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SUPPLY CHAIN MANAGEMENT IN THE PAKISTANI CONSTRUCTION INDUSTRY
BY
NAME REGISTRATION NUMBERMohammad Imran F-09-101Usman Satti F-09-102Zahid Satti F-08-104Tabassum Daud F-08-123Ihsan Munsif Sp-09-119Muhammad Fahim Sp-09-137Khurram Warraich Sp-08-135
TA InstructorFaisal Shaffique Butt Khalid Mushtaq
Table of Contents
Section Number Contents Page NumberOne - Introduction General 3
Statement of the Problem and Hypothesis 3Aims and Objectives 3Scope and Limitations 3
Two - Concept of Supply Chain Management and Applicability to Construction Industry
General 4
Construction Industry 4Concept of Supply Chain Management 5Methodology of Supply Chain Management 6Supply Chain Management Implementation Requirements
7
Supply Chain Management in the Construction Industry
8
Role of Information in Construction Supply Chain Management
13
Cultural Compatibility 14Trust Based Relationship 14Relationship Assessment 14Essence of Supply Chain Management 15Barriers to Effective Supply Chain Management in Construction Industry
16
Three - Research Methodology
The Way Forward 17
Scope of Survey 17Layout of the Questionnaire 17
Four - Results Results 20Findings 22
Five - Recommendations and Conclusion
Recommendations 24
Conclusion 24References 25
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SECTION 1 - INTRODUCTION
1. General
a. Traditional supply chain activity and the nature of its membership tend to be specific to a particular project. This condition, whilst not being unique, is unlike the majority of other industry sectors where supply chain membership is largely stable.
b. The Supply Chain should not be regarded solely as a Procurement process but should embrace the whole cycle of Procurement, Delivery and Consumption. The Supply Chain should be regarded as a cross-functional activity between all the inter-related organizations and internal departments involved in the process.
c. The process should be regarded as a ‘value chain’ and not solely as a Supply Chain given that it was the ‘value added’ at each stage of interaction in the process that provided the organizations involved with business activity (profit, turnover etc.). The Supply Chain members should adopt a ‘replicable rolling business’ approach rather than the current ‘individual one-off project’ approach i.e. currently, organizations tend to regard each new business venture within the construction sector as being ‘new’ and ‘project based’. More attention should be paid to the ongoing nature of business and the lessons learnt and nature of relationships built through past activity.
2. Statement of the Problem and Hypothesis. In comparison to other sectors the main players in the construction industry remain relatively unsophisticated in their approach to the supply chain. The construction industry is characterized by one-off contracts and a failure to develop longer-term relationships between main contractors and key suppliers. The construction industry in Pakistan therefore remains hugely fragmented and involves supply chain pressures that militate against a simple single solution. This study shall be undertaken to shed some light on the awareness of Pakistani construction contractors of the Supply Chain Management and the advantages and barriers in its implementation in the construction industry.
3. Aims and Objectives
a. Document the current opinions regarding Supply Chain Management in the Pakistani construction industry from the contractors’ perspectives.
b. Identify the principal objectives in developing Supply Chain Management.
c. Identify the key factors in effective Supply Chain Management relationships between the construction contractors and their suppliers and clients.
d. Identify the major barriers to the implementation of Supply Chain Management in the Pakistani construction industry.
e. Recommendations and conclusions.
4. Scope and Limitations. The research will be done in the province of Punjab, the results and conclusions can however be applied to the construction industry in other areas of the country owing to the similarities of rules, regulations and business environment. Moreover, most of the large construction contractors doing business in Punjab have their presence in other parts of the country.
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SECTION 2 - CONCEPT OF SUPPLY CHAIN MANAGEMENT AND APPLICABILITY TO CONSTRUCTION INDUSTRY
5. General
a. Supply chain management is a cross-function approach including managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end-consumer. As organizations strive to focus on core competencies and becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement.
b. Supply chain management is a concept originating from the supply system by which Toyota was seen to coordinate its supplies, and manage its suppliers. In terms of lean production, supply chain management is closely related to lean supply. The basic concept of supply chain management includes tools like Just-In-Time delivery and logistics management. The current concept of supply chain management is somewhat broader but still largely dominated by logistics.
c. Until now, in construction, initiatives belonging to the domain of supply chain management have been rather partial covering a subset of issues (e.g., transportation costs) in a limited part of the construction supply chain (e.g., the construction site). In most cases, the issues are regarded from a main contractor’s point of view. As a consequence, main contractors become more and more reliant on other actors in the construction supply chain (e.g., suppliers and subcontractors). Therefore, they need to revise their supply strategies and trading relations with subcontractors and suppliers.
