PM Strategic Issues Lecture 8 2008.pdf

Project Management Project Management Strategic IssuesStrategic Issues

Partnering, SCM, Strategic Alliances and Partnering, SCM, Strategic Alliances and continuous performance improvementcontinuous performance improvement

Andrew BrownAndrew BrownEC2.15EC2.15

SCM & continuous SCM & continuous improvementimprovement

Further reading for this subject:Further reading for this subject: Course NotesCourse Notes (On vision)(On vision)

Peter Fewings:Peter Fewings: Construction Project Construction Project Peter Fewings:Peter Fewings: Construction Project Construction Project ManagementManagement-- An integrated An integrated approachapproach, Taylor and Francis: , Taylor and Francis: Chapter 12Chapter 12

SCM and continuous SCM and continuous improvementimprovement

Topics for this afternoon:Topics for this afternoon:

The critical challenges faced by those managing The critical challenges faced by those managing construction in the contemporary market place.construction in the contemporary market place.

A very brief mention of the partnering conceptA very brief mention of the partnering concept

Supply Chain ManagementSupply Chain Management-- concepts, goals and concepts, goals and problems.problems.

The problem of continuous improvementand yet The problem of continuous improvementand yet more challenges for the construction industrymore challenges for the construction industry

ConclusionConclusion

PM performance and PM performance and LeadershipLeadership

So far we have examined:So far we have examined:--

the performance of Project Management and the construction the performance of Project Management and the construction industry in terms of its propensity to deliver finished projects to industry in terms of its propensity to deliver finished projects to clients on time on cost to the required quality; and,clients on time on cost to the required quality; and,

The role of and importance of leadership, power and influence in The role of and importance of leadership, power and influence in seeking to coerce all involved in projects to deliver them on time, seeking to coerce all involved in projects to deliver them on time, within budget and to the required quality. within budget and to the required quality.

This afternoon we are going to take things a little further and This afternoon we are going to take things a little further and address a number of challengessadly, there are no definitive address a number of challengessadly, there are no definitive answers to these challenges, only suggestions! and food for answers to these challenges, only suggestions! and food for thought.thought.


The UK construction industry has faced numerous The UK construction industry has faced numerous Government reports into its performance almost throughout Government reports into its performance almost throughout the last 50the last 50--60 years:60 years:--

The Emerson Report (1950s)The Emerson Report (1950s) The Banwell Report (1960s)The Banwell Report (1960s) The Banwell Report (1960s)The Banwell Report (1960s) The Ibbs report (1980s)The Ibbs report (1980s) Various National Audit Office Reports (1980s)Various National Audit Office Reports (1980s) The Latham Report (1994)The Latham Report (1994) The Egan Report (Rethinking Construction 1998)The Egan Report (Rethinking Construction 1998)

Each report, or set of reports, has made a number of Each report, or set of reports, has made a number of recommendations on the shape and/or structure of the recommendations on the shape and/or structure of the industry and how it carries out its businessindustry and how it carries out its business

SCM and Continuous SCM and Continuous improvement.improvement.

Yet the industry, while willing to adopt change in Yet the industry, while willing to adopt change in terms of new procurement procedures, seems to terms of new procurement procedures, seems to more or less carry on as before until forced to more or less carry on as before until forced to adopt new working practices by its major clients.adopt new working practices by its major clients.

But Sir John Egan set some very specific challenges But Sir John Egan set some very specific challenges for the construction industry.for the construction industry.

First he challenged the industry to achieve First he challenged the industry to achieve ZERO ZERO DEFECTSDEFECTS;;

Then, to achieve Then, to achieve 10% reductions10% reductions in construction in construction costscosts; and lastly, ; and lastly,

To achieve To achieve 10% reductions10% reductions in project in project schedulesschedules..


Question for debate and discussion:Question for debate and discussion:--

Debate these question in small groups.Debate these question in small groups.

Do you think the targets that Sir John Egan set for the construction Do you think the targets that Sir John Egan set for the construction Do you think the targets that Sir John Egan set for the construction Do you think the targets that Sir John Egan set for the construction industry 10 years ago were realistic and achievable?industry 10 years ago were realistic and achievable?

