Whitepaper: Supply chains and the construction industry
The supply chain is the backbone of the construction sector. Strong links ensure that relationships within the supply chain are efficient and function well, that raw materials are where they need to be when they are required, and that the right workforce is supplied. An unreliable supply chain can bring a project to a grinding halt. In this whitepaper we will look into why supply chains are particularly important to the construction industry, as well as the typical problems encountered and the advantages of putting time and effort into getting it right. We will also examine the role of framework and partnering agreements and how they can foster stronger working relationships that support the supply chain.
Defining the supply chain
Many different definitions have been created for the supply chain in the construction industry, depending on which way you’re looking at it. Some see it as the sourcing of people, products and services, organisations, logistics, activities, information and resources – and the traceability of each of these further back up the line. Others view the supply chain as the links between component parts of a project that will turn it from a series of disparate tasks and entities into a finished product for a client. Perhaps the simplest way to define it is the relationships between everyone who is working towards completing the project. Where these relationships have been carefully managed, the project runs smoothly and everyone is content.
How to approach successful supply chain management
Perspective is the key to successful supply chain management. The construction industry specialises in complex supply chains involving large numbers of people and numerous different stages, from design through to construction and final approval. Given the large number of parties and processes involved, enabling clear communication between each one is the most fundamental element of ensuring the supply chain works as it should. Then there are the inanimate elements – the raw materials, machinery and equipment, and knowing where everything is being sourced from and when it will arrive.
Why does it matter?
A well-established and well-managed supply chain is crucial to the overall success of a project. Most importantly, it impacts on cost – good management now can prevent errors further down the line that generate costs, whether in terms of the cost of delays or lost or wasted materials. Positive supply chain management also ensures projects meet deadlines, as everyone knows what’s happening, including the changes and amendments that occur on an going basis throughout the lifespan of the project itself. Finally, strong supply chain management enables collaboration and this has a knock on effect throughout the project, from standards of work through to delay reduction.
How does it work in practice?
The first step is establishing structure – a clear hierarchy that shows where each of the different parties sits within the project. This not only clarifies who is answerable to whom but will also ensure that sub-contractors and third parties involved in the process know who they report to, and who to contact if there is a problem. It’s crucial to have clear accountability throughout the project – the time that can be lost arguing over who should have done what can be devastating for completion timing.
The right mindset
As well as the clear hierarchy, strong supply chain management requires a very specific mindset with a clear consideration of the parties involved, including:
- Seeing the way different parties interact with, and rely on, each other
- Understanding the logistics of ensuring each element is in the right place at the right time, and the consequences of not doing so
- Being prepared to be hands on
- Having a good understanding of the people and resources required to achieve the project outcome
- Getting involved in situations where parties are not communicating, or are being obstructive, to swiftly resolve problems
The blueprint for supply chain success
Optimum construction management = happy customers. Supply chain management underpins the whole process and enables businesses to build a strong reputation and ongoing client relationships. There are a number of key elements involved in creating a blueprint for supply chain success.
Preparation, research and planning are essential for strong supply chain management and many a project has fallen down without them. Advance planning of schedules and timings identifies potential logistics issues early and will ensure that the right people and materials are secured right at the start of the process. This prevents hold ups and means that all the others involved can do their job.
Central management of a project makes supply chain management much simpler – a single source is responsible for coordination and ensuring that deadlines are met. This gives a project the best possible chance of running on time and to plan.
Managing the expectations of everyone involved will avoid confusion from the word ‘go.’ Everyone who is part of the project should have a clear and unambiguous idea of what their role in the project is and what their objectives are. Providing a brief ensures something to refer back to. As well as clarity on what to expect, it’s important to ensure that everyone in the project knows exactly what they are responsible for and who they are answerable to. Making clear where accountability falls can be very motivating.
Keeping communication channels open will allow the project flexibility as it shifts and changes, responding to any obstacles that have to be overcome and dealing with issues as and when they arise. Make sure that everyone knows who their point of contact is and whether or not they are to have direct contact with the client. If you need multiple suppliers to partner together to deliver, make sure you have opened a channel of communication between them.
Handling stakeholders is another key element of ensuring the supply chain runs smoothly. Some stakeholders may need to take a more hands off approach to ensure that a project doesn’t become bogged down in too much discussion or deliberation. Opening the conversation with those stakeholders early is essential to avoid confusion. The key is to ensure that the supply chain is receiving information from a single, clear source and that there are no conflicting messages being received that could cause delays and increased costs. Include stakeholders in discussions early so that they understand where their input is valuable and where it could end up causing problems.
Preserving strong relationships throughout the project starts with making the right choices at the beginning. Putting time and effort into securing the right people to work with is essential. Advance planning comes in to play here too, as it ensures that choices aren’t made because it’s the last minute and there are no other options. Choosing the right people and then enabling communication and collaboration between them will create a positive project machine. Working with trustworthy, thoroughly checked suppliers delivers the peace of mind of knowing that these are the best people for the job and will ensure the best possible outcome.
Supply chain obstacles
A disrupted supply chain is difficult to manage and can have a lot of difficult ongoing consequences. Anticipating the issues and obstacles that might arise well in advance provides a head start on successful supply chain management.
