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Construction InnovationInnovating for supply chain integration within constructionMalik M.A. Khalfan Peter McDermott
Article information:To cite this document:Malik M.A. Khalfan Peter McDermott, (2006),"Innovating for supply chain integration within construction",Construction Innovation, Vol. 6 Iss 3 pp. 143 - 157Permanent link to this document:http://dx.doi.org/10.1108/14714170610710695
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Innovating for supply chain integration within constructionMalik M.A. Khalfan and Peter McDermott Salford Centre for Research and Innovation (SCRI) in the Built and Human Environment, University of Salford, Greater Manchester, UK
Submitted 31 January 2006; accepted 2 May 2006
Abstract: The dream of better relationships among different supply chain partners; trustand transparency during different construction activities; integrated supply chain;completion of projects on time, within the agreed cost, with promised quality products andservices, and so on, have now been achieved within the UK construction industry due toinnovation within the project procurement processes and activities. There has also been agrowing realisation that the promotion of innovative thinking, in procurement processes forsupply chain integration, offers all the involved parties some key benefits in terms of moreflexibility and adaptability, commercial growth, and improved quality of products, anddelivered service. This paper highlights the benefits of, and the motivation towardsinnovative procurement through two case studies done as part of a supply chain integrationproject at the SCRI research centre. The case studies demonstrate how organizationsinvolved have promoted innovative thinking across the supply chain through innovativeprocurement. The case studies also highlight some of the critical factors that motivatedpeople within those firms to move from traditional way of procurement, and search,innovate, and implement the new procurement thoughts and models. The paper concludesthat these studies offer transferable learning opportunities and motivation for the staff ofother construction firms seeking to promote integration within their supply chains throughinnovative procurement routes.
Key words: innovation; motivation; procurement; supply chain integration
Introduction
Moves within the UK construction industry from the traditional way of procurement to thenew and innovative methods including partnering, private finance initiatives (PFI), projectalliances, framework agreements, prime contracting, and so on, have already started realisingthe potential benefits (McDermott et al., 2004). The drive to change and promote innovationin the construction sector including how to procure in better and more efficient ways in orderto bring improvements within the construction industry, was provided by government sup-ported reports; Latham (1994) and Egan (1998, 2002). As a result of the Egan Report (1998),the Movement for Innovation (M4I) came into existence, which then helped different compa-nies within the industry to realize the importance of innovation, and encouraged them tocome up with innovative ways of procurement within the industry. The Egan Report, forexample, stressed the importance of innovation within the industry, and proposed that continuous service, product improvement, and company profitability can only be achieved
Construction Innovation 2006; 6: 143–157
© 2006 Edward Arnold (Publishers) Ltd 10.1191/1471417506ci614oa
Address for correspondence: Malik M.A. Khalfan, Salford Centre for Research and Innovation (SCRI) in theBuilt and Human Environment, 4th Floor, Maxwell Building, University of Salford, Greater Manchester M5 4WT,UK. E-mail: [email protected]
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through innovation. Other benefits include improved leadership, customer focus, integratedprocesses, integrated project supply chain, improved quality, and firm commitment of partiesinvolved.
The public sector has been seen to embrace new procurement methods based on partner-ing concepts in recent years, following strategy documents such as Achieving Excellence(HM Treasury, 1999), and direction from both the Office of Government Commerce (OGCReport, 2003) and the National Audit Office (NAO Report, 2001). In the wake of the EganReport, Rethinking Construction (Egan, 1998), which highlighted partnering as one of manyoptions to improve the construction industry as discussed earlier, the UK GovernmentConstruction Client’s Panel responded with Achieving Excellence (HM Treasury, 1999),which laid down targets for the number of projects which should be procured through inte-grated supply chain and partnering. This has been followed by the National Audit Officeidentifying new procurement routes based on partnering approaches as a key tool in deliv-ering better public projects (NAO Report, 2001). It later followed the report up with a datathat suggested that innovative procurement approaches, which tend to encourage partneringand supply chain integration, had a demonstrable benefit within the public sector (NAOReport, 2005).