Do you consider that there is any evidence that they have been Do you consider that there is any evidence that they have been achieved?achieved?

If you dont think they are achievable, Why not?If you dont think they are achievable, Why not?

If you do think they are achievable, How?If you do think they are achievable, How?

SCM and Continuous SCM and Continuous Performance improvementPerformance improvement

The partnering approaches adopted by leading clients with The partnering approaches adopted by leading clients with consultants and contractors over the previous decade consultants and contractors over the previous decade provide a clear indication that Egans goals are not provide a clear indication that Egans goals are not unrealistic and that they are in fact achievable.unrealistic and that they are in fact achievable.

On single project partnering arrangements, project costs On single project partnering arrangements, project costs On single project partnering arrangements, project costs On single project partnering arrangements, project costs have been reported as being up to 10% less than would have have been reported as being up to 10% less than would have been expected if traditional contractual approaches had been been expected if traditional contractual approaches had been used.used.

On multiple projects where a longer term or strategic On multiple projects where a longer term or strategic partnering arrangement has been established, costs on later partnering arrangement has been established, costs on later projects have been reported to be up to 30% less than may projects have been reported to be up to 30% less than may have been the case with conventional contracting have been the case with conventional contracting approaches.approaches.

Why is this?Why is this?

SCM and continuous SCM and continuous performance improvementperformance improvement

Partnering has generally had its roots in the Partnering has generally had its roots in the relationships between Clients, Consultants and Main relationships between Clients, Consultants and Main ContractorsContractors

Supply Chain Management (SCM); or Supply Chain Management (SCM); or Supply Chain Management (SCM); or Supply Chain Management (SCM); or Partnering the Supply Chain; orPartnering the Supply Chain; or Managing the Supply Chain Managing the Supply Chain

is a logical extension of the is a logical extension of the partnering partnering philosophyphilosophy and extends the concept to all involved and extends the concept to all involved in the delivery of the project.in the delivery of the project.

SCM is one of the latest buzzwords in Construction SCM is one of the latest buzzwords in Construction and in Construction Project Management.and in Construction Project Management.

Supply Chain Supply Chain ManagementManagement

Definition:Definition:--

The management of upstream and downstream The management of upstream and downstream The management of upstream and downstream The management of upstream and downstream relationships with suppliers and customers to relationships with suppliers and customers to deliver superior customer value at less cost to deliver superior customer value at less cost to the supply chain as a whole.the supply chain as a whole.

The main focus of SCM is improvement and The main focus of SCM is improvement and enhancement.enhancement.


Supply Chain Management and the development of Supply Chain Management and the development of strategic alliances depend on:strategic alliances depend on:--

A high level of joint strategy development with different A high level of joint strategy development with different organisations and firms, both upstream and downstream.organisations and firms, both upstream and downstream.organisations and firms, both upstream and downstream.organisations and firms, both upstream and downstream.

A common purpose agreed between separate firms and A common purpose agreed between separate firms and organisations in the supply chain.organisations in the supply chain.

Jointly agreed common goals amongst the members of the Jointly agreed common goals amongst the members of the supply chain.supply chain.

A mutual dependence for all firms in the supply chain on the A mutual dependence for all firms in the supply chain on the success of achieving those agreed common goals.success of achieving those agreed common goals.


Strategic Alliances involve separate firms Strategic Alliances involve separate firms (who would normally be in competition with (who would normally be in competition with

one another), one another), SharingSharing or pooling:or pooling:--

Knowledge;Knowledge;

Information;Information;

Resources;Resources;

Technology;Technology;

Personnel; andPersonnel; and

Resources Resources

Supply Chain Supply Chain ManagementManagement This fundamentally and radically changes the nature of This fundamentally and radically changes the nature of

competition.competition.

We need to remember that the construction industry is one We need to remember that the construction industry is one that has been focused on competitive strategies and a that has been focused on competitive strategies and a competitive market for decades;competitive market for decades;competitive market for decades;competitive market for decades;

Grasping a SCM philosophy is challenging and difficultGrasping a SCM philosophy is challenging and difficult

To fully realise the benefits of SCM, firms stop competing with To fully realise the benefits of SCM, firms stop competing with firms that they used to compete with and begin to share and firms that they used to compete with and begin to share and pool resources towards the accomplishment of specified and pool resources towards the accomplishment of specified and agreed goals that will benefit them all.agreed goals that will benefit them all.

