Chapter 2 CONSTRUCTION SUPPLY CHAIN · 2017-08-15 · This chapter reviews the concept of construction supply chain management, management problems and barriers that have been studied

Chapter 2

CONSTRUCTION SUPPLY CHAIN

2.1 Introduction

Construction is one of the most complex and information dependent industries.

Construction projects involve a large number of people in different disciplines working on

instructions passed on by others. Therefore, controlling and managing a construction

project effectively and efficiently are extremely difficult owing to the high fragmentation

and involvement of numerous participants. In recent years, the application of supply chain

management (SCM) philosophy has been widely investigated as an effective and efficient

measure to improving the performance of the construction industry. SCM is a concept that

originates from the automotive manufacturing industry (Toyota Manufacturing Plant). The

implementation of SCM technique in manufacturing environments has resulted in an

increased value of production while improving customer service. The distribution industry

has also been successful in adopting SCM in their operations. Following the example of

these sectors of the economy, a small but increasing number of construction organisations

are now beginning to adopt SCM in the hope of achieving similar benefits. This is further

encouraged by the rapid developments in the information and communication technologies

(ICT), which means that timely and accurate information will be available to support an

organisation’s services to achieve its client’s objectives of high value-added product.

This chapter reviews the concept of construction supply chain management, management

problems and barriers that have been studied by numerous known researchers and

construction industry experts. Established procurement methods are also briefly discussed

in order to determine the communication path in the supply chain management network.

The review also highlights the limitations and barriers of ICT implementation in the

construction supply chain management.

Context-Aware Services Delivery in the Construction Supply Chain

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2.2 Overview of the UK Construction Industry

The construction industry has fundamentally been characterised as high fragmented, low

productivity, full of conflicts and disputes and poor in managing cost and time (Whicker et

al., 2006; Xue et al., 2007). However, in the UK there is a growing awareness of the need

for changes within this industry, in particular with managing its current business processes.

This is mainly as a result of three previous government sponsored reports in the UK

Construction, i.e. Latham (1994), Egan (1998) and Strategic Forum for Construction

(2000) which have drawn attention to the problems of the industry’s supply chain, calling

for greater integration of key processes to ensure that better value can be delivered to the

clients. In an effort to address this issue, several construction organisations have started to

emulate the most appropriate supply chain model from other industries to be successful in

managing their businesses. However, according to Flanagan (2002), the construction sector

has not been good at applying technologies from other industries and consequently

duplication of effort occurs.

The construction industry has a major influence on the UK economy through the

construction of facilities such as offices, schools, hospitals, factories and road

infrastructure. Globally, the UK construction industry plays an important role in economic

development and has the capability of delivering the most difficult and innovative projects

in the world. As one of the pillars in the domestic economy in the UK which produced an

output of around £58 billion in 1998, i.e. equivalent to 10% of Gross Domestic Product,

the report of the Construction Task Force (Egan, 1998) made to the UK government had

stressed various important key drivers to modernise the construction sector. Hence, the

awareness of the need for changes in managing their supply chain networks within this

industry in the UK has increased.

A report for the New Construction Innovation and Strategy Panel (nCRISP) produced by

Rigby et al. (2005) had stressed that the diffusion of ICT into the construction industry is

likely to drive improvements in the productivity of the industry and also provide

opportunities to improve the supply chain and logistics operations. This is because the

current ICT enables the integration of various engineering and communication software

which cannot previously be done.


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2.3 Generic Supply Chain Management Definition

The aim of supply chain management is to coordinate planning and control of each process

to meet the needs of the end customer. The concept of supply chain management has been

practiced for many years in the manufacturing sector that originates from an innovative

philosophy by Toyota production plant. Previously known as Just-in-time (JIT), it then

merged with the concept of Total Quality Management (TQM) and Quality Control (QC)

to form the concept of supply chain (Vrijhoef and Koskela, 2000). Referring to Harrison

and White (2006), the analogy of ‘flow of water in a river’ is often used to describe

organisations near the source as upstream and those near the end customer as downstream.

The analogy shows how important it is for each member in a supply chain to interact with

each other like water molecules in order to collectively transform materials into finished

product. According to Harrison and White (2006), the definitions of supply chain and

supply chain management can be described respectively as follows:

“A supply chain is a group of partners who collectively convert a basic commodity

(upstream) into a finished product (downstream) that is valued by end customers,

and who manage returns at each stage.”

“Planning and controlling all of the processes that link partners in a supply chain

together in order to serve needs of the end customer.”

From both definitions and Fig. 2-1, the supply chain can be seen as a network that consists

of a group of people and processes that extend across organisational boundaries where

each member in a supply chain group is responsible for transforming the inputs (materials)

and information into outputs (value-added product). Specifically, supply chain

management involves two important operations, namely: planning and controlling. The

process of planning can be referred to as an operation to make a plan that defines how

much raw materials should be bought, made, distributed and sold. Meanwhile, the process

of controlling is an operation that keeps the process as planned. This can be seen in

aerospace industry where the concept of supply chain management is well-established due

to the strict business needs, i.e. requires highly-skilled workers, high-tolerance products,

time constraint and well-established strategic partnership with government (known also as

political driven business group).


