier and travels in real-time.
5.2. Electronic data interchange (EDI) systems
Electronic data interchange is the standard communication system used in supply chain of many industries. It serves to link business processes with business partners and increase the accuracy of information exchange. EDI will continue to grow in importance. While EDI systems are not difficult to implement, there are problems with several types of EDI systems being used and the lack of compatibility among suppliers. Most companies do not have good application systems and may need to focus more on interfacing their software. The use of EDI in the construction industry has not been widespread and is currently challenged by such barriers as development and utilisation cost, technology limitations, standardisation process and critical user mass. Despite the widely reported potential benefits, the use of EDI has not been widespread, though recent breakthroughs in the use of the internet are changing this trend.
EDI activity in construction is traditionally focused on the supply chain cycle and financial activities of the business value chain. Given the capability of the internet, EDI can be extended to other facets of the construction cycle. The use of EDI for this information has been hindered by the one-off nature of project teams and the risks of business and technological lock-in. The lowering of EDI barriers is creating positive impacts for transmitting project cycle information, reducing the need for long-term commitment and investment for example, to proprietary infrastructure. A temporary project team may for example subscribe to the EDI service and terminate the service on project completion.
To achieve the potential of internet-based EDI for the construction industry, several issues need to be addressed.
Construction-specific application service provider (ASPs) – the information requirements in construction cycles can be unique compared with other generic transactions. To realise the benefits, ASPs are required to implement services specific to construction information transactions. For example, in order to implement a service hub for the exchange of construction contracts, information-flow modelling becomes essential. The modelling gives rise to the required generic business logic, which will underpin the application service provision. A wide spectrum of technological developments is also required. New business technology models can be utilised to determine key technological developments.
Intellectual property rights (IPRs) protection – the wider use of EDI in construction extends information transactions to incorporate copyright materials. Digital technology and the internet permit effortless, widespread and perfect reproduction of digital content. This causes serious risks for online provision of copyright material. Considerations for regulatory frameworks and technical measures for appropriate use and against copyright frauds are therefore necessary. IPR management for the digital environment requires new considerations such as copying allowance, the right to transmit/retransmit, disabling software functions (copying) and development of new usage models.
Security and legal issues – the internet is built upon open protocols and for public access. Information can be intercepted and tapped into during transactions. For business information, additional provisions are needed to ensure the confidentiality and the integrity of the transactions. The exchange of legal documents also requires further considerations such as authentication and signed receipts.
6. CONCLUSION
The key to supply-chain management is the information flows associated with inter-organisational communications. As a result, a core issue is the effective management of information, both in the form of information flows that permit fast inter-organisational transactions between supply chain partners, and in the form of information accumulated, coded and stored in databases.
The internet has lowered the barriers for using technology and created various impacts on B2B (business to business) e-commerce transactions. Various barriers in EDI utilisation are currently being addressed through the use of the internet. Businesses, particularly small and medium enterprises (SMEs), can now exploit the low-cost and flexible configurations possible over the internet at both technical and business levels. For the construction industry, the implications of internet-based EDI include a strategic opportunity for SMEs and a wider context of use that extends the traditional transaction to high-value transactions. The requirements brought about by the one-off nature of the construction project team can also be addressed through the use of intermediaries, such as ASPs.
Innovative businesses are operating in an increasingly information-intensive manner, using knowledge and information technology to enhance the management of their core process, the way in which they use their business support capabilities, and their management of supply chains. The construction industry already has a strong base of existing knowledge about good practice on which to build the scope for using more advanced information technology, which has remained rather under-exploited.
ACKNOWLEDGEMENTS
Construction debating forum held at CMG offices in Coventry in early 2002. Forum attendees comprised of 20 senior Procurement and Supply Chain Managers from within the Construction Engineering industry – by Mark Peat.
Experience from managing the IT Construction Forum for the Constructing Excellence – by Dr Anna McCrea.