Supply Chain Supply Chain ManagementManagement This means that competition in the industry This means that competition in the industry is relocated.is relocated.

Instead of firms competing with other firms, Instead of firms competing with other firms, Instead of firms competing with other firms, Instead of firms competing with other firms, we ought to see one supply chain we ought to see one supply chain competing with a different supply competing with a different supply chain..this may not be easy to grasp!!chain..this may not be easy to grasp!!


BUT!!BUT!!

We live in a world of BUZZ and SPINWe live in a world of BUZZ and SPIN

Controversially, arent the goals of SCM and what it is Controversially, arent the goals of SCM and what it is attempting to accomplish almost an exact match for the attempting to accomplish almost an exact match for the definition of PM in the first place??definition of PM in the first place??

Is it the case that the goals of organisational design, Is it the case that the goals of organisational design, leadership and integration (the IPC) are almost identical leadership and integration (the IPC) are almost identical to the goals of SCM??to the goals of SCM??


Has demonstrated significant benefits Has demonstrated significant benefits measured in terms of performance measured in terms of performance enhancement in other industries, for example:enhancement in other industries, for example:

The Automotive industryThe Automotive industry

The Aerospace and Aeronautical industryThe Aerospace and Aeronautical industry

Manufacturing Industries; andManufacturing Industries; and

The Microprocessor industryThe Microprocessor industry

BUT, construction is different??BUT, construction is different??


If SCM is to deliver any benefit, it depends If SCM is to deliver any benefit, it depends on TRUST.on TRUST.

All in a given supply chain must trust one All in a given supply chain must trust one All in a given supply chain must trust one All in a given supply chain must trust one another:another:

Contractual Trust;Contractual Trust; Competency Trust; andCompetency Trust; and Goodwill Trust.Goodwill Trust.

All trust will at some level be based on the All trust will at some level be based on the personal traits of the managers involved.personal traits of the managers involved.

Supply Chain Supply Chain ManagementManagement Known Barriers to effective SCM:Known Barriers to effective SCM:--

Lack of CommitmentLack of Commitment Insufficient understanding of the SCM philosophyInsufficient understanding of the SCM philosophy Lack of Strategic LeadershipLack of Strategic Leadership Lack of Strategic LeadershipLack of Strategic Leadership Lack of Understanding of the new model of network Lack of Understanding of the new model of network

competitioncompetition Inappropriate organisational structuresInappropriate organisational structures Lack of leverageLack of leverage Unwillingness to adopt winUnwillingness to adopt win--win thinkingwin thinking Insufficient allocation of time to build relationshipsInsufficient allocation of time to build relationships Lack of common purpose and goalsLack of common purpose and goals Resistance to the sharing of informationResistance to the sharing of information Inappropriate use of powerInappropriate use of power Lack of commitment to change, innovation and learningLack of commitment to change, innovation and learning


SCM is a solid concept and evidence can be SCM is a solid concept and evidence can be presented to demonstrate that it has been presented to demonstrate that it has been associated with significant performance associated with significant performance enhancement;enhancement;

However, much of its potential benefits and However, much of its potential benefits and therefore savings result because the philosophy therefore savings result because the philosophy drives waste out from processes.drives waste out from processes.

A problem arises insofar as it is logical that there A problem arises insofar as it is logical that there will be a finite limit to the amount of waste that can will be a finite limit to the amount of waste that can be driven out of a set of processesbe driven out of a set of processes


The potential problem is that Egans 10% The potential problem is that Egans 10% performance enhancement challenges for time and performance enhancement challenges for time and cost delivery were intended to be continuous and cost delivery were intended to be continuous and cumulative, not one stop.cumulative, not one stop.

We have seen that there are enough challenges to We have seen that there are enough challenges to be overcome in be overcome in just delivering projects on time, to just delivering projects on time, to budget in the first placebudget in the first place without attempting to without attempting to speed the process up by 10% per year, while speed the process up by 10% per year, while simultaneously reducing the cost of delivery by simultaneously reducing the cost of delivery by 10% per year10% per year

Achieving 10% per year in perpetuity is surely Achieving 10% per year in perpetuity is surely impossible!!impossible!!