6. Construction Industry
a. The construction industry consists overwhelmingly of small and medium-sized enterprises (SMEs), or more accurately ‘micro firms’. It is estimated that 97% of all firms are in fact SMEs and that 95% of these are micro firms with ten or fewer employees. Moreover the structure of the industry continues to fragment with consolidation of the larger firms and an ever-increasing number of small firms. Even in big national economies such as France and Germany there are fewer than ten really large national firms having thousands of employees.
b. The large firms tend increasingly to act as ‘project managers’, assuming responsibility forthe larger contracts in their role as general contractors while outsourcing much of the work to SMEs acting as sub-contractors.
c. Competition for work in the industry is intense. Because construction activities require comparatively little investment in capital, firms are able to survive on wafer-thin profit margins (2% or even less) and still show an adequate return on capital. On the other hand, construction activities can carry significant risks and small margins of profit can easily turn into significant losses.
d. The ways in which built structures are procured and erected, used and operated, maintained and repaired, modernized and rehabilitated, and finally dismantled (and reused) or demolished (and recycled), constitute the complete cycle of construction activities.
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7. Concept of Supply Chain Management
a. The supply chain has been defined as ‘the network of organizations that are involved,through upstream and downstream linkages, in the different processes and
activities that produce value in the form of products and services in the hands of the ultimate customer’.
b. Supply chain management looks across the entire supply chain as indicated in the figure above, rather than just at the next entity or level, and aims to increase transparency and alignment of the supply chain’s coordination and configuration, regardless of functional or corporate boundaries. According to some authors (e.g., Cooper and Ellram 1993), the shift from traditional ways of managing the supply chain towards supply chain management includes various elements highlighted in the table below.
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8. Methodology of Supply Chain Management
a. In the literature on supply chain management, many supply chain methods have been proposed. Most methods address logistical issues of the supply chain, e.g., quality rates, inventory, lead-time and production cost.
b. The methods of pipeline mapping, supply chain modeling and logistics performance measurement analyze stock levels across the supply chain. The LOGI method studies time buffers and controllability problems of the delivery process. Supply chain costing focuses on cost buildup along the supply chain. Integral methods like value stream mapping and process performance measurement offer a “toolbox” to analyze various issues including lead time and quality defects.
c. Besides assessing and improving the supply chain, other elements are essential to the methodology of supply chain management. A generic methodology of supply chain management can be deduced combining and generalizing the commonalities of different supply chain management methods. Generically, the methodology of supply chain management consists of four main elements:-(1) Supply chain assessment,(2) Supply chain redesign,(3) Supply chain control,(4) Continuous supply chain improvement.
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d. In a way, the supply chain management methodology bears resemblance to the Deming Cycle exhibited in the figure below.
e. The first step is to assess the current process across the supply chain in order to detect actual waste and problems. The issue here is to find the causality between the waste and problems, and locate their root causes. Once the causality is understood, and having found out about the root causes, the next step is to redesign the supply chain in order to introduce structural resolution of the problems. This includes redistribution of roles, tasks and responsibilities among the actors in the supply chain, and a review of procedures.
f. The next step is to control the supply chain according to its new configuration. An important part of the control is the installation of a monitoring mechanism to continuously assess how the supply chain operates. This includes systems to measure and estimate waste across the supply chain process, and feedback systems to discuss and evaluate underlying problems. The objective is to continuously identify new opportunities, and find new initiatives to develop the supply chain. In fact, this continuous improvement implies the ongoing evaluation of the supply chain process, and the recurring deployment of the previous three steps: assessment, redesign and control.
9. Supply Chain Management Implementation Requirements
a. To enable an organization (or organizational unit) to ‘effectively collaborate’ there must be a harmonization of three key strategic areas:-(1) business,(2) people, and (3) technology.
b. Usually collaboration enables participants to build up capacity to complete a set of tasks that one sole organization would find difficult to achieve. The collaboration eliminates fragmentation, duplication and distrust. This is achieved by intelligently using available resources wisely, sharing the multiple project risk factors across multiple domains, and enhancing staff and organizational motivation. This can only be achieved ‘effectively’ by bringing together and aligning the three strategic areas of business, people and technology.
c. There are many factors that are likely to influence the success or failure of working collaboratively, with no two collaborations will progress in exactly the same way or within the same time frame. Every collaboration must find a way to proceed being consistent with its unique circumstances and composition.
d. Generally, there are 6 key areas that are deemed critical for effective collaboration include:-(1) Vision. All members of the collaboration agree on the collaborations aims and
objectives.(2) Engagement. Collaboration leaders need to ensure that all key participants are
consulted as to the practices to be employed during the collaboration.
