Supply Chain Management Applications In

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SUPPLY CHAIN MANAGEMENT APPLICATIONS IN CONSTRUCTION INDUSTRY
K M Shaheer
School of Management Studies CUSAT, Kochi-22 E-mail:[email protected]

Abstract: Supply chain management is the oversight of materials, information and finances and the coordination and integration of flow within and among companies. While a relatively new and still somewhat unsophisticated concept within the construction industry, the process was formalized in the 1980s and has been entrenched in the manufacturing sector for nearly three decades.Construction supplychain management offers new approaches to reduce the cost of and increase the reliability and speed of facility construction. Supply-chain management takes a systems view of the production activities of autonomous production units (subcontractors and suppliers in construction) and seeks global optimization of these activities. Key words: construction, SCM application

1.0 INTRODUCTION
As subcontractor and supplier production comprise the largest value of project cost, supply-chain approaches may have similar benefits. Limited studies in construction suggest that poor supply-chain design regularly increases project cost by ten percent (Bertelsen, 1993), and this estimate is probably conservative. Project duration may be similarly affected. The promise of supply-chain management comes from its system perspective on production activities. Such a perspective allows improved understanding of firms‟ production costs and capabilities (particularly under the uncertain and changing conditions that characterize modern construction sites). This provides a rational basis to improve coordination and control on construction projects. Production activities can be better planned and adjusted and, by linking to costs, contracts can be formed that promote optimal supply-chain performance. Similarly, enhanced understanding of production allows analysis of the impact of facility design on supply-chain performance. The systems discipline of supply chain management contrasts sharply with traditional methods of planning, controlling and contracting for projects that, taking a hierarchical, decomposition approach, seek at best to optimize individual activities. Thus whereas current construction methods tend to support the fragmentation that plagues construction, supply-chain management promises an engineering basis to design, plan, and manage construction projects in a collaborative manner.

2.0 THE CONSTRUCTION SECTOR VALUE CHAIN 2.1 Recognising the value chain
The drive towards more efficient construction is well illustrated by examining the value chain, which follows the lifecycle of a building from raw materials through to the management of the completed facility. Construction projects today more and more less frequently follow the conventional (i.e. linear) model where completed buildings were handed over to the owner through a „snagging‟ process, after which the constructor could simply „walk away‟. Today, it is not uncommon for the constructor to retain a measure of control either as part-owner or as the operator of the asset or facility, as would occur under various integrated procurement routes. In this way, the cost efficiency of the completed facility becomes the constructor‟s responsibility and so it is as important to manage the facility as if it were the construction phase – perhaps more so.

2.2 Value chain modelling
A company‟s core competences can be determined by using a value chain model to analyse where cost advantages can be gained in performing activities. Value chain modelling (Porter, 1985) separates the business system into a series of valuegenerating activities subdivided into primary and support activities. The model is generic to most business activities, where relevant construction sector activities are shown .All activities need to be performed efficiently, providing quality and best value for money to the customer. Porter‟s definition of operational effectiveness is about performing similar activities to one‟s rivals, but performing them better. Several techniques have been developed for companies to gain cost advantage, such as reconfiguring the value chain, linking activities etc., but these and other „best practice‟ concepts diffuse rapidly thereby weakening their impact. The major remaining influence in gaining cost advantage is likely to be the effective use of technology, applied systematically across the whole value chain. There are many examples, but the most effective are those that embrace all, or at least several, activities in the chain, and it is here that RFID is seen to have a significant role.

2.3 Optimising the facilities management value chain
As noted, RFID technology has yet to reduce in cost to the point where it is no longer a barrier to adoption. In the meantime, it is becoming increasing clear that costeffective applications will be those that use the technology throughout the whole service life of the building and not just during construction. Thus, the requirements for optimisation of facilities management – asset management and services – need to be aligned with those of the construction phase. In both the construction and facilities management phases, more value can be realised through a strategic partnership between the organisations involved, and it is generally accepted that such alliances work best when the number of suppliers is reduced to a select few. In facilities management, the extreme case of a single supplier can, in theory, appear to be the most effective solution. In practice, however, a single supplier or very small group of suppliers can be difficult to arrange, especially when considering the whole building life cycle of design, build and operate. A larger group of suppliers can function efficiently, but this brings a high dependency on the compatibility of practices and especially of data and communication exchange formats. There need to be technical solutions for data exchange, communications, inventory specification etc. that are free from problems of standards and obsolescence. RFID is well placed to provide solutions for inventory control and location that conform to recognised data exchange standards and will provide efficient links with multiple suppliers. Even so, open source software is more likely to trigger adoption than proprietary software where licensing costs are likely to maintain artificially high end-user prices.