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2.4 Construction Supply Chain Definition

To be specific towards the construction industry supply chain operations, Xue et al. (2007)

had given the meaning for both Construction Supply Chain (CSC) and Construction

Supply Chain Management (CSCM) as follows:

“CSC consists of all the construction business processes, from the demands by the

client, conceptual, design and construction to maintenance, replacement and

eventual decommission of building, and organisations which are involved in the

construction process, such as client/owner, designer, general contractor,

subcontractor, supplier and consultant.”

“CSCM is the integration of key construction business processes, from the demands

of client, design to construction and key members of construction supply chain

including client/owner, designer, contractor, subcontractor and supplier.”

Referring to Fig. 2-2, it can be said that CSC is a network of multiple organisations that

involves a system of activities that links people, consists of operations of information,

building components services and funds between client, consultant team, main contractor,

subcontractors and suppliers (Azambuja and O'Brien, 2009; Formoso and Isatto, 2009).

Meanwhile, the concept of CSCM addresses business processes that involve the managing

Suppliers Manufacturers Assemblers

Retailers Customers

Sales Use or

Consumption

Products

Assembly

Parts

Manufacture

Materials

Material flow (supplies, production, deliveries, schedules, forecast)

Information flow (orders, schedules, forecast)

Upstream Downstream

Fig. 2-1: The Generic Configuration of Supply Chain in Manufacturing

(reproduced from Vrijhoef and Koskela (1999))


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of both planning and controlling of human resources and utilise suppliers’ resources,

infrastructures and services in order to serve the client’s demand.

2.5 Characteristics and Roles of Construction Supply Chains

Management

Traditionally, a construction team is a temporary organisation that has been formed to run

a specific project within a specific time period. This formation consists of different groups

of companies and practices background which may not have a previous strategic

partnership and are tied to the project team by means of varying contractual arrangements

(Xue et al., 2007). The contractual arrangements depend on the procurement route or

method of a particular project. Procurement methods are discussed further in section 2.9.

In terms of structure and function, the CSC can be characterised as follows (Vrijhoef and

Koskela, 1999):

Fig. 2-2: Construction Supply Chain (adapted from Vaidyanathan (2009))

Subcontractor 3

Subcontractor 1 Subcontractor 2

Structural

Consultant

M&E

Consultant

Architect General (Main)

Contractor

Customer

Component

Manufacturer 1

Component

Manufacturer 2

Component

Manufacturer 3

Flow of building components

Flow of funds

Information flow


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All materials and services are focused to the point of use, i.e. construction site

where the object is building from incoming sources.

One-off project involving multiple background sectors in the supply chain which

focus on short-term businesses, resulting in instability and fragmentation in the

industry.

The business concept is based on make-to-order with every project creating a new

product.

Meanwhile, the impact CSCM has an on management depends on the role it plays; whether

it focuses on the supply chain, the construction site or both. There are four main roles that

had been established by Vrijhoef and Koskela (2000) and they are as follows:

Focus on the impacts of the supply chain on site activities. The goal is to reduce

costs and duration of site activities.

Focus on the supply chain itself, with the goal of reducing costs, especially those

relating to logistics, lead-time and inventory.

Focus on transferring activities from the site to earlier stages of the supply chain.

The goal is to avoid the basic inferior conditions on site which is not possible with

site construction with its many technical dependencies.

Focus on the integrated management and improvement of the supply chain and the

site production.

2.6 Supply Chain Management in Construction

A construction project supply chain network can be a complex web of systems, sub-

systems, operations or activities and their relationships to one another. These belong to

various members of the supply chain namely: suppliers, carriers, manufacturing plants,

distribution centres, retailers and consumers. The design, modelling and implementation of

such a system, therefore, can be difficult unless some parts of it are cohesively integrated.

In connection to this, the concept of supply chain management is about managing

coordinated information and material flows, plant operations and logistics through a

common set of principles, strategies, policies and performance metrics throughout its

developmental life cycle (Lee et al., 1993). In CSC, coordination is achieved within


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temporary organisations formed of firms or stakeholders to provide specific productive

capacity for a given project to satisfy client’s demands.

2.6.1 Common Problems

The construction and its supply chain integration is always quoted as fragile by numerous

researchers due to failure to understand the methodologies of design, material/component

selections, processes and procurement routes adopted (Briscoe and Dainty, 2005). Vrijhoef

et al. (2001) had revealed that the major problems in construction supply chain originate at

the interfaces of stages in the network as shown in Fig. 2-3. This is agreed by Ballal (1999)

who recommended that past construction knowledge and expertise to be extracted and used

in early design decisions for better integration of design and construction stages. In

addition to that, Green et al. (2005) also found that the decades long of work culture is the

hardest barrier to overcome. The reluctance to change is made worse by poor

understanding of the relationship between time and cost that eventually results in delay,

increased costs, defects and contractual conflict of the construction project (Whicker et al.,

2006).