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(3) Trust. Time and resources are needed to enable all participants to build lastingrelationships.
(4) Communication. A common means of communication is decided by all key participants in the collaboration.
(5) Processes. Both business and project describe to all key participants how the collaboration is to work on a day-to-day basis.
(6) Technologies. An agreement on those to be used to ensure the collaboration is easily implemented and maintained.
10. Supply Chain Management in the Construction Industry
a. The generic concepts, methods and lessons learnt, which have been developed in the framework of supply chain management, can be used in different ways for the
improvement of construction supply chains.
b. Traditionally supply chain management encompasses the management of a network of organizations that are involved in carrying out the business process. In the construction sector, this network can often be extremely complex, particularly on a larger project where the number of separate supplying organizations will run into hundreds, if not thousands. The figure below illustrates a typical construction supply network, with the main contractor at the centre of the hub.
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c. Even at a scaled down level as highlighted in the case of a project requiring the construction of a residential building, the interdependencies between various players in the supply chain represent those of a classical supply chain.
d. The above two clearly illustrate that there are links to the client, main supply agencies and to both design and any specialist management services, which are provided externally. The present interest is primarily focused on the supply relationship between main contractor and the material suppliers and the production subcontractors.
e. Clearly, the principal material supply companies will also be dependent on many other firms who provide raw material and component inputs to their production. Similarly, the main trade contractors will have their own supply chains and many of these will further subcontract out smaller work packages.
f. The specialist construction subcontractors will usually be much smaller firms, small to medium size enterprises and several of these may be providing labor-only services. The composition of the network will tend to be unique to a specific contract, although some favored suppliers will be used repeatedly by any given main contractor.
g. The highly fragmented characteristics of the construction industry which include the separation of design and construction, lack of coordination / integration between various functional disciplines, poor communication, etc., are the important impact factors causing performance-related problems, such as low productivity, cost and time overrun, conflicts, and disputes.
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h. The weak links in the supply chain management with in the construction industry can therefore be identified as following:-(1) Adversarial relationships between clients and contractors;(2) Inadequate recognition of the sharing of risks and benefits;(3) Fragmented approaches;(4) Narrow minded “win/lose” attitudes and short-term focus;(5) Power domination and frequent contractual non-commitments resulting in
adverse performance track records with poor quality, conflicts, disputes, and claims;
(6) Prime focus on bid prices (with inadequate focus on life-cycle costs and ultimate value);
(7) Less transparency coupled with inadequate information exchanges and limited communications;
(8) Minimal or no direct interactions that foster sustainable long-term relationships.
i. Considering the ultimate objective of supply chain management to reduce sources of uncertainty through the active co-operation of the key partners in the chain; construction supply chain management is concerned with the following clusters of sources of uncertainties:-(1) Design. This includes selecting and developing an appropriate design
that meets client’s requirements (design co-ordination and management, constructability review, design compatibility, design quality and review, project life cycle, etc.), and communicating the final design product to the main contractor (quality and completeness of technical drawings and specifications).
(2) Project Deliver. This includes contractor selection and contractual arrangements (competitive tendering, partnering, aliening, incentives, time/cost penalties, etc.).
(3) Construction. This includes selection of, and relationships with, subcontractors and suppliers, scheduling, site activity co-ordination, and resource, material and logistics management.
(4) Information Management. This includes project information demand and supply (information transparency, flow, acquisition, availability and sharing).
j. Products, materials and equipment as well as funds move in response to signals from the information flow. However, in construction projects these flows take place in the context of linkages between separate organizations.
k. The two most important aspects of the industry are customer specificity of the final product and the involvement of numerous value-adding organizations. The construction industry product is in the nature of an investment service where the customer wields great influence on the final product in relation to its physical aspects (dimensions, application of materials, etc.) and the value of logistic parameters (delivery date, project duration, etc).
l. In some cases, the customer selects the manufacturer (contractor), the suppliers of specialist parts and the material suppliers. Longstanding, efficient supplier–contractor relationships are vulnerable to disruption in this context.
m. Although effective supply chain management is a key element in reducing construction costs, no studies have defined what supply chain management is within the construction process.