Despite, the growing realisation among forward looking clients and contractors, the estab-lishment of procurement systems and processes to promote innovation within constructionorganizations is still at a developing stage. The paper discusses the concept of innovationwithin construction industry and its relationship with motivation, and emerging innovativeprocurement trends within the industry. It presents two case studies, showing how leadingpublic sector clients, and forward looking contractors/service providers established innova-tive procurement processes on innovation, and innovative thinking in management and inte-gration of their supply chain. The case studies offer learning opportunities for otherconstruction organizations both at upstream and downstream levels, seeking to establish inno-vative procurement routes to integrate the supply chain. The paper also focuses on the factorscontributing towards motivation of personnel involved in the case study organizations, theneed to change traditional way of working and the need to introduce innovative procurementmethods, which promote partnering and supply chain integration.
Innovative procurement
Although, there are so many attempts to define innovation within the industry (Asad et al.,2005), the definition given by Ling (2003) could be considered as the most comprehensivewithin the construction industry context. He defined innovation as an implementation of anew idea to a construction project with the intention of deriving additional benefits,although there might be some associated risks and uncertainties. The new idea may refer tonew design, technology, material component or construction method used in a project (Asadet al., 2005).
There are a number of lessons about industrial innovation in general that can be learnt fromthe way in which change occurs in the construction industry. Most studies of technologicaland organizational change focus on what are considered to be rapidly changing sectors of theeconomy, such as microelectronics, automobiles, aerospace, some manufacturing industries,
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the banking sector and so on. But it is important to understand innovation in construction forthree reasons (Gann, 1994):
• construction is of great economic significance, producing between six and 10% of GDP inmost advanced economies;
• construction produces half of Gross Fixed Capital Formation – the buildings, factories andinfrastructure essential for other economic and social activities; and
• the industry has a broad social responsibility to produce safe buildings and structureswhich have minimal impact on the natural environment.
However, it is generally accepted that, implementing innovative processes, whether related tonew product development or enhanced project delivery, may result in failure of all the hardwork without any motivation and efforts from the people actually responsible to carry outthose processes. It is very true for the construction industry which is generally considered asslow to adopt new management techniques and information and communication technology.However, the authors observed during the case studies reported here, that as far as adoptinginnovative procurement strategies and partnering concepts are concerned, the case study par-ticipants demonstrated great motivation to move from adversarial relationships to morecollaborative ones. The basis of all these innovative relationship models is the concept of part-nering, resulting in the development of trust (Latham, 1993; McDermott et al., 2005), andlong-term collaborative and integrated relationships among different organizations through-out the supply chain (Khalfan et al., 2001). Cox and Townsend (1998) define this relation-ship as follows:
‘Partnering is a long term commitment between two or more organisations for the purpose ofachieving specific business objectives by maximising the effectiveness of each participant’sresources . . . The relationship is based on trust, dedication to common goals and an understand-ing of each other’s individual expectations and values. Expected benefits include improvedefficiency and cost effectiveness, increased opportunity for innovation, and the continuousimprovement of quality products and service.’
In the UK, the National Audit Office (NAO Report, 2001) has endorsed the public sectormoves away from lowest cost and adversarial approaches towards the newer forms of procure-ment. In particular, it calls for the entire supply chain, including clients, to be integrated.Through Achieving Excellence (HM Treasury, 1999), the Government had already commit-ted all government departments to:
• work with industry to reduce waste in all aspects of construction procurement and man-agement;
• enter co-operative relationships with their suppliers to ensure an open and mutually pro-ductive environment; and
• ensure an integrated supply chain.
