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Construction Supplier Selectionand Evaluation

Presented by Under guidanceVishal.R.Kachwah Of MIS :121420005 Prof. Dr. N.A.Hedaoo

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OBJECTIVE OF THE STUDY

The main objective of the study is the following:

To understand the mechanism of suppliers selection in Construction supply

chain management.

To study the various supplier selection criterion to integrate suppliers in

construction supply chain.

The Supply Chain View

Suppliers Manufacturers Warehouses &Distribution Centers

Customers

Material CostsTransportation

CostsTransportation

Costs TransportationCostsInventory

CostsManufacturing Costs

Source Make Deliver Buy

Supply chain management is a means for dealing with these processes in a structured manner.

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Flows in a Supply Chain

Customer

Material

Information

Funds

The flows resemble a chain reaction

Supplier

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What Is Supply Chain Management (SCM)?

The rightProduct

HigherProfits

The rightTime

The rightCustomer

The rightQuantity

The rightStore

The rightPrice

=++ ++

Ach

ieve

s

A set of approaches used to efficiently Suppliers Manufacturers Warehouses Distribution centers

So that the product is produced and distributed In the right quantities To the right locations And at the right time

System costs are minimized and Service requirements are satisfied

+

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Stages Of Supply Chain Management

Stage 1 (Supply chain assessment)

This stage the existing work procedure and work methodology are accessed.

Stage 2 (Supply chain redesign)

Existing work procedure are found out and steps are taken to improve the supply chain

Stage 3 (Supply chain control)

Close control over the working and check if the desired goals are achieved or not.

Stage 4 (Continuous supply chain improvement)

Keep on changing the supply chain the keep up with the changing requirements of the

organization.

Supply chain management in construction

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General structure of construction supply chain (CSC)

CSC includes the flow of information ,materials, ser vices or products, and the flow funds between client, designer, contractor and supplier

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Generic configuration of supply chain in construction industry 9

SUPPLIER SELECTION IN CONSRUCTION SUPPLY CHAIN

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Construction Purchasing Mistakes

In most cases, construction organizations are not proficient at identifying

the capabilities of their suppliers.

They sometimes rationalize supplier decisions based on convenience.

They wait too late to assess the value added by suppliers and service

providers.

They do not recognize the impact of the economic changes on bulk

materials prices.

Barriers to Supply Chain Management

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Failure to share project information

Fear of loss of control

Lack of self awareness

Lack of partner awareness

Inability to recognize project goals

Lack of understanding project owner

Lack of understanding of supply chain

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Process-based evaluations assessment of the supplier’s production or service processthe construction organization will conduct an audit at the supplier’s site to assess the supplier’s operating systems.

Performance-based evaluationsAssessment of the supplier’s actual performance according to a variety of criteria, such as:delivery reliability, cost, and quality defect rate.

There are two main categories of supplier evaluations

Criteria for Supplier Evaluation

SUPPLIER SCORING AND ASSESSMENTWhen scoring and assessing suppliers, the following factors other than quoted price must be

considered:

Replenishment lead time

On time performance

Supply flexibility

Delivery frequency/minimum lot size

Supply quality

Inbound transportation cost

Pricing terms

Information coordination capability

Design collaboration capability

Exchange rates, taxes and duties

Supplier viability14

The impact of each factor on total cost is summarised in the following

Purchase Price of

Component

Inventory Transportation Cost

Product Introduction

TimeCycle Safety

Replenishment Lead Time XOn time Performance X

Supply Flexibility XDelivery Frequency X X X

Supply Quality X XInbound Transport Cost X

Pricing Terms X XInformation Coordination X X

Design Collaboration X X X X XExchange Rates and Taxes X

Supplier Viability X X

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SUPPLIER EVALUATION SYSTEM

The three general types of supplier evaluation systems used today are

Categorical method,

Cost-Ration method,

Linear averaging method.

The guiding factor in deciding which system is best is;

• Ease of implementation

• Overall reliability of system.

It should be noted that implementation of the results is the matter of the buying organization’s judgment.

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Supplier Cost Material Quality Speed Total

A Good (+1) Unsatisfactory (-1) Neutral (0) (0)

B Neutral (0) Good (+1) Good (+1) (+2)

C Neutral (0) Good (+1) Neutral (0) (+1)

Example of categorical method

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The buyer develops a list of performance factors for each supplier

track of each area by assigning a “grade” in simple terms such as: “good,” “neutral,” and “unsatisfactory.”