Fawcett et al. (2008) had revealed that failure in recognising the importance of technology

and the role of information is a major barrier towards successful supply chain

collaboration. Most construction organisations are technologically conservative

organisations. They are unwilling to invest in new, costly and unproven technology due to

the lack of belief of its potential benefits. The lack of awareness among top management

and lack of client enforcement are among the reasons why construction organisations do

not adopt the SCM model for their businesses. Xue et al. (2007) and Kim et al. (2008) had

revealed that high fragmentation and poor coordination added with inefficient

communications, inaccurate information transfer and wrong deliveries within the supply

chain networks eventually degrade the overall performance of construction organisations.

The information intensive nature of construction projects requires the parties involved to

have on-demand access to construction information such as project plans, logistics,

schedules, budgets and workforces. The rapid development in ICT coupled with the

advancement in wireless technologies offers a solution for construction organisations to

address the aforementioned issues. Consequently, ICT is one of the drivers for construction

organisations to address the key factors for radical change to achieve long-term benefits.


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Fig. 2-3: Generic problems in the construction process (Vrijhoef et al., 2001)

2.7 Information and Communication Technologies in Construction

The amount of project data and information generated during design/construction periods

are enormous and uncontrolled due to the fragmented nature of the construction industry.

Despite the fast development in ICT emerging as a driving force for construction

companies to be more efficient and productive (Ribeiro and Lopes, 2001; Ahuja and Yang,

2005), the traditional communication and information method is still being practiced. This

is mainly due to a number of factors such as high investment in ICT infrastructure capital

cost and insufficient supporting interoperability between hardware–software within

construction organisations. However, the issue of interconnectivity is being actively

explored to overcome critical unresolved problems. The emergence of interconnectivity

between different communication networks over the internet are encouraging many

construction organisations to seek an alternative method of processing and transferring

data (Aziz et al., 2005; Aziz et al., 2006; Lu et al., 2006; Zhou and Benton Jr., 2007; Leung

et al., 2008). The use of Information Technology (IT) and learning from other industries

were part of the action plans recommendation by the Strategic Forum committee (2000) for

better construction logistics services. Jang et al. (2003) and Rebolj et al. (2008) also

suggested that an information delivery system and services must focus on improving the

construction logistics in order to achieve better productivity, avoiding delays and reducing

waste in a construction project.


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The internet is bringing a major contribution to the evolving field of supply chain

management and this can be seen through the introduction of e-commerce which is able to

reduce ‘clerical’ transaction costs such as those involving contracting, ordering,

confirming, invoicing and settlement. Information moved via the internet has a number of

characteristics that can change the way in which construction supply chains are configured

and managed. However, it is a great challenge to identify which ICT package is capable of

solving such issues in order to deliver various jobs or tasks within the context (Egan, 1998).

In addition, Aziz et al. (2006) had revealed that the current state-of-the-art in mobile

communications in the construction industry has some underlined limitations due to factors

such as lack of cohesion with existing ICT infrastructure and little attention given towards

developing automation in the construction industry. Consequently, it is another great

challenge to implement powerful wireless and web technologies to support and improve

the construction information and communication flow in supporting project team to access

in real-time different corporate back-end systems and multiple inter-enterprise data

resources collaboration and integration. Fortunately, the growth in number and

sophistication of web services means that, increasingly, useful applications will be

available on the internet that can be invoked directly from the construction supply chain

management systems. These invocations can be triggered by changes in the context of the

users or the project and can significantly enhance the effectiveness of construction supply

chain interactions. This provides enhanced capabilities for interoperation between a variety

of services and applications that are essential for intelligent collaboration and information

exchange within the supply chain management network. Intelligent Wireless Web (IWW)

as shown in Fig. 2-4 represents the next generation of ICT application to construction

supply chain management. This intelligent system uses artificial agents and has the

potential of serving and improving the construction supply chain through access to context-

specific data, information and services. Due to the nature of construction activities, agent-

based systems could offer some additional benefits in enhancing the supply chain

management (Cutting-Decelle et al., 2007):

System Flexibility – A supply chain is a domain which is frequently subjected to

structural changes. This gives a robust system that can undergo continuous

adoption to the changes in the environment without the degradation of performance

often met in other types of systems. Automated procedures can be developed to


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deal with the adding and removing of agents to the system and changes within an

agent will not affect other agents.

Integration and Coordination – A multi-agent system facilitates both multi-plant

and general coordination. An example would be when an agent is planning

production. The agent may be planning for one site in a supply chain, but

information can be passed to and received from other sites, allowing a coordinated

production planning.

Responsive and Speed – A multi-agent system would also allow a high degree of

reactivity to unforeseen events. The occurrence of an unexpected event, e.g. an

order cancellation, can be communicated to every concerned entity in a matter of a

few minutes. One important consequence of this is that customers could be

informed of changes in delivery times caused by unexpected events.

Referring to Aziz et al. (2004) and Anumba and Aziz (2006), IWW architecture system

includes Semantic Web (to provide a framework for shared definitions of terms, resources

Fig. 2-4: Intelligent Agent Roles in IWW System Deployment in Construction Supply

Chain Delivery Services (Aziz et al., 2004; Anumba and Aziz, 2006)


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and relationships), Web Services (to provide dynamic discovery and integration) and

multi-agent technologies (to help mobile worker accomplish a particular task such as

purchasing parts from suppliers) to support intelligent mobile collaboration. In conjunction

to this, context-aware application is seen as an additional layer on top of IWW which could

provide the ability to intelligently interpret the user context and deliver data and services to

a project team member based on the user’s context. The context-aware technology

application is reviewed in Chapter 3.