At the same time, Building Down Barriers (Holti et al., 2000) has investigated the Ministryof Defence Prime Contracting procurement policy, (an) another innovative procurement route.While concerned with project specific partnering, it suggested that there was some anecdotalevidence that the members of the successful project teams had kept together and moved on toother projects with other clients.
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The Department of Health response to Achieving Excellence came through NHS Estates.They established NHS ProCure 21, a strategy for Supply Chain Management and Integrationthat involves developing long-term relationships with those companies that will be theirmajor suppliers of products and services.
One of the main purposes of the government push towards above mentioned new partner-ing arrangements is to motivate organizations within the construction industry to take advan-tages of the long term relationships with public clients that would result in, not only businessbenefits for them, but a better performing industry.
In order to study the changes occurring within the industry, the introduction of innovativeways of procuring the construction works, the motivation to adopt these new procurementmodels, the potential benefits and bottlenecks experienced during the whole process, andchanges within organizational cultures and personal attitudes; the SCRI Research Centre iscarrying out a research project, the Supply Chain Integration Project.
The project is to investigate the changes that are occurring in the supply of consultancy andcontracting services in response to clients’ innovative procurement initiatives. The main aimof this research proposal is to determine if there are ways of integrating the supply chain thatwill ensure service and product quality whilst still supporting the government and client ini-tiatives, aimed at increasing the competitiveness of the construction sector.
Case studies
The case studies attempted to uncover the perceptions of firms within the construction indus-try with regard to the existing partnering arrangements they currently undertake. The researchused multiple methods to collect qualitative and quantitative data. Basic quantitative data andcompany documentation were used to provide research context while qualitative data, col-lected in the form of a number of unstructured interviews, sought to understand how innova-tive procurement was viewed by different supply chain partners. The case study approachfollowed the protocol developed by Yin (1994) in order to improve the validity of theresearch. As a result, the research included a number of key elements such as clear and con-cise research objectives, research propositions, case study selection criteria, unit of analysis,a structured questionnaire, unstructured questionnaire for interview, a predetermined casestudy procedure, and an interview guide (Yin, 1994). The study involved multiple visits toeach organization involved, including an average of three interviews with the ManagingDirectors of these companies and other staff and a few other interviews their supply chainmembers in North West of England. All interviews lasted for at least one hour. An assumedname for each company has been adopted for the purpose of confidentiality, when reportingthe case studies.
Two of four case studies from the project are reported here. Since, all case studies are ongo-ing and are at different stages (two of them are at data collection stage and other two are atdata analysis stage) when this paper is written; therefore, the conclusions present here arebased on findings to date. The first case study explores the initiatives taken by a public sectorclient to motivate main contractors and their supply chain participants to adopt innovativeways of working within a project team. The second case study examines a contracting organ-ization, which under a motivated leadership, has fully subscribed to the innovative procure-ment methods and supply chain integration.
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The senior management of each of the above-mentioned organizations was interviewed.Soft System Methodology (SSM), along with case study research methods were used toanalyse the interviews for organizational analysis. For the social and organizational aspects,the research draws on contextually rich modelling techniques of SSM (Checkland, 1981) with its emphasis on a stream of cultural analysis within construction organizations, and theindustry overall. The SSM is selected because the research is dealing with the softer socialissues and phenomena such as changes in the behaviour of people and companies in responseto the changed in procurement routes. The whole idea to adopt soft system methodology tocarry out this qualitative research revolves around the advantages of using SSM. Once theinterviews were carried out, the rich pictures were developed and these pictures helped us toidentify the issues and areas which have been affected by the change in procurement strategies. The root definitions and CATWOEs were then developed from the rich pictureswhich helped us to understand the transformation of past situations and circumstances to thepresent scenarios. Some of the results are reported in this paper as observations of changesdue to the innovative procurement, and motivational issues affecting the adoption of innova-tive ways of working.
