Effective Supply Chain Management in the Construction Industry

Aims and Objectives The present thesis aims to investigate the various significant impacts that supply chain management (SCM) has in the construction industry. The main goal of this piece of research is to discover, to understand and to predict which, more precisely, are the most important and impacting aspects of SCM that dictate projects success in the construction industry. In order to achieve this goal, an assessment of a number of theories explaining different SCM aspects of the strategic management of the construction industry will be performed. The emerging objectives of this research are: Research and scrutinize the conventional SCM strategies applied in the construction industry. Examine and review different strategies for internal and external constructions SCMs and investigate different business intelligence solutions adapted for the construction SCM. Analyse the impact of potential business intelligent systems (BIS) designed to tackle the SCM and analyse their role and possibilities in the Constructions Industry. Critically investigate the basic problems encountered by construction supply chains. Research and examine to which extent SCM is offering practical solutions for an effective development of the Constructions Industry. Gather information via desk-based research from a wide range of SCM representative studies and perform a qualitative analysis. Make recommendations about a number of potential directions for effective SCM in the constructions field. Observe and mention potential improved strategies for further studies and researches.

Introduction Background In present days, the ability to deliver personalised products and services rapidly and in time all over the world is considerably significant for the performance of any company. As a result, companies have focused their attention to supply chains solutions in order to satisfy their clients. A companys ability to create unquestionable and timeless business connections with all their specific partners, such as clients or contractors, proved to be a decisive competitive characteristic (Jespersen, Skjott-Larsen, 2005). Many corporations increased their activity and compete in an environment surrounded by changeable and chaotic markets; customers necessities change frequently, in different conditions generated by fragmented markets, where most customers have a lot of demands for products and services, determined by markets continuous need for product diversity and characteristic services. In conclusion, global competition determines businesses to produce superior but cheaper products and to have faster services. Based on these difficulties, supply chain management (SCM) was considered by the corporatist world to be a very useful management tool and a competitive must have (Jespersen, Skjott-Larsen, 2005). For the last few decades, the examination of supply chain management (SMC) has been increasing, becoming an intricate discipline on which many researchers pointed their attention (Mentzer, 2001). The importance and value of the SCM forced companies to become more alert and, as a result, there has been increasing interest in supply chain reporting and enterprise analysis towards establishing the factors that may be used to achieve business-related goals, such as the control of costs, customer satisfaction, and the optimisation of resources good relationships with business partners (Mentzer, 2011, p 234). Construction industrys growing Interest of the in Modern SCM Facilities The economic literature shows that supply chain management refers to the administration of interconnected different businesses requesting the supplying of a number of products packages and services demanded by a particular end customer within a supply chain (Wisner, Tan and K. Leong, 2008). While the end customers try to remain focused on its main field of activity, attempting to be more flexible to clients demands, they keep under control their
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possession of raw materials, collaborating for any necessity with different supply channels (Jones& Hill, 2009). The raw material transport and procurement is attributed to outsourcing entities that have the possibility to execute these actions more effectively and with smaller financial investments. The main consequence is a bigger number of organisations concerned to satisfy the customer demands, while the management authority of basic logistic operations is reduced (Vercellis, 2011, p 139). All these activities conducted to the appearan ce of supply chain management strategy (SCM), which has as a main purpose the improvement of flexibility and confidence among partners making part from the same supply chain (Jones& Hill, 2009). The typical competitive nature of the constructions industry and its inherent complexity generated the necessity of successful supply chain management strategies based on balanced approaches. The majority of experts in the field suggest that subcontractor involvement and closer relationships between partners could lead to effective improvement solutions of the SCM within the constructions industry. Nevertheless, relationships between parties seem to remain quite traditional and at arms length in this field (Blayse& Manley, 2004, p 146). Specialists in the field suggested that SCM initiatives within the constructions industry have been quite superficial and limited (for instance they addressed transportation costs), being restricted only to a certain part of the supply chain (for instance the construction site). The most common problem is the fact that the majority of the existing problems are only regarded from the main contractors perspective. Statistical studies demonstrate that in most cases the main contractor has the most powerful decision because it purchases more material and labour (Cabinet Office, 2011). Consequently, main contractors become more and more powerful and subcontractors, suppliers or any other actors in the construction supply chain have to adapt to their imposed conditions. This situation generates various malfunctions in the SCM, because the other actors have to reconsider their supply strategies and revise their trading contracts with suppliers and subcontractors. The Construction Industry has particular characteristics that demand specific SCM strategies, different from some other industries. These refer to the physical nature of the product, the structure of the industry and the organisation of the construction process (Petrovic-Lazarevic & Djordjevic, 2006, p 2). Products in the construction industry are generally large and more difficult to transport. Considering all the aforementioned characteristics, the interest for appropriate SCM strategies is growing. Some other global factors such as increasing competition in the market place, are also contributing to the growing necessity of SCM strategies. Consequently, nowadays there are more and more organisations which are
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choosing to employ business intelligent systems (BIS) in order to address different problems in their supply chain. Over the time, BIS had a tremendous evolution, from the basic assistance of only a few decision makers to the point in which these systems are offering management services to thousands of users such as companies from the construction industry, companies that are operating with internal databases or make use of external information (Moss and Ate, 2003). Additionally, global consultancy corporations such as IBM