Why do problems arise?
There could be any number of reasons that obstacles appear in a supply chain. These include:
- The supply chain was poorly established at the start
- Hierarchies have not been clearly and effectively defined
- Changes throughout the project derail progress or shut down communication channels
- Parties get involved in disputes that aren’t resolved
Specific issues that the construction industry faces with respect to supply chains
Profitability – ineffective supply chain management will hit the project at its bottom line. Costs can spiral if deadlines are not being met and raw materials and workers are not where they are meant to be or are not performing as expected. A strong supply chain enables positive cost management that is flexible enough to absorb the changes that inevitably arise. Key to this is tracking the project, its components and costs and factoring in changes as and when required.
Communication – a loss of communication impacts on the costs of the project and can bring it to a grinding halt. It’s easier than you think for a total communication breakdown to occur and if this isn’t swiftly spotted and resolved via proactive supply chain management it can prevent progress and cause damage to relationships that cannot be repaired. Good supply chain management keeps communication channels open across all levels.
Market volatility – the impact of external changes, such as market volatility, often cannot be avoided but it’s still crucial that parties to a project know who they are accountable to, and who needs to know if they are impacted. This mainly affects the supply and sourcing of raw materials and this is a part of a project that has the potential to shift half way through. If this happens – if a new supplier must be found – then there will also need to be adjustments in costs and delivery that must be tracked right through the supply chain. The impact of market volatility on a disorganised supply chain can be devastating.
International impact – international suppliers are becoming the norm for many construction projects. While this often ensures that the right raw materials are found at the right price it can create some serious problems for supply chain management, given the different currencies, costs and distances involved. Strong supply chain management needs watchfulness of global suppliers, the taxes and import/export regimes that affect the materials – which are constantly changing – as well as the impact of world events. Communication is crucial – clear, open channels through which any problems can be raised and resolved swiftly and before they escalate.
How to improve supply chain management
Projects that suffer from ineffective supply chain management can be easily improved by making a few simple changes.
- Transparency – make the project more transparent and then everyone knows what is happening, who is accountable and what the deadlines are.
- Single point of contact – feed all supply chain management via a single contact point to reduce confusion and ensure overall perspective
- Risk assessment – establish early on whether financial, safety, legal, quality and environmental regulations can be met
- Optimisation – use high level overview to look for opportunities to optimise the workings of the supply chain at every stage for maximum efficiency
- Openness – tackle problems as and when they arise and clear up confusion before it spreads down the chain.
Where do framework and partnering agreements fit?
Framework and partnering agreements have much to offer supply chain management for construction across commercial, retail and living space projects.
- Framework agreements – a long-term agreement that allows parties to work together on an ongoing basis to deliver sustained, progressive improvement.
- Partnering – collaborative business relationships that are based on best value, as opposed to purely best cost.
Together, frameworks and partnering agreements give those in control of the project and/or supply chain the opportunity to deliver smoother run projects at a long-term lower cost.
A framework agreement cements relationships for the long term – with the ultimate goal of achieving continuous improvement as a result of the ongoing relationships. They are ideal where construction work is continuously being commissioned by a client – such as a local authority – and they can help to reduce procurement timescales and risks, as well as keeping the learning curve to a minimum.
Crucially, framework agreements also help to bring transaction costs down and to build better working relationships that have benefits all round. They are frequently used in projects with a broad scope, often where there are specific community requirements, such as those designed to meet local housing needs or where there is a specific area demand, such as environmental considerations or height restrictions.
The original concept behind partnering emerged in the 1990s after a report from Sir Michael Latham in which he criticised the classically adversarial approach inherent in traditional construction contracts. Partnering is the opposite of adversarial, a broadly collaborative management approach that works towards long-term integration of an entire project team for the mutual benefit of all. Partnering can be short-term too (known as ‘project partnering’) but is most beneficial in the long term. Long term partnering is called ‘strategic partnering’
Strategic partnering is particularly useful in high-risk projects and is often used with frameworking where, for example, a local authority is looking to establish a long-term supply chain for projects such as housing and education. There are clear benefits to this kind of approach for everyone involved, both in terms of the improved communication of long-term collaboration and the breadth of that communication, across clients, suppliers, local authorities and other organisations involved.
Issues with frameworks and strategic partnering
While there are plenty of positives in using frameworks and strategic partnering it’s worth bearing in mind that they do tend to be a generic ‘one size fits all’ kind of arrangement. This may not work for some projects, particularly when it comes to risk assessment and the risks and variables involved, as these can be enormously different from one project to another.
Are frameworks and strategic partnering a good idea?
There’s no clear answer to this, as it needs to be assessed on a project-by-project basis. Advantages, such as the reduction in costs and better, ongoing relationships, need to be set off against the lack of control and the fact that these agreements and approaches are rarely tailored to the needs of the individual project. Where there is a clear potential for long-lasting partnerships, collaboration, cost effectiveness and continuous improvement they are a great idea but where a project needs flexibility that may not be the case.
RG Group are experts in supply chain management and can help you to make positive changes to management processes – or handle them for you. We also have extensive experience in frameworks and partnering and can provide a wide range of advice on construction project management.