Case study 1The first case study was done with a public client, a local council, having a portfolio todeliver new and/or refurbished public facilities to the residents. This includes refurbishmentsof social housing stock, building primary and secondary schools within the area, and so on,through its in-house development team which acts as client by developing the specificationsand allocating budget for different facilities. The council has developed a FrameworkAgreement to construct educational buildings (primary school in the first phase) in the valuerange £500 000 to £5 million. For this client-led innovative and new way of developing edu-cational infrastructure, which basically aims at the process of getting product developed, threeConstructor Partners were appointed. Since the appointment, a number of educational projectshave already been completed and some of them are in either design or construction phases.
Benefits from the innovative framework. The core values of framework agreement, whichare based on the partnering concept, agreed by the client and all other participants, include:Trust; Honesty; Openness; Commitment; Co-operation; and Respect. The council’s vision isthat this framework agreement will deliver good quality school buildings that will lead to:
• better educational results;
• greater inclusion within the community;
• better safety and environmental performance; and
• reduced demand on future school budgets by addressing whole life cycle costing at theinception of the projects.
The major benefits are being and would be achieved in the following broad area by adoptingthe strategic partnering framework for the development of primary schools:
• improved design;
• less waste and duplication;
• improved delivery;
• greater quality;
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• greater certainty of cost;
• better whole life cycle costing;
• building of trusting relationships; and
• bringing of all ‘project knowledge’ together at the inception of a project.
Examples of innovation. The council has changed the mechanism of selection for contractorsand subcontractors. It used to be the case that the small companies were rejected based ontheir turnover. Now the turnover figure is not used as part of the selection criteria and is con-sidered afterwards when the percentage of the work is being allocated. Therefore, those com-panies, which used to be left out (specially the SMEs) because of their small turnover, arenow able to pass through the initial two-stage selection process of the council, and then theyare awarded work which is equivalent of 25% of their turnover (irrespective of how much itis!). On the other hand, the selection is now moved from traditional to Quality-PriceMechanism. The council uses 70–30% respectively for the selection. The council also uses aspecific quality and performance criteria to select the companies for the framework agree-ment during the selection process.
The below CATWOE (Figure 1) shows the move by clients in general, and especially publicsector clients as mentioned above, from accepting the lowest bids to awarding contracts thatshow best value. This is termed as price-quality mechanism in some cases, where tenders arejudged based more on the quality than price. This has enabled the clients to look at previousor ongoing construction works of the contractors in order to verify the quality, in addition tothe references. This is one of the major findings during the case studies, which shows thatmore and more clients, and contractors for the selection of their supply chain, use a prequal-ification questionnaire (PQQ), which includes questions related to quality, health and safety,turnover, references, and so on.
The following points give a representation of the gains in adopting a Framework approachto procurement, which are not present in traditional ‘one off lowest cost’ contracts. In otherwords, these were the potential benefits at the start of the framework approach, which moti-vated the client to introduce innovative procurement route, and also the other parties involvedespecially the main contractors.
1. Savings on tendering/procurement costs. Costs normally incurred in processing documen-tation through a traditional tendering route are reduced by working closely with the partnersthrough the pre start on site stage thus avoiding for example the need to produce tender doc-umentation. Succinct cost plans agreed with the Constructor Partner are now the ‘order of theday’. The cost savings at this stage in terms of professional fee reductions could be as highas 1–2% of contract value during this stage of the process. Per £1 million of capital works thisequates to a saving of £10K–£20K. Above figures on savings is one of the motivationstowards adopting the innovative ways of working for the senior management of different con-tracting organization involved in the framework agreement.