n. A plausible definition of the supply chain in the context of construction industry can therefore be the “network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumers”. In the context of the current work, Construction Supply Chain Management may be regarded as the process of strategic management of information flow, activities, tasks and processes,
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involving various networks of organizations and linkages (upstream and downstream) involved in the delivery of quality construction products and services through the firms, and to the customer, in an efficient manner.
o. In terms of the foregoing, the upstream within construction supply chain management in relation to the position of a main contractor, consists of the activities and tasks leading to preparation of the production on site involving construction clients and design team. The downstream consists of activities and tasks in the delivery of construction product involving construction suppliers, subcontractors, and specialist contractors in relation to the main contractor.
p. After having assessed the supply chain, the supply chain management methodology suggests redesign (reconfiguring the supply chain’s structure), control (coordinating the supply chain according to the new configuration) and continuous improvement. For instance, towards suppliers, the methodology could include reengineering the procurement process, installing joint coordination of logistics and recurring product development programs. Typically, such activities include joint activities between separate actors in the supply chain.
q. Supply chain arrangements counteracting adversarial relations with other actors (e.g. partnership) are needed to enlarge the magnitude of the SCM methodology, and clear the way for resolution of interdependency-based problems and myopic control. In fact, actors are dependent on each other for implementing the supply chain methodology successfully. Supply chain development should take place in co-operation with a growing number of actors tackling a growing number of issues.
r. The actors involved should have a common development goal, share the same view on the development, and adopt the same approach to issues such as grasping concrete and objective performance information, and searching for improvement opportunities cooperatively.
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s. The development issues of supply chain management to the actual practice of construction can therefore be summed up as under:-
DevelopmentIssues
Description of theDevelopment
Actual Construction Practice
Orderinformationtransparency
The issue is how to manage the order information propagation to improve the supply chain.
It is not rare to find that the lacing of a subcontract or material order is delayed due to price negotiations. As a result, the order information propagation is effectively halted.
Reduction ofvariability
The issue is how to reduce variability and how to make the supply chain robust when facing uncertainty.
Changes to orders, originating from the sphere of the client, the design team or the main contractor, are quite usual.
Synchronizationof material flows
The issue is how to synchronize the availability of materials for assembly.
It is not uncommon to see that materials are produced in an order suitable for the supplying factory, and delivered to the sitein a mode minimizing the transportation costs. Thus, other considerations than the needs of assembly dominate.
Managementof criticalresources
The issue is how to identify critical resources, lay out a critical path network and put the effort on reducing the workload of critical resources.
In the traditional design-bid-build procurement in construction, where the parties are selected based on price, it often is impossible or difficult to objectively identify critical resources of the supply chain in advance.
Configurationof the supplychain
The issue is how to evaluate and then change the chain.
This kind of continuous and long-term improvement of the supply chain is out of question, because for each project, a new supply chain is configured.
t. The figure below illustrates the key generic supply chains that are required in the integration and delivery of a typical solution. The diagram suggests that the supply chain is rather simple but the reality is quite different. The ultimate level of complexity involved
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with the management of the construction project will be determined by the specific requirements of the end customer. It is difficult to quantify the exact number of constituent supply chains that have to be integrated into a typical project – such a project does not exist because of its unique project – specific properties.
11. Role of Information in Construction Supply Chain Management
a. Traditionally, project information exchange between designers and contractors has been mainly based on documents. These documents come in the form of architectural and engineering drawings, specifications, and bills of quantities and materials. This practice is far from being satisfactory, with about two-thirds of construction problems being caused by inadequate communication and exchange of information and data.
b. Recognizing the importance of communication, construction supply chain management can be regarded as the process of strategic management of information flow, activities, tasks and processes, involving various networks of organizations and linkages, through out a project life cycle.
c. The key to supply chain management is the information flows associated with inter-organizational communications. As a result, a core issue is the effective management of information, both in the form of information flows that permit rapid inter-organizational transactions between supply chain partners and in the form of information accumulated, coded, and stored in an organization’s database structures.
d. Supply chain management crosses organizational boundaries, organizing information and process flows, sending signals to operations and evaluating results. Out of necessity, there is a heavy reliance on information management to coordinate the chain. As a result, information management becomes the heart of construction supply chain management.
e. The construction industry has for many years suffered from difficult-to-access, out-of-date and incomplete information. Until the very recent past, it would have been inconceivable to electronically control and direct information flows in construction. Documents can now be produced and transmitted instantaneously by digital transmission at fractions of their previous costs.
f. Project information is usually considered as the processed and presented data in a given situation, and is the data that enables effective action. Information produced by many
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sources, at many levels of abstraction and detail and retained by the creator of that information, contributes to fragmentation of the construction industry.