Business Consulting

Services, A.T. Kearney, Ernst & Young, KPMG, Accenture or Cap Gemini have also decided to use supply chain management solutions, considering that SCM represents a significant business tool. Also, a great amount of schools and universities, counting the Copenhagen Business School Cranfield Scool of Management, University of Cologne or Erasmus University started to include supply chain management classes in their curricula (Chopra and Meindl, 2007).

Literature review Theoretical Framework and Transformation of supply chain management (SCM)

Nowadays, it is a common fact that the increasingly globalising industry generates new ideas or concepts, which consequently generates constantly misunderstanding about their content, definitions and fields of applications. The notion of supply chain management (SCM) had appeared in the 1980s, but it began to be acknowledged within the business environment after the 1990s (Leeman, 2010). Until then, notions such as logistics and operations management were being used as being similar and the changeover to modern SCMs raised many controversies and arguments. Due to fact that this notion covers a very large area in which it can be applied, the subject of SCM is highly studied and there is a large number of theories in the literature review. The definitions that have been found in the research studies on SCM may be helpful for a more profound and holistic understanding of this concept (Leeman, 2010). While researchers and specialist from all economic areas tried to come up with a definition for the notion of SCM, more detailed literature investigation is mandatory, because there are many approaches which are presenting only some specific characteristics of the SCM.
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Logistic-related approaches: A supply chain is the alignment of firms that bring products or services to market. (Lambert et al., 1998, p. 307). A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. (Ganeshan and Harrison, 1995, p. 1). Supply chain management is the coordination of production, inventory, location, and transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served. (Hugos, 2011, p. 80) The Supply Chain encompasses all organisation and activities associated with the flow and transformation of goods from the raw materials stage through to the end user, as well as the associated information flows. Material and information flows both up and down the supply chain. Supply Chain Management (SCM) is the integration and management of supply chain organisations and activities through cooperative organisational relationships, effective business processes and high levels of information sharing to create high-performing value systems that provide member organisations a sustainable competitive advantage (Jespersen and Skjott-Larsen, 2005, p. 11).

Other experts in the field (Boyer and Verma, 2009; Handfield and Nichols, 2002) claim that the notion of supply chain management differs from the logistics one. A supply chain refers to a whole network of companies that collaborate in order to deliver a product to the market and logistics means that the activities are taking place in a single company. Furthermore, dissimilarity between the two notions is that logistics deals mostly with inventory management, procurement, maintenance and distribution, while SMC also deals with marketing, customer service, finance development of new products and other related interest that include fulfilling the customers requests. The company and the supply chain are

considered a single unit, according to the instructions of supply chain management (Boyer, Verma, 2009). However, finding themselves in a continual changing process, the constructions industry is faced with the necessity to rely on efficient supply chains, beyond their theoretical definitions. They need effective SCM strategies in order to respond to the increasing competition generated by the global market economy. This different management paradigm and business network concept transcends the frontiers of any classic enterprise and attempts to systemise the whole business level throughout the value of chain of a number of companies (Blecker, Kersten& Herstatt, 2007). Activities and Functions of SCM Supply Chain Management Systems (SCM) hold a wide range of functions and purposes helping managers and other professionals in the supply chain business to develop new methods to improve their operations (Basu and Wright, 2012). SCMs are usually commissioned to: a) offer suppliers and production planners ways for developing their strategies and programmes and allow a more efficient way of reacting; b) enable executives to examine essential elements of the supply chain, such as warehouse inventories, transport operations, material requests or outstanding balances; d) examine an enterprises status regarding present stock or the costs of stock on location with distribution information as well; e) supervise stock variation that reflects on customer demand; f) create statements of the companys productivity and efficiency or costs involved; g) evaluate product cycles, use of material, routing configurations or inventory age; h) establish tendencies and operate areas of distribution or inventory for developing the supply chain; i) estimate the progress of supply/demand balance; j) provide the monitoring of the supply chain system and provide automated alerts that offer decision makers the possibility to solve issues in their incipient phases (Basu and Wright, 2012). The literature search in field of supply chain management revealed several important models used by companies and organisations. Among them, SCOR (issued and supported by Supply Chain Councils) and GSCFs model (issued by the Global Supply Council). CSC MP (Council of Supply Chain Management Professionals) sustains the American Productivity & Quality Centre (APQC) (Leeman, 2010).