2.7.1 Information Delivery Issue in Construction Supply Chain

The information intensive nature of construction projects requires that the parties involved

have on-demand access to construction information such as project plans, schedules,

budgets, workforces and logistics. The construction supply chain is complex and difficult

to manage because it involves operations or activities of multi-disciplined groups. The

operations and activities involved in construction projects are temporary and organisations

are formed to work together to manage and build a specific project (Vrijhoef and Koskela,

2000). According to Xue et al. (2007), CSC is not only a business to business (B2B) chain

relationship but it is also a network of multiple organisations that are related to activities

that involve the flow of information, flow of materials, services or products and the flow of

funds between client, designer, contractor and supplier. In reality, information flow is

usually not as smooth as planned due to uncertainty existing between the supply source and

subcontractors caused by lack of information sharing and sometimes due to wrong

information delivered to the supply chain members. Harrison and White (2006) had

stressed on the importance of each member in a supply chain to interact with each other in

order to be collectively responsible for transforming materials and information into value-

added products and services.

2.8 Construction Supply Chain Services Model Framework

A vital understanding of the supply chain components and activities to be mapped-out in

an operation is critical because services performance or value-added is measured at every

stage along the supply chain. According to Azambuja and O’Brien (2009), reviews on

other researchers’ supply chain model indicate that to-date there are no clear model

capable of supporting the overall operations of the different construction procurement


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routes effectively. Existing models such as Value Stream Mapping (VSM) lack support in

wide-scale analysis of operational decisions for specific supply chain process. For a more

strategic and operational decision to be made effectively along the construction supply

chain, Azambuja and O’Brien, (2009) had presented a conceptual framework to model a

construction supply chain activities and services from start to the finished product. Five

sequential steps have been established for the model development as follows:

Step 1 - Define supply chain model purpose

Step 2 - Establish supply chain performance measures

Step 3 - Determine product type

Step 4 - Define supply chain configuration

Step 5 - Characterise supply chain elements (e.g. companies, processes and flows)

There are eight goals being listed in Step 1 based on their previous experiences in the

construction and manufacturing supply chain operations. Among the goals are as follows:

Evaluate production decisions

Evaluate transport decisions

Illustrate the supply chain information coordination (IT application).

After defining the goals, the next step (Step 2) is to set the performance measure associated

with each goal. For example, if the goal is to reduce the on-site inventory buffer, the

manager needs to focus on the number of items in stock, average waiting time in stock and

installation demand rate. Step 3 is to determine what product or component type is to be

modelled for. There are four product types which can be associated with different kinds of

manufacturing technique, the supply chain boundaries (environment and actors) and supply

chain processes (activities). The four identified product types are as follows:

Made-to-stock (MTS)

Assembled-to-order (ATO)

Made-to-order (MTO)

Engineered-to-order (ETO)


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Steps 4 and 5 are associated with the identifying of construction supply chain boundaries

(i.e. the supplier, warehouse, logistician, subcontractor or main contractor and on-site job.)

and the supply chain processes. For example, if an MTS product is chosen, the operation

will involve three main boundaries. Once the subcontractor or main contractor has placed

an order, the next operation will take place by the nominated MTS supplier and once the

product is available, the next operation is to deliver to the warehouse before arranging for

delivery to site. The supply chains for production operations are shown in Fig. 2-5.

2.8.1 E-Business Services for Construction Supply Chain

Web services technology is a cost effective tool in the integration of construction supply

chain services because it minimises administration waste. The business methods of

internet and web services technology such as e-procurement and e-collaboration are among

the services that facilitate the coordination of various decisions and activities along the

construction supply chains (Ribeiro and Lopes, 2001). The e-procurement service model

which is the heart of the construction supply chain automation developed by Alarcon et al.

(2009) is the best to be referred to. They developed a model for a centralised type of

operation with the intention of minimising the cost of searching for the best price, to

reduce last-minute purchases and to decrease inventory level. Their model shown in Fig.

2-6 describes the sequence of e-procurement services ranging from on-site, followed by

on-site (purchasing) main office, supplier office and finally back to on-site to complete the

services.


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Manufacture MTS

Product

Deliver MTS

Product

Receive

Order

Deliver MTS Product

No

Finished Good

Available?