12. Cultural Compatibility
a. Cultural compatibility is an important consideration in supply chain management. The meshing of the cultures of trading partners can be time consuming. Likewise, differences in the management methods of organizations in the supply chain can hinder integration efforts.
b. Good initial cultural linkages are seen by many authors as prerequisites for the development of closer relationships between trading partners.
c. It is also important to break the corporate culture that considers supply chain management a component of the logistics department and ignored the much more wide-ranging organizational impact of supply chain management.
13. Trust Based Relationship
a. A trust-based relationship is seen as important in the development of an integrated supply chain. An important facilitator of trust relationships is the ability of the involved parties to take account of the welfare of other supply chain members and to consider the ramifications of their actions on the objectives of other members.
b. Trust is also seen as an important prerequisite to enable other forms of integration, such as shared information systems and operational optimization between the trading partners. A trust-based relationship may also avoid the duplication of effort in areas such as inspection and forecasting.
c. Other ways of invoking trust is as under:-(1) One is the deterrence-based view where trust and cooperation are enforced
using formal contracts that discourage negative behavior.(2) The process-based view speaks to the scenario where trust and cooperation are
built up over time as a result of positive interaction between parties. The deterrence view is often predominant in the early stages of relationship and as trust develops the process-based view becomes more important.
14. Relationship Assessment
a. It is commonly agreed that it is important to identify those trading parties within the supply chain that are key to integrate with. This is because the investment in establishing connectivity with parties that occupy a very small portion of an organization’s transactional volume may neither be strategically important nor financially justifiable.
b. One way to assess importance is to integrate and create joint processes and procedures with a supplier or customer based on the currency value of transactions with them. This is widely used method; however, it often overlooks those products with a low-currency volume that are of critical importance to the firm.
c. A system is therefore required to evaluate those organizations that are of strategic importance to the supply chain and this is often facilitated by management assessment at the focal organization.
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15. Essence of Supply Chain Management
a. It is commonly agreed that it is important to identify those trading parties within the supply chain that are key to integrate with. This is because the investment in establishing connectivity with parties that occupy a very small portion of an organization’s transactional volume may neither be strategically important nor financially justifiable.
b. Many authors speak of the benefits gained by competing as an integrated supply chain. A key idea is that if all stages of the chain take coordinated actions, optimization occurs and total supply chain profits are increased. In other words, supply chain management often has the objective of reducing the total amount of resources required to provide the necessary level of customer service to a specific segment.
c. Supply chain management is the process of strategically managing the movement and storage (if necessary) of materials, parts and finished product from suppliers, through the manufacturing process and on to customers or end user, as well as the associated information flows.
d. Supply chain management is probably the latest procurement and logistics philosophy being adopted. Initially, the objective of logistics is to reduce the procurement cost. Now the objective is being extended to build logistics as a strategic corporate competence. Further objectives of logistics include improvement of production flexibility, order fill rate and reduction of order fulfillment lead-time.
e. The strategy is to integrate core logistics functions with marketing, production and financial functions. The supply chain management approach advocates that a company should extend its internal focus to suppliers and supplier’s suppliers .The essences of supply chain management are:-(1) Enhancing trust among supply chain members.(2) Re-engineering the business process to build a networked enterprise model.(3) Employing information technology to accelerate information flowing in both intra
and inter organizations.
f. The real power of supply chain management lies with its ability to provide today's enterprise with radically new opportunities to create marketplace advantage by leveraging supply channel partnerships, information and communication technologies, and the knowledge and innovative capabilities of the entire chain's resources.
g. Benefits to the client:-(1) More likely to meet their particular needs and expectations.(2) Less confrontation, disputes and litigations.(3) Increased product quality.(4) Risk reduction (lower learning curves, multi disciplined risk management).(5) Comprehensive documentation.(6) Cost certainty (earlier and better estimates of cost, reduction in variations).(7) Lower contract cost.(8) Single point responsibility.
h. Benefits for the contractor:-(1) Less confrontation, disputes and litigation.(2) Workload stability (resource planning / cash flow forecasting, and maintaining of
skilled personnel).(3) Reduced expenditure on tendering process, speed of establishing the contractual
relationships with subcontractors.(4) Enables a focus on future improving systems and capabilities, staff career
development, safety procedures etc.