Creating an efficient supply chain management involves the conveying of individual functions management into the supply chain system. The way in which the system functions involves placing the orders by the purchasing department when they receive the clients request. The marketing department which addresses clients demands forwards their requests to other retailers and distributors so that their requirements can be fulfilled. The information within the supply chain system can be controlled only through the integration of all services and departments a company relies on for its performance. It is evident that in order to achieve a competent supply chain application it is crucial to develop a strong relationship between buyers and suppliers while in the same time sharing systems and information and a joint approach for product development. Hugos (2011) advises on the criteria for working with an established prosperous supply chain is the constant exchange of information. Global management has come after decades of experience to the conclusion that in order to enhance the circulation of a product there is need for the implementation of a process strategy within the company. The procedures involved in the main supply chain include: a) Offering support for the preservation and development of the relationship between the company and its customers. This refers to the use of interfaces for providing the customer up-to-date information about product availability. This process depends on the companys operations regarding manufacture and distribution. Strategies chosen by organisations to shape their relation with the clients are: Identifying goals that need to be achieved by both the company and the client Applying a constant customer rapport Developing a confident and optimistic environment within the company and in the relation with clients (Hugos, 2011). b) The purchasing process involves the development of thorough plans constructed in partnership with suppliers in order to ensure the production flow. Managing development approaches and designing original products are also elements of the procurement process. For companies that function on a global level it is important for the sourcing process to be based on a global foundation. The main goal is to obtain advantages for both partners and to optimise time resources which are invested in cycle design and product launch. The purchase function also enhances the growth of

fast communication chains such as Internet tools used for managing potential demands in a fast pace or the electronic data interchange (EDI). c) The process of developing and selling a product involves integrating customers and suppliers in activities that will lead to the decrease of time spent for launching the product out on the market. In order to maintain competitiveness products need to be designed and successfully launched in a very short period of time. The decision makers that work at developing and selling a product need to find themselves in a constant communication process with the customer support department. This will bring valuable information concerning the clients needs and requirements and through an assessment process will generate the selection of suitable materials from appropriate suppliers. These stages will ensure the production and integration of products in an efficient supply chain (Hugos, 2011). d) Administering the production process has as purpose the creation of products that will reach the distribution market after analysing previous forecasts. Flexibility is required in this particular stage as market fluctuations need to be considered for adjusting to mass customisation. The continuous changing of the market reduces the life cycle of a product; therefore adaptability of companies is required as well as enhanced skills for responding to its customers requirements (Hugos, 2011). e) Distribution is a procedure specific to supply chains which entails delivering the finalised product or service to the customer who represents the endpoint of marketing chain (Leeman, 2010). f) Another practice in the supply chain process is outsourcing. Companies choose to externalise a part of their services that until then have been delivered by their own company in order to create a focused approach on services that can be better handled by their organisation and in the same time are crucial the effectiveness of the chain. Secondary services are directed towards other companies who are specialised in particular domains and who can offer high quality consultancy and expertise. This strategy is often used in construction industry where activities such as transport, storage or inventory control are forwarded to logistic suppliers. In order to be able to manage the wide network of suppliers and collaborators central as well as local involvement and partnership is required. In most supply chains important strategic decisions are made by central management, while local management is left with making decisions regarding secondary issues (Leeman, 2010).

g) Assessing performance relies mainly on the relationship quality between supplier and client, their insertion in the market as well as the companys profit and performance. In order for a company to be profitable it is important to make use of supplier services and to create a stable relationship with the client. Logistics are today one of the most influential factors in the development and protection of competitive benefits. When undergoing an internal evaluation factors such as costs, quality, productivity are taken into consideration. External evaluation on the other hand relies solely on the effect internal procedures have on the client. Therefore, the customers interpretations and opinions regarding the product or the services delivered to him are essential in creating a realistic assessment (Leeman, 2010). h) In the process of finding efficient methods for reducing costs and expenses,

warehousing management became a useful strategy for diminishing manpower costs, providing appropriate storing, monitoring the promptness of delivery activities and offering a stock management area (Leeman, 2010). After analysing and understanding the complex process of supply chain management activities conclusions can be drawn on the density of management tasks. However, supply chain management is today a vital approach for companies worldwide no matter the industry they operate in (Wang, Heng and Chau, 2007).