Raw

Material

MTS Supplier n

Pick and Load

Product

Deliver

Product Unload

Product

Finished

Good

Store

Product

Warehouse n

Inspect

Product Install Unload

Product

Store

Product

On-site (Job Site)

Yes

A

B

C

B

C

Fig. 2-5: Construction supply chain configuration in MTS (Made-to-stock) type

operations (reproduced from Azambuja and O’Brien (2009))


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Fig. 2-6: The e-procurement services model in construction supply chain (reproduced from

Alarcon et al. (2009))

Deliver request

Planned

purchase

Approve request

Approve request

Get quotes for

materials

Follow-up materials delivery

Receive PO

Receive PO

Produce the purchase order

(PO) Approve PO

Approve/Select

supplier

Detect need for

materials Place request

No Request approval

from Project

Manager

Check request Request

OK Submit request

Yes

No purchase

No

Yes

Reception process

On-site

Purchasing office

Supplier office

On-site


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2.9 Procurement Methods

Traditionally, the teams working on a construction project come from several different

organisations, with different backgrounds and expertise. Hence, the relationships between

the teams in construction are temporary in nature. They are usually formed and only last

for the duration of the construction project. In an effort to be more efficient, there are

several fairly new construction concepts that can be chosen in place of the traditional

method. To name a few, they are Design and Build, Management Contracting,

Construction Management and the more recent ones include Prime Contracting, Private

Finance Initiative and Partnering.

The choice of construction procurement method is based on a strategic decision made by

the client and/or their advisor (management consultant) by taking into account a

fundamental impact on the demand and the supply chain as a whole. This is strongly

supported by the findings of two case studies conducted by Khalfan and McDermott (2006)

where the innovative procurement has the capacity to improve the management integration

in transferring values throughout the project supply chain’s participants. The decision on

how to procure a construction project lies on a number of identifiable phases: conception,

inception and realisation (London et al., 1998).

The conception phase is to assess the strategic need of the project and typically

includes financial feasibility studies, future growth and market expectations.

The inception phase is to clarify specific project objectives and involves

determining the design brief and the method of procurement, developing a financial

model and producing conceptual designs.

The realisation phase involves resolving the detailed design, construction planning,

tendering and construction.

2.9.1 Traditional Contracting Method (Design-Bid-Build)

The traditional contracting method (Fig. 2-7) requires the owner to manage the planning

phase, hire an architect and then select and hire contractors or a general contractor to

execute the designed works. The three main actors of the project (owner, designer and

contractor) work separately within their scopes of responsibility. The whole process is


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sequential: the design, then bidding and finally the construction. In the traditional method

of procurement the design supply chain does not understand the underlying costs, hence

suppliers are selected by cost and then squeezed to reduce price and whittle away profit

margins. In general, material procurement processes in pre-construction stage are well

specified and described in order to follow the client and design consultant requirement. A

general or main contractor is a main actor or player to coordinate and focus on the flow of

materials processes. In this organisation, the interaction between the participants or groups

is very limited due to the involvement of dozens of subcontractors, hundreds of suppliers

and possibly thousands of sub-suppliers in a project. Each of these groups has its own

business goal and competes with each other in order to achieve its objectives. Some of the

problems faced by suppliers are as follows:

Bids based on designs to which suppliers have no input

Low bids always won

Unsustainable – costs recovered by other means

Low profit margins

Suppliers distant from final customer, hence limited interest in quality

Fig. 2-7: Traditional contracting method configuration (London et al., 1998)

2.9.2 Design and Build (Turnkey)

In Design and Build or ‘turnkey’ systems as shown in Fig. 2-8, the owner/client employs a

single contractor in order to provide managing, design and construction services. This

single contractor will act as a main/general contractor or hire contractors. There is only one

contractual relationship involving the owner. The contractor takes over the whole


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responsibility for the completion of the project. The design and construction processes may

be conducted simultaneously (within one team or one company) and therefore improve

information flows and shorten the time of the project delivery. Traditional conflicts

between designers and contractors are eliminated.

Fig. 2-8: Design and Build contracting method configuration (London et al., 1998)

2.9.3 Prime Contracting (PC)

As reported by Holti et al. (2000), the United Kingdom Ministry of Defence had piloted a

strategic procurement method known as Prime Contracting (PC). This strategic mechanism

has potential in promoting a change, value added and innovation to the organisation in a

long run (Soosay et al., 2008). The Prime Contracting procurement method is characterised

by the main contractor having a single point responsibility in designing and building, or

designing, building, operating and maintaining a facility. This shows that the main

contractor is responsible for the whole process with the aims of promoting the concept of

supply chain integration in order to achieve maximum benefits from the project (Holti et

al., 2000). The benefits of the Prime Contracting approach are summarised as follows:

Near zero percentage materials wastage

Reduction of through-life cost from 10% to 14%

Some elements recorded 30% to 113% increment of productivity

The expertise of the supply chain is harnessed and released

Cooperation is the norm throughout the supply chain.


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2.9.4 Private Finance Initiative (PFI)

PFI is a strategic approach and perfectly applicable for projects with constraint on pumping

out public fund or/and lack of expertise (i.e. technology or managing) within government

agencies in managing the whole project. Projects that usually fall under this category are

toll roads, mass-transit railways and power generation stations. Other projects include

hospitals and prisons. The rationales for the implementation of PFI or concession contracts

are as follows (Smith, 2002):

To minimise the financial impact on the Government.

To introduce and absorb the best managerial and control techniques skill in the

construction by the private sector.

To promote private and entrepreneurial initiatives in infrastructure projects.

To increase the range of financial resources either from local or overseas to fund

such projects.