2.4 Standards
Regrettably, the essential international standards for RFID devices are evolving much more slowly than the devices themselves, and until standards like EPC (see 3.4 below) are widely adopted it will not be possible to reap the benefits of organised supply chains where partners can track each others products as they pass through the chain and across international borders. This is a general, practical problem that is proving difficult to resolve with the integration of most sensor systems for intelligent buildings (Manolescue, 2003); that of connecting the devices together, devising a language they can all speak and then adding intelligence. Moves in the building services industry to consolidate the various incompatible communication and command protocols currently in use are now taking place, moving towards a single IP based framework for building automation. However, progress is rather slow.Software development at a higher level is forcing the evolution of essential international standards and these will come from major software houses competing for the lucrative supply chain management software market (Collins, 2004). Supply chain management (SCM), the practice of coordinating the flow of goods, services,information and finances as they move from raw materials to parts supplier to manufacturer to wholesaler to retailer to consumer, is nowadays highly dependent upon soft automation. In general manufacturing, these processes include order generation, order taking, information feedback and the efficient and timely delivery of goods and services. In construction, they include project definition, design, procurement of contractors and suppliers, advance manufacture of major components and systems, and product certification along the supply chain.Supply chain management looks across the entire supply chain, 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 (Cooper and Ellram, 1993). Software for SCM is required to optimize performance of the chain and to embrace agility, flexibility and lean production ideals. An important characteristic of construction is the presence of small enterprises in the supply chain; their „membership‟ is enabled by ICT/internet solutions that were previously too complex or expensive for them to implement. Consequently, main contractors have become more reliant on other actors in the supply chain than previously .

2.5 Connections between materials’ and information sub -processes
The interacting nature of materials and information processes in construction are examined by Björk (2002) using process modelling methods. He shows how both types of activity utilise resources which are consumed in the processes (materials, energy, labour, wear and depreciation of machinery) and introduces information as a special type of resource that is not consumed in the process of using it, but nevertheless has a cost and also a value. During construction, the information and materials‟ sub-processes are integrated by information flows in two directions; in a longer perspective the information process also needs feedback on the performance of buildings during the facilities management phase. In one direction, information needs to be transformed into actions carried out by persons or by persons aided by tools and machines, and in the other, physical impulses such as temperatures, pressure etc. need to be transformed into information using measurement equipment. This mechanism can today in many cases be substituted by IT-enabled techniques such as bar coding and automatic pattern recognition. Björk‟s process model, including control interface activities,

3.0 ROLES OF SUPPLY CHAIN MANAGEMENT IN CONSTRUCTION
The generic concepts, methods and lessons learnt, which have been developed in the framework of SCM, can be used in different ways for the improvement of construction supply chains. In the following, we illustrate how the methodology of SCM can contribute tothe understanding of construction supply chain problems, and in giving direction to improvement efforts. The bottom-line is the effective resolution of interdependency-caused issues in the construction supply chain, including basic problems and myopic control

4.0 SUPPLY CHAIN MANAGEMENT’S CONTRIBUTION TO RESOLVE BASIC PROBLEMS INCONSTRUCTION: UNDERSTANDING CONSTRUCTION SUPPLY CHAIN PROBLEMS
The case studies and existing research show that problems in construction supply chains are largely characterized by interdependency. SCM has been introduced including an appropriate methodology to resolve the basic problems in the construction supply chain. The first step of the methodology suggests a chain assessment to uncover the nature and causality of the problems, which has been demonstrated earlier in the case studies. Understanding existing problems is an absolute necessity to be able to resolve them effectively. The goal is to become totally aware of the real basics of the problems (i.e. seeing the “big picture”), and approaching the issue properly in order to unlock possibilities for effective improvement of the supply chain. In fact, it‟s a matter of making waste and problems visible and tangible, and identifying and detecting the root causes to make it possible to resolve them all.

5.0 ARGUMENT FOR SUPPLY CHAIN MANAGEMENT IN CONSTRUCTION: FULFILLING THESUPPLY CHAIN METHODOLOGY
Based on the insight gained by means of supply chain assessment, the SCM methodology needs to be fully applied to resolve the problems that were found in the construction supply chain. Because most problems spread across (a considerable part of) the supply chain, solutions are needed that equally cover multiple stages of the supply chain, including the actors involved. The range of the solutions and the part of the supply chain involved depend on the scale of the problems. After having assessed the supply chain, the SCM 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. 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 (Figure 6). 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 (Wegelius-Lehtonen and Pahkala1998).

It is interesting to compare the development issues of SCM, as defined by Lin and Shaw (1998), to the actual practice of construction (Table 4).