2. Time savings on programme. The partnering process achieves a major saving in the pro-gramme route as opposed to a traditional route. In the pre tender areas it allows the partnersto work together to develop a project with costs, to achieve an acceptable scheme which meetsthe needs of the end user. This process takes away the need for the protracted tendering
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process in favour of much shorter cost planning procedures and letters of intent to get theprojects started quicker thus offering major savings on time with the associated savings onprofessional fees. This could reflect a saving in time at this stage in the region of 10–15%,which per 12 month period equates to five to eight weeks. When this factor is related to aschool operational timetable it could equate to a project being completed half a term earlier,or more. This parallel method of working between the partners continues through the postcontract stages. The open book process alleviates the past confrontational areas of this stage.The motivation to accept open book for the council is that they know the actual cost of thewhole construction process and on the other hand, the contractors know that at the end of theday, they will get a definite agreed profit margin without any hassle and litigation.
3. Lesson learned and rolled forward within the delivery team. During the course of the pre-and post-contract process, it is inevitable that there will be a learning curve. The lessons
Innovating for supply chain integration within construction 149
Figure 1 Transition from lowest price selection to selection of best value proposals
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learnt will be taken on board by both parties and rolled forward to benefit the future projects.This exercise can also be spread throughout the other partners to the Framework for the ben-efit of the future schemes. This process of sharing information takes place in the SpecialInterest Groups meetings.
4. Benefits of performance management systems. Throughout the Framework Partneringprocess, there is a need to measure the performance of each of the partners using key per-formance indicators (KPIs) to record how each is perceived by others on specific areas ofperformance. The results of the KPIs allow each of the partners to investigate where a lowperformance has been indicated and put corrective measures in place to raise the standards inthat area. However, if continuous low performance is credited to a partner, the opportunity forcouncil is there to restrict the workload that is allocated to that partner.
5. Fewer delays. Collaborative team working is a very positive formula in ensuring thatdelays are now the exception rather than the rule. There is now more direction to certainty ofoutcome. One of the important motivation factors for the council to subscribe to partneringand supply chain integration.
6. Added value. The Framework has allowed the partners to work in an environment of col-laboration, commitment, confidence, and continuity of work. The product of this is that thereis a better understanding amongst the project team working together to achieve a commongoal. The continuity of work also serves as motivation for contractors to fully engage inconstruction work and perform well to maintain their reputation of delivering better qualityservices.
General conclusion. To date, the results from the school projects are showing savings intime and cost. To maintain the momentum of these gains there must be a continuation of thepositive attitude amongst the partners in sharing their knowledge and experiences on futureprojects. By this approach, further benefits will be passed onto the client and end users. Atthis point, there is a positive approach by all partners to take this framework forward toachieve its targets. All the partners in the supply chain are committed to the innovativeways of solving problems, and new methods of working with each other as an integratedteam. The services’ suppliers and especially the main contractors are highly motivated to theframework agreement because of the continuity of work, agreed profit margin, long-termrelationship with client and other supply chain members, and recognition of their qualityservices in response to the invitation to work with the council, fully subscribed to innovatethe processes related to procurement and supply chain integration within the constructionindustry. Money saving through reducing cost is another motivating factor for being part ofsuch framework agreements especially for main contractors and subcontractors. One of thebiggest cost reductions is achieved through not incurring cost in tendering for jobs for thesame client for a period of say three to five years. Once part of the framework, the main con-tractor is awarded work now based on the quality of the service provided, and their capacityto deliver. Similarly, subcontractors are motivated because once they are part of a supplychain for the main contractor and perform well, they get selected without going throughany tendering processes.
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Case study 2The second case study, presented in this paper was undertaken with a contracting organiza-tion, which has been in operation for last 150 years and is one of the top five private contractingorganizations within the UK. It used to have international operations in the past, but now ithas presence only within the UK within around 1500 full time employees and 25 offices. Theorganization is part of a group, which also provides services within housing and developmentsectors, with major activities within property maintenance. Just around the time of the publi-cation of Latham Report in 1994, the company started aligning itself according to Sir MichaelLatham’s suggestions and became one of the first companies to respond to the changing envi-ronment, and demand for the supply chain integration through innovative procurement meth-ods. The incentive and motivation of realigning the mind set of all the employees and partnersregarding supply chain integration and partnering around 10 years ago was the recognition asleaders in innovative procurement and supply chain integration within the industry and alsoto have market advantage which could result in winning more work. The efforts resulted inpeople understanding and practicing the ethics of partnering within construction projects.This then resulted into setting up examples of new methods of procuring and working, andone of the very first partnering projects in the UK. The above initiative also resulted intodevelopment of supply chain, one by one for each key trade, which has resulted into devel-opment of integrated supply chain that could be seen now as part of company’s operations.