In PFI procurement route, the contractor (private based firm) finances the project, operates

and maintains it over a sufficient period of time to generate a commercial return. This

strategic approach is also known as concession or build-own-operate-transfer (BOOT)

contract project. The definition of concession project quoted in book edited by Smith (2002)

is as follows:

“A project based on the granting of a concession by a principal, usually a

government, to a promoter, sometimes known as the concessionaire, who is

responsible for the construction, financing, operation and maintenance of a facility

over the period of the concession, before finally transferring, a fully operational

facility. During the concession period the promoter owns and operates the facility

and collects revenues in order to repay the financing and investment costs,

maintain and operate the facility, and make a margin profit.”

The application of PFI in certain mega projects can provide either direct or indirect

benefits to the nation especially for developed countries such as the UK and USA. Some of

the benefits are as follows:


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Utilisation of foreign companies’ resources such as in transferring new

sophisticated technology.

New foreign capital pump-in into the economy.

Financial advantages for the government financial sheet.

Almost zero burden on the public fund (i.e. tax payers’ money can be saved for

other interests).

Better management and efficient operation that can save the fund and satisfy the

end users.

On the other hand, there are also quite significant problems that should be noted from the

implementation of PFI. They are as follows:

The efficiencies in materialising or deliveries of value by a private sector are still in

doubt due to policy or communication barriers by local authority or government

agencies. This can start even from the process of negotiations and evaluations.

Financing charges are higher for the private sector than for public bodies. This can

increase the concession contract terms and can affect the public expenses.

2.9.5 Partnering

The term ‘partnering’ in the CSCM can be defined as an involvement of two or more

organisations working together to improve performance through mutually agreed common

goals, devising a way for resolving any disputes and committed to continuous

improvement and also sharing gains and pains (Egan, 1998). The concept as shown in Fig.

2-9 has been developed to focus on human touch that emphasises on the process value of

trust, respect and focuses on long-term relationship (Smith, 2002). Akintoye et al. (2000)

found an evidence that the concept being practiced by the UK construction industry results

in an improvement in the production planning and purchasing (i.e. both elements are the

key targets in construction), but the barriers such as lack of commitment from senior

management, lack of appropriate support structures and ignorance of supply chain

philosophy need to be resolved. Despite the barriers, a positive move has been led by

public-sector clients in building the partnering concept in supply chain management (Saad

et al., 2002). Khalfan and McDermott (2006) had revealed that innovative partnering

procurement plays a great role in the supply chain integration, where the target goals can


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only be achieved through procurement policy developed by the client. Interesting results

were identified by Briscoe et al. (2001) when examining the level of skills, knowledge and

attitude among the workforce in the UK. The results had revealed that soft issues are still

low and need to be increased to a greater level especially in this era of information

technology advancement. In another investigation on supply chain integration in the UK,

Briscoe and Dainty (2005) had revealed that there is a limitation in partnering integration

within groups of client and main contractors with their subcontractors and suppliers group

due to lack of trust. Lu et al. (2006) revealed that the concept of partnering in construction

has become more interesting in recent years especially in developed countries such as the

UK, USA and Australia. The practice not only benefits all the stakeholders but under some

circumstances this concept fails to achieve its goals due to lack of continuous improvement,

communication break down and lack of win-win attitude.

2.10 Logistics Services in Construction Supply Chain Management

In construction supply chain, procurement route and execution (ordering, reception,

transport and storage) will determine the path of logistics processes. Traditionally, the

main contractor in a project is responsible for their individual supply chain to provide

materials and services required from off-site to on-site (Fig. 2-10). At the present time of

well-developed market for building materials and services, centralising and outsourcing the

Decision to partnering

Monitoring performance Dispute avoidance/resolution Achieving continuous

improvement

Auditing

Selection process

Initiating the partnering

process

Coaching and Training Establish

culture change

Advertisement

Questionnaire

Interviews

Forms of agreement

Fig. 2-9: The partnering process (reproduced from Smith (2002))


34

project supply logistics is seen as a more cost-efficient solution of facilitating project

control. With the introduction of new project delivery and management methods (e.g.

Partnering and PFI) and as the choice of suppliers is considered, traditional decision-

makers (project consultant and main contractor) are replaced with new ones: project

managers or even owners (Sobotka and Czarnigowska, 2005). As previously stated, the

construction supply chain network is a complex network consisting of multi-disciplined

groups and tasks which are difficult to manage. The tasks involve managing information

and material flows, plant operations and logistics through a common set of principles,

strategies, policies and performance index along the project life cycle. In this section, the

role of construction logistics in supporting the operation of CSC is discussed. Logistics is

known as the back bone for the construction supply chain management where it plays a

great role in optimising the flow of materials, equipment and people from the source of

supply to the specific on-site location (e.g. on-site storage) before loading to the point of

use. The operation flow mainly depends on the site location preparation. Some of the sites

do not have a specific material storage; therefore, the trade contractor needs to deliver the

component directly to the point of use as referred to the concept of JIT (Sullivan et al.,

2010).

Referring to the Council of Supply Chain Management Professionals (2008), logistics is

defined as “the process of planning, implementing and controlling the efficient, effective

flow and storage of goods, services and related information from point of origin to point of

consumption for the purpose of conforming to customer requirements”.