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(5) Risk reduction (better understanding of the project scope, increased time for pricing, negotiated risk management, development of relationships with good subcontractors, and reduction of conflict with subcontractors).
16. Barriers to Effective Supply Chain Management in Construction Industrya. Collaborating organizations have different vision, mission, goals and priorities.b. Organizational ‘culture’ and methods of communication are often different.c. A lack of focus and consensus on the delegation of tasks.d. An imbalance of resources – time, money, human (frequent turnover of participants) etc.e. Confidentiality, Intellectual Property and legal considerations.f. Technological incompatibility.g. A lack of understanding of the expertise, knowledge, and language of the other
collaborating participants.
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SECTION 3 - RESEARCH METHODOLOGY
17. The Way Forward
a. Step One. Literature review of the available work reported on supply chain management in construction industry.
b. Step Two. Design of a survey questionnaire to identify views of construction contractors regarding the current pattern of supply chain management, its future use, benefits and barriers to effective implementation.
c. Step Three. Collection and collation of data.
d. Step Four. Analyzation of data.
e. Step Five. Compiling of data as per results.
f. Step Six. Conclusions and Recommendations.
18. Scope of Survey
a. General information.
b. Contractors’ relationships with suppliers and clients.
c. How is the supply chain management viewed by the construction industry?
d. Construction functions important to efficient supply chain management.
e. Factors considered when forming a supply chain relationship.
f. Principal objectives in developing supply chain collaboration.
g. Key success factors in supply chain management development.
h. Barriers to implementation of construction supply chain relationships.
19. Layout of the Questionnaire
a. Question 1. What is the strength of your workforce?(1) Less than 30.(2) 31 - 50.(3) 51 - 100.(4) 101 - 300.(5) More than 300.
b. Question 2. Which category of construction projects your company has great expertise in?(1) Residential Projects.(2) Transportation Projects.(3) Industrial Projects.(4) Utilities Projects.(5) Technology Based Projects.
c. Question 3. What is your experience in terms of time in the construction industry?(1) Less than a year.(2) 1 year to 2 years.(3) More than 2 years to 5 years.
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(4) More than 5 years to 10 years.(5) More than 10 years.
d. Question 4. How would you quantify the importance of supply chain management to your company?(1) Not important.(2) Somewhat important.(3) Quite important.(4) Very important.
e. Question 5. Which of these integral organizational functions is important to you for management of supply chain in your company?
Functions Very Important
Quite Important
Somewhat Important
Not Important
ProductionProcurement OperationStorageInventory
f. Question 6. Which factors are given precedence for building relationships with suppliers in the supply chain?
Functions Very Important
Quite Important
Somewhat Important
Not Important
QualityCostLogisticsProcesses
g. Question 7. Which factors are given precedence for building relationships with clients in the supply chain?
Functions Very Important
Quite Important
Somewhat Important
Not Important
Construction DesignCostTendering ProcessContract
h. Question 8. What are the principal objectives in developing Supply Chain Management in your company?
Functions Very Important
Quite Important
Somewhat Important
Not Important
Benefit to client / supplierImprovement in customer serviceImprovement in information flowIncrease in profitability
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Cost reduction of processes in the companyIncrease market competitivenessIntegration of processes
i. Question 9. What are the key factors in effective Supply Chain Management relationships with your suppliers / clients?
Functions Very Important
Quite Important
Somewhat Important
Not Important
Trust Reliability of supplyCultural compatibilityMutual Interest Free flow of informationJoint business planningCloser links between demand and supplyCommon platform for project assessmentHuman resource development
j. Question 10. What are the major barriers to implementation of Supply Chain Management relationships?