The advantages associated with, it can be implemented immediately and is the least expensive

Example of cost ratio method

Supplier

Quality cost ratio

Delivery cost ratio

Service cost ratio

Total penalty

Quoted Price/Unit

(Rs.)

Net adjusted cost (Rs.)

AA 1% 1% 1% 3% 120 123.6BB 2% 2% 3% 7% 115 123.05CC 3% 1% 4% 8% 110 118.8

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The first step is to determine the internal costs associated with quality, delivery, and service each element is converted to a cost ratio

An example of quality costs follows:

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Supplier1 Supplier 2

Material Quality (weight = 50)

Acceptable lot 50 35

Total lot received 58 40

Quality Rating 86.2 87.5

Service (weight = 35)

On time delivery 52 38

Total lot received 58 40

Service Rating 89.7 95.0

Price (weight = 15)

Lowest price 75 75

Price submitted 75 82

Price Rating 100 91.5

Total Performance Rating 89.5 90.7

This method is the most commonly

used evaluation method.

Specific quantitative performance

factors are used to evaluate supplier

performance.

The most commonly used factors

are quality, service (delivery) and

price

Linear averaging method

* 89.49 = (.5 × 86.2) + (.35 × 89.7) + (.15 × 100) 90.7 = (.5 × 87.5) + (.35 × 95.0) + (.15 × 91.5)

Internal financial problems

Working capital problems

Slow payment from project owner

Inferior plans and specifications

Inadequate technical capabilities

Insufficient information technology

Lack of communication between supply chain partners

Productivity inefficiencies

Work quality problems

Work method problems

Delivery reliability problems

Bulk materials quality problems

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Customer issue in supply chain management

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Factor selected for studySelection procedure Quality and timely work

Selection criteria Client briefing

Phase in which involvement Attitude of client

Technical expertise Minimum skill requirement

Testing capability Proper coordination

Relationship with supplier Frequent design changes

Waste elimination process Material availability

Suppliers’ geographical reach The incentives

Resourcefulness Complacency of suppliers

Transparency and openness Early participation of supplier

A SURVEY STUDY OF SUPPLIER SELECTION ISSUES IN CONSTRUCTION SUPPLY CHAIN

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Relative Importance Index (RII)Is the process where weight is given to each type of response as per the judgment of the user. In this case; Strongly Disagree = 1

Disagree = 2

Undecided = 3

Agree = 4

Strongly Agree = 5

Then RII for each option is calculated using the equation;

RII = (W1*n1 + W2*n2 + ….) / A*N

Where W = Weight of the option as decided by user, n = Number of responses under each option, A = Highest weight given and N = Total number of respondents.

References

1. Benton W C, Jr & Linda F. McHenry., [2010]. “Construction Purchasing and Supply Chain Management.” New Delhi: Tata McGraw Hill

2. O’Brein William.J., Formoso Carlos T., Vrijhoef Ruben and London Kerry A., [2009]. “Construction Supply Chain Management Handbook.” New York: Taylor and Francis Group

3. Vrijhoef Ruben & Koskela Lauri., [1999]. Role of “Supply Chain Management In Construction.” Research Paper. University of California

4. Study on “A SURVEY STUDY OF SUPPLIER SELECTION ISSUES IN CONSTRUCTION SUPPLY CHAIN” By Rohan Choudhury and Pratik Dave PGP ACM 23rd Batch (2009- 2011)

NICMR,Pune

 

Tendering (1)Technical know how (2)

Construction phase (3)

Technical expertise of supplier (4)

Testing capability (5)

New suppliers (6)

Penalty (7)

Responsiveness (8)

Consistent performance (9)

cooperative,not open and transparent (10)Past record (11)Guidelines by client (12)

Concerned for specialist work (13)

Technical competency (14)

Requirements in advance (15)

Informing early (16)

Manage from other site (17)

Encouragement (18)

Bank guarantee (19)

Cost saving (20)

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0.25

0.5

0.75

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Factors affecting Supplier Selection

RII

Understanding form study

While selecting supplier construction industry looks for consistent performance in terms of

quality and on time delivery.

Client expect their suppliers to be responsive.

Supplier should have a good testing capability to finish project as per established QA & QC.

Frequent design changes the supplier and subcontractors are informed well in advance.

Imposing penalty is the best way for preventing wastage at site.

Thank you