6.0 CASESTUDIES

6.1 Practice today
Limitations of current practice can be seen in two case studies:2 The Durand Centre project which is an example of the limitations of traditional approaches (particularly under changing conditions), and the Buchhaugen project which demonstrates the shortcomings of our understanding when applyingnewtechniques. The Durand Centre is a £100 mn ($150 mn) shopping mall built in the London area in the early 1990‟s. It followed a traditional contractual form where the general contractor held contracts with each of the subcontractors and did not self-perform work. Standard penalty clauses for liquidated damages were in place. The project completed on time and placed second in a national project manager competition. On he Durand Centre project there was a delay to steel fabrication that resulted in a six-week delay to steel erection on-site. This delay was not anticipated and did not become apparent until it occurred on-site. Toavoid liquidated damages and complete the project on time, the contractor directed an acceleration of following trades at a cost of £231 thousand. Subsequent investigation found that an alternative acceleration may have been possible at a savings of ~£70 thousand. This analysis came from investigation with the affected subcontractors and suppliers. Conditions that affected cost and capability were both site conditions that affect productivity and resource availability given the demands of other projects under changing schedule. Several lessons can be drawn from the Durand Centre case: It reiterates that changes in schedule and scope are a common occurrence on construction projects, even on well-run projects. Production in construction is transient in nature. Resource availability (capacity constraints) and poor site conditions pose real costs and limits on subcontractors and suppliers. Subsequent investigation (O‟Brien 1998) has found that these conditions are generally applicable beyond the Durand Centre case. These costs are particularly important given frequent changes in schedule and scope. Existing methods to manage changes in schedule and scope (in particular the time-cost tradeoff for network scheduling techniques) do not account for the costs of capacity constraints or site conditions. More broadly, construction costing and control methods do not take these influences into account. This may account for the failure of managers on the Durand Centre project to explore lower cost alternatives to their acceleration.Construction contracts that penalize for problems and contract solely for specific work atspecific times retard information sharing and provide no mechanism to explore costs and capabilities in a dynamic environment. This may explain why the delay to steel fabrication was not known until it resulted in delays on-site and partially explains the lack of examination of alternatives by the general contractor Another recent case study is the Buchhaugen project (a NOK 25 mn multi-unit residential project located in Trondheim, Norway), which utilized a Just-In-Time style delivery system inspired by both the Toyota assembly system and an earlier Danish project (Bertelsen, 1993). Specifically, the project employed a unit-order system where the project was split into small packages of material (“units”) that are to bedelivered to site where they are needed, just as they are needed. Each unit was to be ordered on a rolling three-week order system, where each unit would have a three-week lead-time to be prepared by suppliers before delivery to site. In theory, the unit-order system would lead to increased reliability, improved productivity, and lower costs for all firms involved on the project. In practice, project management had great difficulty predicting demand for units on-site with any certainty and more than half of the units ordered had deviations from the planned three-week order period. While many of the firms involved in the unit-order system saw it as a positive experience, they were troubled by the uncertainty in production progress on-site and had difficulty quantifying savings. At least one firm (an intermediary materials handler/supply depot) found an overall increase in costs with the unit order system.

Several lessons can be drawn from the Buchhaugen case: As with changes in schedule and scope as seen in the Durand Centre project, uncertainty in production schedules on-site is a common occurrence in construction. This uncertainty, because it requires shifting resource allocation on the part of suppliers and subcontractors, is a major driver of project costs and savings under the unit order system or other disciplines There is a need for integrated analysis across the entire supply-chain (from supplier to subcontractor). As a naïve application of Just-In-Time principles, there was an expectation of benefits accruing to every firm. The scheduling manger noted that under existing contracts where he had no true knowledge of costs, he had no incentive to explore alternative because he believed the affected trades would charge as much as they could for the changes. greatly A systems perspective is required to evaluate performance.There is a link between facility design and supply-chain performance. Some suppliers choose not to participate in the unit order system because their production technology would be adversely affected. As production technology is largely driven by design, in theory design choices can be made to select technologies compatible with the desired production discipline. Some examples of “design for supply-chain management” exist in the manufacturing literature . Contracts need to promote system optimization. Given a need for integrated analysis and theproblems of finding systems in which every party gains, ways to equitably share the benefits of improved supply-chain systems are required. Similarly, there need to be incentives for improved operating performance, particularly with regard to uncertainty. On the Buchhaugen project, the general contractor paid a fixed price for each unit without regard to uncertainty in its demand. A penalty for uncertainty may have produced better performance on its part.