Achieving supply chain integration. There were three steps taken to achieve the currentperformance level and supply chain integration:
Phase 1: concentrating on low cost, but high impact trade, including brickwork, carpentry,plastering, painting, and so on. The company adopted a strategy to include either a limitednumber or in some cases, single source organization as part of their supply chain within theireach regional hubs. They spent lot of time and resources to interview all traders (for examplebrickwork) in order to develop a list of selected subcontractors and suppliers. These selectedorganizations were then invited to tender. In return, they are now offered continuous workwith the company; list of forthcoming jobs; and it seems that they have virtually become partof company’s operations. The other advantage of supply chain integration for the company isthe transparency of cost/price, quoted by the supplier/subcontractor.
The biggest advantage and the transformation from the traditional way of working is thatthe subcontractors and suppliers are given continuity of work and an increased level of cer-tainty about the future work; and their input is taken into account in planning the future work.They are told in advance about the resource requirements, so that they can plan theirresources ahead in time (sometimes two years in advance). Isn’t this enough to motivate localsubcontractors and suppliers, especially SMEs?
The above has now resulted into another transformation: the subcontractors, eg, brick-work contractors have now started employing bricklayers/labours directly as part of theircompany which has resulted in improved quality of work and development of more skilledlabours over a specific period of time in a specific locality/community. The employees of thesubcontracting organizations also virtually become part of the company and attend trainingsessions, social activities, and so on. In some case, for some SMEs, the company is helpingin growing and reviving their businesses. Sometimes, up to 80% of turnover of these SMEscomes from their work with the company. This confidence and co-operation have resulted in
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the development of personal relationships with the management of those SMEs, and they getto know about each other and about their businesses better than before.
Phase 2: constructive co-operation with the supply chain participants. For each trade work,the company has selected either one or a limited number of suppliers eg, suspended ceilings.The selection is made after PQQ, interview, references, and quality checks for each tradeorganization. Therefore, once there is a new job, invitations are sent for tender/quotation to allthose selected organizations on the list, and the job is then awarded to the best among them,evaluated on the basis of quality-price mechanism. However, this list of suppliers and subcon-tractors is a static list in terms that it evolves slowly over a period, and does not changeregularly. But it also has the name of the potential organizations, in case if someone pullsout. Each regional operation of the company has its own list of selected suppliers andsubcontractors.
Phase 3: one to one relationship with supply chain partners. As mentioned above, eachregion/hub of the business in the UK has its own list of selected suppliers, manufacturers, andsubcontractors. This list varies and is based on the type of work, the value of work and thelocation of work. For example, M&E work for schools is different than the M&E work for ahospital. In some cases for the material suppliers, the company has a national agreement forbuying a specific material, eg., timber, doors and so on. The company also promotes/recom-mends products and services of some specialist manufacturers/suppliers to its clients, andgets early design advices from them, eg., windows, control system, and so on. As a result ofthis interdependency, the supplier becomes part of the integrated supply chain. In reality,these suppliers are growing as the company grows.