Fig. 2-10: Example of Logistics Operation of Building Material associated with CSC Activities

(Taylor and Bjornsson, 1999)


35

According to Hamzeh et al. (2007), logistics is able to create value within the supply chain

through managing customer service, orders, inventory, transportation, storage, handling,

packaging, information, forecasting, production planning, purchasing, cross docking,

repackaging, pre-assembly, facility location and distribution. Materials handling,

transportation and warehousing are known as the critical services that serve the logistics

operation processes (Fig. 2-11). These include services in optimising the movement of raw

materials, optimising the transportation mode, locating and designing facilities.

According to Jang et al. (2003), construction logistics can be divided into two parts,

namely: supply logistics and on-site logistics. The supply logistics focuses mainly on the

activities of production, transportation to a site and off-site and storage control; while site

logistics focuses mainly on the physical flow such as controlling on-site activities or

processes. Comparing to the manufacturing industry, construction logistics supply chains

are considerably more difficult to manage and optimise due to various factors such as

diversification of projects (i.e. various materials, methods and project location) and

technical complexity of a project.

A report ‘Improving Construction Logistics’ published by the Strategic Forum for

Construction (2005) revealed that quite a considerable amount of waste produced in the

construction is caused by poor management of materials delivery services (e.g. from

supply logistics to site logistics), inventory, communications and human resources. The

consequences of poor construction logistics are the following setback: about 30% of losses

Transportation

(People and Materials)

Construction

Logistics

First Aid

Material

Storage

Material

Receipt

Cleaning Communication Security

Traffic

Management

Fire

Marshalling

Material

Handling

Health and

Safety

Welfare

Waste

Management

Reception

Primary responsibilities and services Support responsibilities and services

Fig. 2-11: Generic construction logistics role (reproduced from Sullivan et al. (2010))


36

in overall construction cost, contributing to the bad image of the industry, poor quality of

product, increased project duration and added risks to workers’ health and safety.

2.11 Information and Communication Technology (ICT) in Construction

Logistics

In this section, three ICT technologies are described to demonstrate their use in supporting

construction logistics services.

2.11.1 Global Positioning System (GPS)

The GPS technology is well-known for providing moving maps for navigating airplanes

and automobiles. GPS is commonly deployed in a variety of devices such as handheld GPS

receivers that provide latitude, longitude and altitude. The GPS consists of satellites in

located geostationary orbit around the Earth. These satellites remain in a fixed position

relative to the ground and continuously transmit coded beacon signals. A GPS receiver

located on a client receives simultaneous signals from multiple GPS satellites and uses a

time-based approach for calculating position. The successful reception of at least three

satellite signals is enough to calculate x-y coordinates to provide greater accuracy and

possible to determine elevation. An issue with GPS is that GPS signals are relatively weak,

making it only usable in areas with an unobstructed path between the GPS receiver and the

user (Ashbrook and Starner, 2002). Even narrow areas surrounded by tall buildings, such

as within large cities, will reduce signal reception quality as reported by Lu et al. (2006) in

their study of real-time monitoring of ready-mixed concrete (RMC) delivery in congested

city area (Fig. 2-12).

Fig. 2-12: Process of RMC delivery with truck mixers (Lu et al., 2006)


37

2.11.2 Radio Frequency Identification (RFID)

RFID tag is built with a memory chip that identifies and, by wireless, communicates data

(i.e. stored information) such as date, location and name to information systems. RFID

system is one of the most anticipated technologies capable of transforming construction

operations and enable on-site engineers to integrate seamlessly the work processes at job

sites in an efficient way (Wang et al., 2007). There are two types of RFID tags, namely:

Active and Passive. Active tags need batteries to operate and can be read within the range

of about 6 metres while Passive tags do not use batteries; they use radio waves generated

from a reader to activate the tags. The reading capability for Passive tags is less than one

metre. The RFID reader acts as a transmitter/receiver. The tag then transfers data to the

reader through an antenna. These data are then read by the RFID reader and transferred to

Pocket PC or computer (Fig. 2-13).

Fig. 2-13: RFID operational system

From various reviews published in research journals and websites, there are a number of

potential application areas for RFID technology including component tracking, inventory

management, equipment monitoring and maintenance applications. Materials tracking

management systems are able to provide site managers with the ability to determine

construction progress and materials delivered from centralised reports or simply by

walking around a site where all materials are identified and tagged using an RFID system.

Among the clear benefits of RFID system are as follows:

Overcome wastage of materials, theft and check-in waiting times for material.

The use of agent software is able to enhance communications between both off-site

and on-site parties via the internet and the supplier’s website or e-mail address as

soon as the material is sent through the delivery gate.


38

Multiple handling of documents is significantly reduced because there are no

invoices for the delivery personnel to complete, as all are automated by the system.

Information is in electronic form and includes instructions such as delivery

procedure.

These three benefits can be referred to Fig. 2-14, where the RFID system is integrated with

Wireless Local Area Network (WLAN) system to increase the accuracy and information

communication speed in the construction supply chain in tracking material delivery from

the point of source to the point of use (Wang et al., 2006). Meanwhile, Fig. 2-15 and Fig.

