Richard Cork, Construction Business Development Manager at ERP solutions provider IFS talks to us about how software can bring us closer to our supply chain

Thursday, 20 March 2008

We tend to notice the importance of the procurement process most acutely when it does not run smoothly: when materials arrive at the wrong time, to the wrong specification, or with the wrong paperwork. Seemingly minor problems discovered at delivery stage can have a profound knock-on effect, threatening a project's programme and budget. To avoid these mishaps, or to mitigate their effects, contractors are taking a keener interest in their supply chain and the business systems they employ to manage it.

Visibility and control

Every link in the supply chain plays an invaluable role in the integral whole, and if any one of them falters it threatens the success of the entire project. This is true regardless of where the disruption to the chain occurs - it could be several tiers down the chain (suppliers of suppliers) or with the 'tier one' manufacturers and contractors such as M&E and curtain walling. The failure of a 'tier three' component manufacturer supplying window locks, for example, could delay achieving 'building watertight,' which would affect many other trades and successful completion.

I think it regrettable that many contractors have a working relationship only with members of the first tier of their supply chain, and in turn have good visibility of the work of only this small group. They tend to have limited access to their second tier supplier and progressively less knowledge of those further down the chain.

Indeed, some Project Managers may be shocked to discover just how extensive their supply chain is, or the extent to which they are dependent on even its remotest constituents. Furthermore, as visibility diminishes down the supply chain, so does control (if it is out of sight, it is out of reach!) Thus, there is a sizeable risk that failures at tier three may not only be imperceptible to the contractor, but, even if they were aware of them, entirely beyond their control.

Communication and trust

One way in which contractors are getting closer to their suppliers is by having fewer of them. For instance, rather than an approved list of ten mechanical and electrical contractors, many contractors are choosing to work regularly with the two or three with whom they have forged a good relationship. This approach reduces the administrative burden of evaluating and approving sub-contractors and suppliers and eliminating much of the learning curve inefficiencies associated with forming a new team for every project.

Of course, reducing numbers at the top of the supply chain will similarly reduce numbers in the lower tiers, but on its own this does little to improve visibility and control there. After all, the contractor and supplier are still at considerable distance from each other, with all communication continuing to be routed via 'tier one'.

Of late, this issue is being addressed by the use of collaborative systems (project extranets, for example), which facilitate the free exchange of timely and accurate information up and down the supply chain. Indeed, major contractors are increasingly updating their core business software with systems that incorporate collaborative tools, which bring significant benefits.

For example, if the main contractor makes an IT system available which supports collaboration across the supply chain - such as a web portal for procurement, payment applications and design information - everyone on the project benefits, including firms too small to implement the systems themselves. With the closer relationships and easier communication, we can expect to see trust flourishing between supply chain members.

Am I seeing double?

An example of the progression from a disparate, unwieldy to a more tightly-bound, co-ordinated supply chain can be found in how the storage and handling of construction materials has evolved in the past twenty-five years. Before, contractors would send full truck loads of materials to sites with barely any spare capacity to accommodate this overburden. Buyers would negotiate their best discounts on these full loads because the projects wanted the savings, and they managed as best as they could with the massive deliveries. No calculation was made of the extra time people spent working around the piles of material on site, the multiple times it was moved and how much was lost due to damage or theft.

Today, however, the solution to the above inefficient practice - consolidation centres - are surging in popularity. Material ordered in bulk is stored in a dry and secure environment until it is required on site, solving the problem of bulk orders versus 'just-in-time' delivery.
Smaller vehicles can now be used for delivery to congested sites, even carrying toolkits as well as materials, thus allowing tradesmen to travel by public transport where it is available. Designing in this level of 'double handling' prevents quadruple handling and helps reduce waste and cut vehicle emissions in crowded city centres.

The above illustration is not to suggest that running a distribution warehouse is a core competence for many contractors; they require additional skills and business tools if they are to be effective. Warehouse and logistics software will ideally form part of an integrated IT system supporting the contractor's portfolio of projects and their whole supply chain.

In procurement we trust!

Clearly, greater visibility over the supply chain and improved trust between its 'links' are imperative for fruitful construction procurement. In its efforts to fulfil this ambition and reap the benefits, the construction industry is reinventing itself, revisiting ideas and techniques from a generation ago and mixing them with fresh initiatives and emerging technologies.

Naturally, there is a risk of over-reliance on a single solution rather than taking a balanced approach. Consolidation centres will fail to deliver efficiencies unless they are well managed and the supply chain will not remain loyal without improved certainty over payment. Yet those contractors that embrace their supply chain and invest in business systems agile enough to support its ever changing demands will be best placed to maintain an even keel through the trials of construction.