Innovation in services. The present scenario has also helped in development of a newdepartment in the company called Preconstruction Department, with a team of people wholook at project management, financial and productivity issue at the inception of any project.This new structure of the company heavily relies on the supply chain participants/partners,and all partners play their role within the supply chain at the pre-project phase. The aboverestructuring also resulted into clients approaching the company for integrated servicesincluding preconstruction services. In some cases, a few clients only come for thePreconstruction service. Example is one of the local authorities within the North West ofEngland. If projects are of less value (less than £1 million), then the company does the preconstruction work and hand it back to the authority, and authority then assign it to a smallregional contractor. If the work is of more than £1 million then the company is selected todeliver the whole project including the preconstruction services. Whatever, the company isdoing with respect to partnering, new ways of procurement, and supply chain integration; itsclients are getting benefits and advantages by achieving a reduction in waste due to single pointof contact; work is carried out quickly and with improved quality, and within the assignedbudget; and above all trust is being developed among all the partners.
Motivating the supply chain. Mostly, the subcontractors run the site and the company man-ages them. Because of the continuity and mostly static flow of work, and even/flat resourcerequirements for different trades (such as brick layers), the company tends to attract and
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motivate competitive subcontracting companies. Because of the above mentioned continuity,the subcontractor can afford to retain good quality and skilled staff for a longer period oftime, resulting in quality products and services. Although, it costs more to use selected subcontractors than the open market, quality is guaranteed. Not only quality due to continu-ity, but also improved delivery time, and more understanding and better relationship amongthe supply chain partners can also be achieved. On the other hand, long term relationship withsuppliers result in more transparency in financial terms, resulting in reduced price and goodquality products because of continuation of demand of product/products.
The CATWOE (Figure 2) gives an overview of the move within the construction industryfrom traditional way of working to the more formalized and organized supply chains as seenin this case study. This move has already brought some changes within the industry; eg,downstream supply chain participants (most of the time SMEs) are now having continues
Innovating for supply chain integration within construction 153
Figure 2 Transformation to integrated supply chain within construction industry
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workload as part of integrated supply chain. This continuity of workload is one of the moti-vating factors, seen in both the case studies, discussed in this paper.
M for money and M for motivation. The company is in partnership with a few local author-ities. The current turnover of the company is around £300 million, and it is envisaged that itwill rise up to £450 million by 2010. Growth in the business is one of the biggest motivatingfactors for the company, resulting from promoting and practicing new ways of procurementin order to achieve supply chain integration.
The company has had an added advantage over their competitors because of the adoptionof modern procurement methods within their company. This results are good value for clients,better quality products and services, and reduced price. On the other hand, since lots of publicclients now moving towards quality-price mechanism for the selection of main contractor andsupply chain for their new construction projects, the company is now among the selected con-tractors for few local authorities because of their image as a forward thinking contractor whocould provide clients with what they needed.
Challenges. Sometimes, from contractor’s point of view, it is hard to justify the new way ofworking to some traditional clients including some of the local authorities (eg, some of themstill use standing order, and lowest price tendering). Sometimes clients resist and ask to work in a traditional manner. Even sometimes, there are questions to justify the use ofpartners/selected suppliers and subcontractors. In some cases, clients nominate a supplier orsubcontractor with which they have worked over a long period of time. The company does thequality checks, get references, and so on, before taking them on board. Generally, clients, andespecially local authorities are moving to realise this new way of working. Best practicesrelated to partnering are spreading very quickly because of some of the successful projectsdone by forward-looking contractors in the UK including the company studied.
For each of their project, the company organizes a partnering workshop for all the supplychain participants for a specific project. This helps them to align every body to a specificobjective of that particular project. Because of their forward looking approach, in someinstances, the company teaches this new way of working to their new clients. This could resultinto restructuring within the new client organization and sometimes resistance to the change.But slowly and gradually, the company gets success in informing new clients and developstheir understanding about partnering phase by phase. This then results into an informedclient, who then introduces this new way of working to his/her other main/subcontractors,working on other projects. This cycle then further carried on in a way when the informedclient teaches these new ways of working to their contractors, those contractors then takethese learning back to their new/existing clients and so and so forth.