6.2 Vision for future practice
Improved coordination, costing, and control offered by construction supply-chain management is an achievable vision. A better understanding of firm‟s production costs and capabilities – in particular their ability to manage their resources across projects given changes in schedule and scope – affords several opportunities for improvement. It provides a background for improved production control within each subcontractor and supplier. Such an improved understanding of costs and capabilities also allows improved design of supplychains composed of those subcontractors and suppliers, providing and engineering basis for improved coordination. Moreover, the link between cost and production allows new forms of contracts that promote system optimization.Consider how improved supply-chain knowledge would change practice on the Durand Centre and Buchhaugen projects. On the Durand Centre, practitioners would: Better be able to predict risks of disruption to production and design buffers to guard against those risks. Such buffers would include both schedule buffers and sequencing of production to mitigate the impact of problems should they occur. More broadly, they could use supplychain knowledge to design schedules to meet project goals for speed, flexibility, and risk. Understand subcontractor and supplier production costs should there be changes in schedule and scope such as the delay to steel erection. Such knowledge would allow a directed search of alternatives to find optimal responses to these changes. Implement contracts that specify an equitable basis to pay for the true costs of changes, enhancing trust and information sharing among firms. On the Buchhaugen project, practitioners would: Use analysis techniques to design supply-chains and determine which disciplines are appropriate (e.g., Just-In-Time vs. batch orders) to the needs of the project. Use the knowledge of costs to promote optimal performance, both in terms of system design and control. Rather than looking to individually optimize each contract, managers would have a rationale to pay some firms more so that system performance is improved. Similarly, contracts could be designed to give incentives to improve supply-chain operation. Non-linear price schedules could be designed to penalize poor performance, especially for uncertainty. Also, concrete knowledge of costs could quantify savings if certain supply-chain disciplines are adopted; these savings could be used to reward firms if targets are achieved. (The insurance industry already uses such rewards to promote safety.)

Design the facility to improve supply-chain performance. Designers could select materials and components that can be manufactured and installed according to the desired supplychain discipline;alternately, facility design could be altered to allow different on-site assembly sequences that wouldenable efficient groupings of project activities.

7.0 SUMMARY
Actual practice in construction not only fails to address issues of supply chain, but rather follows principles that make supply chain performance worse. SCM can play major roles in construction. The principle roles of SCM are covered by the generic SCM methodology. The SCM offers general guidelines that can be used to analyze,reengineer, properly coordinate, and constantly improve virtually the complete constructionsupply chain, resolving basic problems and the myopic control that have been plaguing thesupply chain. This would be practically impossible to realize in the short term. Therefore,initially, the SCM methodology is properly deployed on a lower scale, addressing partial supply chain problems, involving a limited number of supply chain actors. Due to its recurring character, the SCM methodology implies a continuous improvement process of which the scope can be enlarged over time, involving an increasing number of areas of application. Some areas of application, which may be, and to a certain extent have been subjected to SCM, include the reduction of costs (especially logistical costs), lead-time and inventory in the supply chain. In view of the large share of these costs in construction, this focus is often fully appropriate. Secondly, the focus may be on the impact of the supply chain on site activities. Here, the goal is to reduce site costs and duration. In this case, the primary consideration is to ensure material (and labor) flows to the site for the sake of avoiding disturbances in the workflow. Thirdly, the focus may be on transferring activities from the site to upstream stages of the supply chain. The rationale may simply be to avoid the inferior conditions of site, or to achieve wider concurrency between activities, which is not possible in site construction with its many technical dependencies. Here, the goal is again to reduce the total costs and duration.In practice, these areas are intimately interrelated. It is often difficult to improve the dependability of the deliveries of a supply chain without addressing the total supply chain. If activities are transferred from site upstream the supply chain, it is requisite that the resultant, more complex supply chain is orderly managed and improved in order to have the benefits intended.In view of these roles, gaps in prior initiatives to advance the supply chain can be identified. For instance, the logistics initiatives, stressing (average) costs, have often failed to address the impact of supply chain variability on site assembly. In addition, industrialized construction, with its long and complex supply chain, has often been lacking even basic principles of SCM. The generic body of knowledge accrued in the framework of SCM leads to improved understanding of the characteristics of construction supply chain problems, and gives direction for action. However, the practical roles for SCM have to be developed in construction practice itself, taking into account the characteristics of construction and the specific situation. Cooperation between research and practice may be instrumental in this endeavor, as argued by Wegelius and Pahkala (1998).

8.0 REFERENCES 1. 2. 3. www.seiofbluemountain.com/search/detail.php?id=1689 www.faqs.org/...rubber-industries www.thefreelibrary.com

4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

www.ifsworld.com/sg/solutions/enterprise.../scm www.amrresearch.com/Content www.inboundlogistics.com/articles/supplychain www.allbusiness.com www.bvents.com www.hill.com/resources/whitepapers www.faqs.org/...rubber-industries\ books.google.co.in/books www.indeed.co.in/Rubber-Industries www.tradeindia.com www.ws-i.org/SampleApplications www.ilog.com www.itcon.org/data/works/att/2006_10.content.07939.pdf

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