Functions Very Important
Quite Important
Somewhat Important
Not Important
Poor understanding of the conceptLack of commitment Inappropriate organizational structureLack of strategic focusInformation flow
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SECTION 4 - RESULTS
20. A total of 40 companies of public and private sector were included in the survey. The majority of the companies opted to take part in the survey on the condition of anonymity / confidentiality regarding their views. The respondent input on the subject is as under:-
a. Company Size and Strength of Workforce
Numerical Strength of Employees Frequency PercentageLess than 30 15 37.531 - 50 9 22.551 - 100 7 17.5101 - 300 5 12.5More than 300 4 10Total 40 100
b. Area of Strength / Expertise
Type of Construction Project Frequency PercentageResidential Projects 17 42.5Transportation Projects 11 27.5Industrial Projects 2 5Utilities Projects 7 17.5Technology Based Projects 3 7.5Total 40 100
c. Experience in the Construction Industry
Type of Construction Project Frequency PercentageLess than a year 1 2.51 year to 2 years 5 12.5More than 2 years to 5 years 11 27.5More than 5 years to 10 years 9 22.5More than 10 years 14 35Total 40 100
d. Importance of Supply Chain Management
Views Frequency PercentageNot important 18 45Somewhat important 8 20Quite important 8 20Very important 6 15Total 40 100
e. Importance of Integral Organizational Functions
Functions Very Important
Quite Important
Somewhat Important
Not Important
Production 32 / 80 % 5 / 12.5% 3 / 7.5% 0 / 0%Procurement 25 / 62.5% 9 / 22.5% 6 / 15 % 0 / 0%Operation 16 / 40% 8 / 20% 10 / 25% 6 / 15 %Storage 10 / 25% 8 / 20% 8 / 20% 14 / 35%Inventory 12 / 30% 2 / 5% 4 / 10% 22 / 55%
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f. Precedence for Building Relationships with Suppliers
Functions Very Important
Quite Important
Somewhat Important
Not Important
Quality 32 / 80 % 0 / 0% 8 / 20% 0 / 0%Cost 35 / 87.5% 1 / 2.5% 4 / 10% 0 / 0%Logistics 25 / 62.5% 9 / 22.5% 6 / 15 % 0 / 0%Processes 35 / 87.5% 2 / 5% 1 / 2.5% 3 / 7.5%
g. Precedence for Building Relationships with Clients
Functions Very Important
Quite Important
Somewhat Important
Not Important
Construction Design
25 / 62.5% 4 / 10% 2 / 5% 9 / 22.5%
Cost 35 / 87.5% 5 / 12.5% 0 / 0% 0 / 0%Tendering Process
38 / 95% 0 / 0% 1 / 2.5% 1 / 2.5%
Contract 26 / 65% 4 / 10% 10 / 25% 0 / 0%
h. Principal Objectives in Developing Supply Chain Management in the Company
Functions Very Important
Quite Important
Somewhat Important
Not Important
Benefit to client / supplier
10 / 25% 10 / 25% 20 / 50% 0 / 0%
Improvement in customer service
30 / 75% 10 / 25% 0 / 0% 0 / 0%
Improvement in information flow
4 / 10% 6 / 15 % 10 / 25% 20 / 50 %
Increase in profitability
38 / 95% 1 / 2.5% 1 / 2.5% 0 / 0%
Cost reduction of processes in the company
10 / 25% 10 / 25% 0 / 0% 20 / 50%
Increase market competitiveness
4 / 10% 35 / 87.5% 0 / 0% 1 / 2.5%
Integration of processes
20 / 50 % 10 / 25% 5 / 12.5% 5 / 12.5%
i. Key Factors in Effective Supply Chain Management Relationships with Suppliers / Clients
Functions Very Important
Quite Important
Somewhat Important
Not Important
Trust 30 / 75% 3 / 7.5% 3 / 7.5% 4 / 10%Reliability of supply
40 / 100% 0 / 0% 0 / 0% 0 / 0%
Cultural compatibility
4 / 10% 6 / 15 % 10 / 25% 20 / 50 %
Mutual Interest 28 / 70% 5 / 12.5% 3 / 7.5% 4 / 10%Free flow of information
4 / 10% 6 / 15 % 10 / 25% 20 / 50 %
Joint business 4 / 10% 3 / 7.5% 6 / 15 % 27 / 67.5%
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planningCloser links between demand and supply
38 / 95% 1 / 2.5% 1 / 2.5% 0 / 0%
Common platform for project assessment
4 / 10% 5 / 12.5% 3 / 7.5% 28 / 70%
Human resource development
4 / 10% 6 / 15 % 10 / 25% 20 / 50 %
j. Major Barriers to Implementation of Supply Chain Management Relationships
Functions Very Important
Quite Important
Somewhat Important
Not Important
Poor understanding of the concept
4 / 10% 3 / 7.5% 6 / 15 % 27 / 67.5%
Inappropriate organizational structure
38 / 95% 1 / 2.5% 1 / 2.5% 0 / 0%
Low commitment from partners
40 / 100% 0 / 0% 0 / 0% 0 / 0%
Lack of strategic focus
4 / 10% 6 / 15 % 10 / 25% 20 / 50 %
Information flow
4 / 10% 3 / 7.5% 6 / 15 % 27 / 67.5%
21. Findings
a. Company Size and Strength of Workforce(1) The construction industry consists overwhelmingly of small and medium-sized
enterprises.(2) The structure of the industry continues to fragment with consolidation of the larger
firms and an ever-increasing number of small firms.(3) The focus remains on hiring of skilled / unskilled labor on temporary basis instead
of building an organizational structure with permanent workforce and retention of employees.
b. Area of Strength / Expertise (1) The expertise is more concentrated towards conventional construction projects.(2) The lack of orientation towards industrial / technology projects suggests a
preference for lower spectrum technology techniques and avoidance of challenging construction environments.