Conclusions
This paper presented two case studies, showing how different organizations established theirprocurement processes on innovation, and innovative thinking in management and integrationof their supply chain. The paper also focused on the factors that contribute towards motivat-ing people to introduce innovative procurement methods. From a construction industry per-spective it is widely believed that due to the continuously changing conditions, construction
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innovation may become a fourth performance dimension in the future in addition added to thetraditional dimensions of cost, quality and time (Newton, 1999). Innovative thinking hasbecome essential for construction organizations because of increasing pressures from clientsto improve quality, reduce costs and speed up construction processes (Gann, 2000).Innovation can also result in increased organizational commitment and higher organizationalmotivation (Dulaimi et al., 2002, 2003). Considering this fact it is important for the construc-tion organizations to involve in the innovative procurement practices in order to take advan-tage of changes in market economy in the UK; build long-term relationships with clients andother participants within the supply chain; increase motivation among the supply chain part-ners through new innovative contractual arrangements; and make improvements to the pro-curement systems and processes (Asad et al., 2005).
The case studies reveal the role, that innovation procurement plays to integrate the supply chain participants within the construction industry. Additionally, it also suggests thatcontractor-client co-operation can act as a catalyst to promote innovative thinking and collab-orative culture. The benefits demonstrated through the case studies are consistent with previ-ous research findings (Rothwell and Gardiner, 1985; Dodgson et al., 2002; Gann, 2004),namely that innovation can lead to the successful exploitation of new ideas and can be usedto introduce small-scale organizational changes. The innovative procurement methods haveresulted in the improvement of existing processes within the companies studied, and alsoresulted into development of innovative solutions by different supply chain partners to differ-ent problems with an integrated approach. The findings also indicate that both clients andtheir innovative procurement methods can help promote the culture of innovation within theindustry. The case studies second the idea of Walker et al. (2003), who have emphasized onthe presence of well-integrated team resulting because of the use of procurement as a driverfor innovation.
The findings have also revealed some of the factors underpinning the motivation of thosecompanies working within the new procurement environment, including both the client andcontractors. This includes the continuity of work for both the contracting companies and theirsupply chain partners; transparent and open book accounting system which give addedvalue to the clients; long term relationship among all the supply chain partners; definiteprofit margin for a longer term period for the contracting organizations; visibility of thefuture work with the existing clients; over all growth of companies involved in terms of turnover and profit margin; job security for directly employed people by subcontractors; recogni-tion as forward thinking contractors and client within UK construction community troughnews and presentations; training for staff employed by these companies as part of theirskill enhancement programme; and self-satisfaction from the quality work done and servicesprovided.
Teams play an important role in the success of any project, and the consideration of team-work, resulted because of innovative procurement initiatives was seen as a significant moti-vating factor by all the companies interviewed as part of supply chain integration projectincluding companies presented in the two case studies. It can be suggested that effectiveteams resulting from innovative procurement strategies can lead to increased output, greatercreativity, increased work quality, and higher morale among the group members(Schermerhorn et al., 1994; Vecchio, 1995). The case studies also offer learning opportuni-ties for different other construction organizations seeking to establish innovative procurementstrategies in order to integrate the supply chain.
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As mentioned earlier, the case studies are being undertaken as this paper is being written,therefore, discussion reveals the point of view where we stand now. The authors believe thatthe most recent initiatives taken by these organizations to adopt key performance indicators (KPIs) in the near future could also contribute positively in the responses and atti-tude of supply chain partners towards the adopted innovative procurement strategies. Thereaders would also be able to appreciate that during the course of the case studies, issuesrelated to challenges and difficulties were also found, some have been reported in this paper, but have not discussed in detail because they were outside the scope of this paper and will be reported elsewhere. There is also a need to report on the findings from all the casesat the end of the project, which would reveal the in-depth and holistic view about the changesoccurring in general due to innovative procurement within the industry on one hand, andwould also give perspectives of different participants involved within the construction supplychain.
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