2-16 show RFID technology as part of the InHaus2 project that used an integrated ICT

infrastructure supported by WLAN system in creating an intelligent construction site

logistics (Wessel, 2008). This experiment revealed the limitations of RFID as follows:

The scanning performance rate was low due to high attenuation of Radio Frequency

(RF)

Only some of the tags could be scanned within the designated range.

RFID tags needed to be robust in order to sustain the construction environment.

Fig. 2-14: The application of RFID-enabled PDA for material tracking (Wang et al., 2006)


39

Fig. 2-15: A truck carrying tagged material

elements passes an UHF RFID gate

(Wessel, 2008)

Fig. 2-16: Facade elements crates with RFID

tags (Wessel, 2008)

Other weaknesses of RFID as published by Ekahau White Paper (2006) are as follows:

RFID lacks much in computing power which is a necessary element to perform in

dynamic tracking.

The accuracy in scanning the position of entity much depends on the location of the

scanner installed within the environment.

Lack of flexibility due to changing environment in complex indoor environments.

This is due to the fact that RFID scanners/readers need to be remounted and

rewired when such changes take place especially in warehousing environments.

Radio frequency interference with wireless LAN in same facility could limit the

full capability of the RFID system.

2.11.3 Real-Time Location System (RTLS)

Real-Time Location System (RTLS) can be classified as part of context-aware technology

that uses location as a context parameter in order to provide relevant information and

services about asset mobility (e.g. people, equipment and in-progress component) to the

respective user(s). This system has supported many industries in the modern world ranging

from medical to airport to logistics services (Appear, 2010; CISCO, 2010; Ekahau, 2010).

The potential of integrating RTLS with dedicated context-aware application in the

construction industry had been researched by Aziz et al. (2006), Behzadan et al. (2008) and

Fathi (2009). For on-site application, they had proposed using RTLS to track and relay the

location of mobile workers such that information can be delivered relevant to the user, for


40

example updating the logistics manager of the status of material delivery. In capturing the

physical contexts, wireless sensor technologies such as Wi-Fi tags and Wi-Fi enabled

smartphones can relay data to the positioning system in order to define the user’s exact

location in real-time (Ekahau, 2010). Fig. 2-17 shows the proposed concept of RTLS

capability in supporting on-site construction services and Fig. 2-18 shows how the user can

monitor in real-time any asset mobility within the designated zone via web-based services

user interface.

RTLS

User and Wireless

Devices

Wireless System

Infrastructure

Location-based Context-Aware

System and Integration

3rd Party

Applications

Solution Provider

Applications (e.g.

Management Software etc)

Web Services Interface HTTP-XML API

Via Internet

Web Services Interface HTTP-XML API

Via Internet

RTLS Server

Wireless Access Point +

Wireless Location

Receiver + Signal Exciter

Fig. 2-17: The Concept of Wi-Fi Location-based Context-Aware Mobility Deployment

Architecture for Construction Logistics

(adapted from Aziz et al. (2006); CISCO (2010); Ekahau (2011))


41

Fig. 2-18: Ekahau Vision Software in presenting mobile assets location movement within

designated Wi-Fi zone (Ekahau, 2012)

The detailed review of RTLS system can be referred to in Chapter 3. In terms of location

tracking capabilities, some basic comparisons between GPS, RFID and RTLS can be

summarised in the following Table 2-1.

Table 2-1: Usage comparison between GPS, RFID and RTLS

(Behzadan et al. (2008); Ekahau (2012))

GPS RFID (Passive Type) RTLS (Wi-Fi based)

Description Outdoor location tracking

technology for global

tracking

Electronic identification

technology that uses small,

inexpensive wireless tags

Active tags that are used for

locating high-value assets

and people in real-time,

enterprise-wide

Accuracy +10 metres High when near or next to

RFID reader

Typically between 1 to 3

metres

Usage Smartphone consumer

applications, car navigator,

construction (e.g.

earthworks)

Warehousing, retail, other

logistics purposes

Asset management, staff

safety, consumer tracking.

2.12 Summary

From literature, it shows that the construction industry is difficult to manage due to its

high-fragmentation nature. Effective cross-discipline communication among the supply

chain network is critical for a successful information and services delivery. In supply chain

management, three components define the network operations, namely: the flow of

information, the flow of material and the flow of fund. A construction supply chain model

RTLS Wi-Fi

designated zone

Asset mobility

current location


42

framework is difficult to develop. As part of the supply chain network, construction

logistics is seen as a critical service component to the whole construction project especially

in managing on-site material operations. ICT plays a vital role as a driving tool in activities

of managing and controlling construction supply chain services. Realising the concept of

construction supply chain integration using context-aware integrated with web services is

part of the current research. This concept could ensure that each construction task is

provided with access to context-specific data, information and services.

The next chapter explains the context-aware and web services technologies.


43

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Documents

Chapter 2 CONSTRUCTION SUPPLY CHAIN · 2017-08-15 · This chapter reviews the concept of construction supply chain management, management problems and barriers that have been studied