Supply Chain Management in Constructions

The Construction Industry

The construction industry represents a particular form of business because of its divided specific which generates important negative effects such as decreased productivity, exceeding of costs and timeframes, various conflicts and disagreements. All of these issues lead very often to legal claims and lawsuits that exhaust financial and time resources and are considered to be the crucial elements of performancerelated difficulties which the construction industry is confronted with. Fragmentation in the construction industry makes the delivery process to be considered inefficient in comparison with other industry segments (Fernie and Thorpe, 2007). Among consequences that rise from the fragmentation issues, the most recurrent ones are: Poor identification, ranking and implantation of clients needs
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Creating design solutions which are under the level expected by the client Fragmentation of construction data, design and fabrication Inadequate integration and partnership between operations which are part of the projects life cycle

Feeble communication of the design plan and the reasoning for undergoing a certain process. This generates design changes, liability claims and overrunning the time and cost frame (Lavelle, Hendry and Steel, 2007).

Under these circumstances the application of a supply chain management can generate vertical integration in the design and production process. This function would connect the process to a chain with the purpose of exploiting opportunities for increasing value and diminishing total costs. As adopting this kind of application calls for a change in the perception of teamwork, collaboration and shared benefits, the construction industry has limited examples of applications registered. Integration methods have been used so far in the attempt to surmount industry fragmentation. These strategies have been used as a practice model because of their success in the manufacturing or other industries. Among them, the most recurrent one have been design-and-construct, design-for-construction, concurrent engineering, lean construction and business process reengineering (Fernie and Thorpe, 2007, p.321). Nonetheless, lacking the support of information technology these methods didnt adapt to the growing complexity of construction projects. Research addressing the causes of inefficiency in construction projects has revealed the fact that the issues that generate conflicts waste are related to the process and not the product. The above mentioned approaches are known for their focus on aspects of times, costs or quality. This could also explain the failure of adopting these strategies in the construction industry (Hughes, et.al, 2006). In the process of delivering a construction project there are multiple stages and people involved. The professionals gathered to work on the project come from different backgrounds and from diverse areas of expertise. The project organisation, also known as a temporary multiple organisation is what defines the process of delivering a construction project. Being a project-focused organism the organisation has a limited life expectancy and is based on competitive bidding as the main means of communication and assessment. As a consequence, the relationships between supplier and client are not stable or strong. The competition through bidding generates an awareness of the fact that future work cannot be assured in a system where the lowest bidder wins the project (Lavelle, Hendry and Steel, 2007).
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Blayse, A. and Manley, K. (2004) Key influences on construction innovation. Construction Innovation, 4, 143-154.

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Boyer, K. and Verma, R., 2009. Operations & Supply Chain Management for the 21st Century. Cengage Learning. http://books.google.ro/books?id=s2ugfZEUS4EC&printsec=frontcover&hl=ro&source=gbs_ ge_summary_r&cad=0#v=onepage&q&f=false

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http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html

Handfield, R. and Nichols, E., 2002. Supply Chain Redesign: Transforming Supply Chain Into Integrated Value System. FT Press. http://books.google.ro/books?id=XGu73Fu8QYC&printsec=frontcover&dq=Supply+Chain+Redesign:+Transforming+Supply+C hain+Into+Integrated+Value+System&hl=ro&sa=X&ei=iYtJUbSnD4TTsgbniYGABg&ved= 0CDEQ6wEwAA

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http://books.google.ro/books?id=eue8KAZ4mn4C&pg=PA71&dq=Fundamentals+of+Logisti cs+Management&hl=ro&sa=X&ei=ilJUazSCIOXO6OLgNAM&ved=0CDkQuwUwAg#v=onepage&q=Fundamentals%20of%20 Logistics%20Management&f=false Lavelle, D., Hendry, J. and Steel, G., 2007. The selection of subcontractors: is price the major factor? In: The 23rd Annual ARCOM Conference. Published by: Association of Researchers in Construction Management

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Petrovic-Lazarevic, S.,Djordjevic Z. 2006. Supply Chain Management in Building and Construction Industry: Case of Australian Residential Sector [on line] Availabe at: http://www.buseco.monash.edu.au/mgt/research/working-papers/2006/wp21-06.pdf

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Wisner, J. Tan, K. and Keong Leong, G., 2008. Principles of Supply Chain Management: A Balanced Approach. South-Western Cengage Learning, Mason OH. http://books.google.ro/books?id=8JM6wU_sBc0C&printsec=frontcover&hl=ro&source=gbs _ge_summary_r&cad=0#v=onepage&q&f=false

Wang, W., Heng, M. and Chau, P., 2007. Supply Chain Management: Issues in the New Era of Collaboration and Competition. Idea Group Inc.

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