Construction Supply Chain Management

Construction Supply Chain Management

(MGT60803/QSB2433)

Introduction

• The ability successfully to procure built assets is at the heart of the construction process.

• At the heart of the procurement process is identifying the constantly evolving needs of the construction client.

Just what every construction client wants!

Supply Chain

• Supply chain is used to describe the interconnected hierarchy of supply contracts necessary to procure the built assets.

• Managing the supply chain involves understanding the breakdown and traceability of products and services, organizations, logistics, people, activities, information and resources that transform raw materials into a finished product.

Supply Chain

• Construction industry has the particular difficulty that every building is different, a unique prototype, developed by a team od consultants, contractors and suppliers that may never have worked together before.

• To add to the complexity, different procurement systems place elements of supply chain management with varying disciplines and organizations.

Construction Procurement

• Procurement is the process of obtaining goods and services from another for some consideration. (Generally – acquire something)

• Procurement is used in the context of construction and refers to the processes of acquiring construction project.

(E.g. a building)

Construction Procurement

• When a project is dreamt about by the client, he works towards actualizing it.

• Apart from funding and providing land for development, the client does not have the requisite skills to actualize his dream.

• He has to employ the services of those who would do so.

** In this case, the client might be the government sectors.

Construction Procurement

• The task of designing his dream and its subsequent construction are open to different methods.

• Hence, to choose the most appropriate method for his project, he needs professional advice (consultant team).

How to choose the most appropriate procurement method to satisfy the client’s needs?

Procurement

• Procurement is a term used to describe all activities undertaken by the client in seeking to bring about the construction, says a building.

• When client wishes to choose any type of procurement method for realizing his project, his major concern are the drivers of the procurement.

What are the drivers of construction procurement?

Procurement Drivers

• These drivers determined the selection of procurement path.

• The client being asked to identify which of the drivers was the most important.

** It is impossible to have all three simultaneously.

Procurement Drivers

• To finish the project on time (Time)• The cost of the project (Cost)• Performance or quality in relation to both

design and construction of the building (Quality)

Procurement Method

• Traditional• Design and build• Management Contracting• Public-Private Partnership (PPP)

** Only focus on first three methods.

Traditional Building Project

• On a traditional building project, design consultants are the first tier suppliers, working for the client and the contractor has the supply chain of sub-constructors and specialist suppliers.

The Construction Supply Chain: Traditional

16

Owner/Operator

Labor Subcontractor

Engineer

Main Contractor

Design team

Sponsor

Distributor

End User

Permanent Finance

Project Finance

Land and Permissions

Consultant

Labor

Material

Material

Building ProductManufacturer

CASH FLOW

PRODUCT

INFORMATION

Traditional

• The major feature of this method is that the design process is separate from construction.

• It requires full documentation before the contractor can be invited to tender for the work.

• Design Bid Build (TIME)

Design and Build Project

• On design and build projects, there may be just one first tier supplier (contractor) and design consultants will work for them as part of their supply chain.

The Construction Supply Chain: Design – Build

19

Owner/Operator

Labor Subcontractor

Engineer

Constructor

Design team

Sponsor

Distributor

End User

Permanent Finance

Project Finance

Land and Permissions

Consultant

Labor

Material

Material

Building ProductManufacturer

Design and Build

• In this method, the contractor is responsible for undertaking both design and construction of the work.

• To choose a suitable contractor for the job, contractors are required to develop a design (from an initial concept prepared by the consultant appointed to advice the client), prepare a tender figure and submit the whole package to be evaluated by the client.

Design and Build

• A team of consultants will be needed to assess each contractor’s proposal. (different designs)

• Tenderers should be informed of the criteria to be used.

• Price will be the prime factor in this method. (COST)

Management

• This method of procurement is based upon the client appointing a consultant who will prepare project drawings and project specifications.

• A management contractor is selected by a process of tender and interviews.

• The management contractor will not carry out construction work. WHY??

Management

• This helps to preserve the management contractor’s independence and reinforces a consultancy relationship with the client.

• The success of this approach depends on the contractor’s team (experienced in construction team working).

• Adjustments will be made to the design and specification of work packages later to keep the project within budget.

• The overall process will be shorter. (TIME)

The Construction Supply Chain: Project Management

24

Sponsor/Owner/Operator

Labor Subcontractor

Engineer

Main Contractor

Design team

Project Management firm

Distributor

End User

Permanent Finance

Project Finance

Land and Permissions

Consultant

Labor

Material

Material

Building ProductManufacturer

Large/Complex Project

• On large or complex projects, responsibility and performance generally cascades down the supply chain to a plethora / redundancy of suppliers, sometimes unknown to management at the top of the chain.

The End