A brief video clipA brief video clip

Continuous PerformanceContinuous Performance

Comparing Formula 1 with the construction Comparing Formula 1 with the construction industry!!industry!!

There are of course many differences: BUT There are of course many differences: BUT There are of course many differences: BUT There are of course many differences: BUT

There are considerable similarities as well.There are considerable similarities as well.

We can also look at the Aerospace or We can also look at the Aerospace or Aeronautical industries..Aeronautical industries..

Consider the AIRBUS ConsortiumConsider the AIRBUS Consortium

Continuous Performance Continuous Performance EnhancementEnhancement

Continuous improvement requires new Continuous improvement requires new technology and new technology depends on technology and new technology depends on Research and Development.Research and Development.

In the marketplace that most construction In the marketplace that most construction firms operate in the only effective means of firms operate in the only effective means of Research and Development is to take the Research and Development is to take the SCM concept one step further and SCM concept one step further and contemplate forging Strategic Alliances with contemplate forging Strategic Alliances with partnerspartners

Continuous Performance Continuous Performance ImprovementImprovement

Quite apart from Egans challenges for continuous Quite apart from Egans challenges for continuous performance improvement, the construction performance improvement, the construction industry (as a whole) needs to focus on tackling industry (as a whole) needs to focus on tackling even more pressing concernseven more pressing concernseven more pressing concernseven more pressing concerns


Approximately 19% of the UKs ecoApproximately 19% of the UKs eco--footprint is taken footprint is taken up by its stock of buildings.up by its stock of buildings.

Approximately 52% of the UKs carbon emissions come Approximately 52% of the UKs carbon emissions come from creating or using buildings.from creating or using buildings.from creating or using buildings.from creating or using buildings.

The construction industry must The construction industry must respond to this environmental respond to this environmental challenge as well as to Egans process challenge as well as to Egans process orientated challenge.orientated challenge.


Both process and environmental challenges require the development Both process and environmental challenges require the development and implementation of new technologiesthis in turn requires and implementation of new technologiesthis in turn requires significant financial investment in R & D.significant financial investment in R & D.

R & D work is expensive and risky.R & D work is expensive and risky.

The Construction Industrys record in R & D, when compared with The Construction Industrys record in R & D, when compared with other industries of similar scale and size, is, at best, POOR. other industries of similar scale and size, is, at best, POOR.

There are reasons for thisThere are reasons for this

Strategic Partnerships, Strategic Alliances which allow resource, cost, Strategic Partnerships, Strategic Alliances which allow resource, cost, knowledge, and risk to be shared, may be the key to moving forward knowledge, and risk to be shared, may be the key to moving forward in these important areas.in these important areas.

We could end up with a construction industry which is organised We could end up with a construction industry which is organised around which supply chain a client uses to get a building that has the around which supply chain a client uses to get a building that has the performance that they want instead of assembling a distinct supply performance that they want instead of assembling a distinct supply chain for each and every building that is constructed.chain for each and every building that is constructed.. .

ConclusionConclusion

SCM is a new concept in the construction industry, but its SCM is a new concept in the construction industry, but its goals are long established project management goals.goals are long established project management goals.

If the construction industry is going to succeed in tackling If the construction industry is going to succeed in tackling performance goals in terms of process and environmental performance goals in terms of process and environmental challenges, it is arguable that it needs to be inventive and challenges, it is arguable that it needs to be inventive and challenges, it is arguable that it needs to be inventive and challenges, it is arguable that it needs to be inventive and vigorous in implementing SCM and Strategic Alliances.vigorous in implementing SCM and Strategic Alliances.

This will change the fundamental nature of competition in the This will change the fundamental nature of competition in the supply chain of the construction industry.supply chain of the construction industry.

Arguably, the project managers role in bringing about this Arguably, the project managers role in bringing about this change, from the perspective of project leadership, is criticalchange, from the perspective of project leadership, is critical

Documents

PM Strategic Issues Lecture 8 2008.pdf