(3) The margins for earning hefty dividends on residential / transportation works against investment made are the major source of attraction to contractors.
c. Experience in the Construction Industry . The spread indicates the evolution of the construction industry with emergence of new firms, amalgamation between existing ones and consolidation of those already in the business for more than 10 years.
d. Importance of Supply Chain Management. The fragmentation within the industry is clearly evident from the fact that majority does not assign great importance to the concept of supply chain management.
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e. Importance of Integral Organizational Functions. The emphasis remained on
production / procurement whereas operations, storage and inventory clearly came out as losers despite of having great significance in the supply chain.
f. Precedence for Building Relationships with Suppliers. Great importance was attached to quality / cost while neglecting the fact that these two are achieved by value addition through logistics and processes.
g. Precedence for Building Relationships with Clients. The most important factor that a contractor considers when forming a supply chain relationship with a client, is the cost benefits to be derived from such relationships, followed by creating the standardization of the process, then the simplification of tendering and construction process.
h. Principal Objectives in Developing Supply Chain Management in the Company . Profitability and improvement in customer service were the area of emphasis.
i. Key Factors in Effective Supply Chain Management Relationships with Suppliers / Clients. The most important factor identified by the contractors is reliability of supply followed by closer links between demand / supply and trust. The key manufacturers in the industry operate through cartels thereby influencing the execution of work done by contractors through price monopolies and disrupting supplies whenever one member’s interest is at stake.
j. Major Barriers to Implementation of Supply Chain Management Relationships. The biggest barrier to implementing a successful supply chain partnership was the low commitment of the partners, followed by inappropriate organizational structure and surprisingly flow information was considered to be least desirable as sensitive information regarding the company may be siphoned to competitors.
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SECTION 5 - RECOMMENDATIONS AND CONCLUSION
23. Recommendations
a. Current supply chain performance shouldn’t only be measured and understood given that it is evaluated by the criteria ‘is the overall product on time and to budget’? This ‘broad -brush’ evaluation quite obviously does not provide any mechanism to fully understand where process can be improved, wastage can be reduced and additional value can be added.
b. A reflective approach must be adopted towards activities where the knowledge ‘gained’ is stored, shared and applied to the next activity. Currently, all efforts are focused on looking forward to the next project rather than attempting to learn from previous activities and applying the lessons learnt to a general raising of value adding activities.
c. All parties involved in the supply chain must look to drive change through all areas by:-(1) Education process.(2) Cultural change.(3) An understanding that all parties will benefit / profit.(4) Open and shared approach to the dissection of the ‘associated benefits’ of
improved supply chain performance.(5) An attitude of ‘if your in, you win’ with regard to enhanced approach to Supply
Chain participation.(6) Pre-planning and visibility opportunities provided by a visible client forward
workload well into the future that is shared by the Supply Chain ‘family’.(7) Where possible freeze expectations but include change where necessary
through joint agreement through the use of contingency plans.
d. More effective management of subcontractors through: -(1) Regard the sub contractor as being part of the supply chain (key to the value add
process).(2) Sharing a full picture of the project.(3) Sharing the values that are required by the Supply Chain.(4) Inviting input where the sub contractor can add value.
24. Conclusion
a. Key to much of the current lack of best practice within the construction industry is the need for the culture to be developed and raised to be more collaborative, innovative, embrace change (when for the good) and non-adversarial in nature to from its current levels. Key issues include the following:-(1) Decisions should be made on a ‘cost’ and not a ‘price’ basis (developing a more
holistic understanding of the Supply Chain). (2) Where possible, products / materials should be modularized in order to
‘standardize and simplify’ the Supply Chain. (3) All process activity should be evaluated and where possible simplified /
improved.
b. Improvements to the supply chain must be planned and must form part of an overall strategy. The change processes must start at the very top of organizations and must be carried out internally within the organization first. As progress is made within the organization, change must then be extended to all parties external to the organization (but within the supply chain).
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