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SME integration

At a glance

Introduction

Relevance

Using this Toolkit module

4.1 General principles

4.2 Manufacturers and fabricators

4.3 Intermediaries

4.4 Specialist Trade Contractors (STCs)

4.5 Lead contractor

4.6 The designer

4.7 The client

Workbook 4

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Introduction

In numerical terms Small and Medium-sized Enterprises (SMEs) make up the bulk of the construction industry and are responsible for a significant proportion of both its employment and output. However, many SMEs are concerned that, because of their relatively small unit size and lack of individual economic muscle, their relevance to the new generation of integrated supply chains might be increasingly marginal. With the trend in construction procurement being towards large framework contracts and standing supply chains, there is a growing fear amongst smaller players that business opportunities for SMEs will diminish rapidly.

In fact, SMEs do have some significant advantages over larger organisations when it comes to working as part of an integrated supply chain. They are frequently better-equipped to work in a collaborative way since their flexibility permits faster uptake, greater commitment and a more innovative approach. SMEs are able to rapidly adapt their business processes and their shorter lines of communication mean they can be more customer-focused and responsive.

This workbook looks at how the SME sector can optimise these attributes and earn a valued place as part of fully integrated supply chains. It sets out a number of key areas where organisations can take action to enter, develop and maintain a position as a key member of a properly integrated supply chain and so ensure that they continue to compete successfully for business.

The rewards

There are tremendous benefits of being part of an integrated supply chain, namely improved profitability, greater continuity of work and a more stable operating environment. There is also the added synergy, motivational and continuous improvement benefits that can be derived from close working relationships with adjacent partners in the supply chain. And, through earlier involvement of all elements of the supply chain and more thorough pre-start planning, it is expected that there will be considerable additional benefits in terms of improved health and safety performance within the industry. It is vital that SME concerns are not marginalised or overlooked as the integration process gathers momentum. Potentially, it is fair to say that SMEs have at least as much to gain as anyone else through the adoption of a more interdependent, collaborative outlook.

Relevance

All SME organisations operating within a construction supply chain. Also of interest to larger organisations that source or supply through SMEs.

Integrated supply chains are made up of organisations that work together on a systematic basis to continuously improve the way that they deliver projects and services. An SME can be situated at any point on the construction supply continuum and might be a manufacturer, intermediary, contractor, fabricator, designer, client or any other value-adding organisation.

Using this Toolkit module

Unlike many of the other sections in this Toolkit, the SME module is aimed at construction organisations of all types, the common denominator being modest or moderate scale of operation. For the purpose of this Toolkit ‘small’ enterprises are defined as organisations with an annual turnover of less than £5 million, while ‘medium’ sized organisations have an annual turnover of between £5 and £25 million. For this reason the module is designed around individual sections dealing with each element of the supply chain from manufacturer through to client. For each element there is a section dealing with what a company needs to know about working as part of an integrated supply chain along with information on how their customers and suppliers can work with the company to their mutual benefit.

As each organisation is, by definition, both a customer and a supplier it will be worthwhile reading the section dealing with your type of organisation together with those relating to your neighbouring partners. This process of organisations offering mutual support is one of the defining characteristics of working within an integrated supply chain.

Each key step in the development of a partnering relationship between the various supply chain parties is identified in the ‘Process’ column. The ‘Culture and Activities’ column then provides a summary of the necessary ethos and actions required for their implementation. The adjacent ‘Tools and Techniques’ column provides recommendations, Toolkit cross-references and links to external supporting information.

Note: Users of this Toolkit module are encouraged to explore the other sections of this Toolkit to determine their position in the overall construction supply spectrum, to better understand the benefits and workings of the integration concept and to gain an appreciation of the need for collective supply chain focus to ensure a satisfactory end result.

 

Step

Process

Culture and activities

Tools and techniques

4.1 General principles
4.1.1 Committing to change The decision to pursue business within integrated supply chains is more than just a simple commercial decision and it involves a greater leap of faith and change of direction for some organisations than others. The single biggest adjustment for most concerns relates to the fundamental change in attitude that must accompany a move into fully partnered relationships. It is not easy for an entire company, however small, to make a wholesale commitment to collaborative working. ‘Them and us’ attitudes must be eliminated and replaced with an atmosphere of mutual trust and communal purpose.This involves:

  • understanding customer supplier relationships, both internal and external
  • having a culture supporting trust, teamwork, communication and a win/win attitude.
  • giving and receiving feedback.
See The Partnering Toolkit available from BSRIA.
4.1.2 Core principles
  • Mutual trust amongst all supply chain participants.
  • Genuine commitment from top management of the partnering organisations.
  • Communicating the vision – sell the idea internally and externally.
  • Comprehension and dedication to integrated working by all parties.
  • A clearly defined strategy that sets out the aims, objectives and long-term goals.
  • Clear, measurable, value-for-money benefits for all parties.
  • Agreed, measurable and realistic performance indicators.
  • Formal and informal communication between all parties.
  • Creation of an environment of continuous learning and improvement.
  • Suitable dispute resolution systems.
4.1.3 Business processes In addition, organisations need to have a thorough understanding of their business processes and how these interact with those of their customers and suppliers.There are a number of methods of mapping and measuring processes. Gaining an understanding of processes is an important starting point.Gaining an understanding of all aspects of a business’ performance is a very useful starting point, both for the organisation itself and for companies wishing to develop long-term supply chain relationships with it.
4.1.4 Benchmarking supplier performance  Internal and external benchmarking is a means of comparing a company’s processes between different departments or with other organisations. Benchmarking provides a means of monitoring improvements against best practice elsewhere and enables targets for improvement to be set. The strengths and weaknesses that are identified allow a company to focus its attention on key areas of performance improvement. A guide to benchmarking is available from Constructing Excellence
4.1.5 Developing your capability as supply chain partner This toolkit will provide many ideas on how to develop your capability to work effectively as part of an integrated supply chain. A specialist consultant from the construction sector can provide customised advise and support that may allow your organisation to speed up the development process. Construction Best Practice Advisers can be reached via the Constructing Excellence website.
4.1.6 What customers should look for when selecting their suppliers The criteria used by customers when selecting suppliers should inevitably focus on results such as cost, reliability, quality and delivery performance. However, because of the need to develop long-term relationships, process issues and workforce development issues are equally important. These issues determine the long-term capability of the suppliers.Process issues will deal with such matters as an organisation’s management of risk and value and its attitude towards innovation, health and safety, training, logistics and supplier development.Workforce issues will be in terms of training, mentoring and adoption of a recognised staff development standard such as Investors in People.  See Investors in People website.
4.1.7 Formalise your partnering relationships A form of ‘Partnering Charter’ should be put in place between the various parties. Depending on circumstances, this may range from a non-binding ‘statement of accord’ to a full binding contract, but in most cases it is preferable to keep this as an uncomplicated, non-legal, document. The Partnering Charter is signed by all parties and represents a symbolic, yet visible, commitment to mutual teamwork and the Subsidiary to the Partnering Charter must be a dispute resolution procedure. One of the prime benefits of partnering stems from its non-adversarial nature. However, even in the best-constituted partnering relationships, disagreements and misunderstandings will arise from time to time and it is prudent to have contingencies in place.  Refer to Examples of Partner Charter for examples of a simple partnering charter summary suitable for display purposes.Tip: Be aware of the legal and contractual implications of a partnering agreement. It would be prudent to take legal advice when creating a Partnering Charter and before entering into any formal partnering relationships.
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4.2 Manufacturers & Fabricators
4.2.1 The role of the manufacturer and fabricator in the supply chain  Construction materials and component manufacturers and fabricators need to be able to respond rapidly to customer requirements while finding ways of reducing cost. Rapid response can be defined in terms of both reducing lead times and the development of new products and services.Moves to combine rapid response with lower cost is being achieved through the adoption of ‘lean’ production and quick response manufacturing systems. Lean production looks at ways of increasing the flow of work through the system by taking out sources of delays and waste.Quality is now being achieved by eliminating sources of defects rather than through inspection. Mistake-proofing is a method of designing methods of production which eliminate the possibility of creating defective items.
4.2.2 Support from customers  Customers need to become totally familiar with the products and services that are offered by the manufacturer. This understanding will enable customers to make the clear decisions as to the best application of the product or service, and will also help suppliers to assist with product development.
4.2.3 Support from suppliers Those companies supplying manufacturers and fabricators can support them in a number of ways.The first is through responsiveness in terms of their supply of materials and components. The use of just-in-time systems of delivery can ensure that inventories for the manufacturer are kept at a minimum and in turn allows the manufacturer to be responsive to their customers. However, risks to production from non-delivery of components must also be assessed.The second area is with market intelligence, providing the manufacturer with new products or knowledge that will give them a competitive advantage.
4.3 Intermediaries
4.3.1 The role of the intermediary in the supply chain logistics Managing the logistics of procurement and site delivery will be a key role of intermediaries such as distributors and merchants in an integrated supply chain. Logistics has been defined as the process used to manage the flow of goods and materials, equipment, services and people through the supply chain.Examples of the use of logistics to increase value within the supply chain include:

  • Synchronising deliveries with site activities through the use of just-in-time scheduling and electronic trading processes.
  • Operating an intermediary or supplier-managed material replenishment system on site, so removing the need for trade specialists or contractors to manage materials stocks.
  • Assembling materials into kits so that all materials needed to perform a particular aspect of work are grouped together and delivered. Examples would be floor joists kitted by plot, or components for an M&E installation to a particular unit or room.
  • Managing the delivery of materials to site in time-slots to allow more efficient programming of material handling equipment.
  • Delivery of materials or components to the precise location where they are to be incorporated into the building or structure, referred to as the point of use. The idea behind this approach is to ensure that scarce skilled labour is not spending time searching for and moving materials; instead the materials are brought directly to them.
 see Module 2: Intermediary integration
4.3.2 Support from customers and suppliers For intermediaries to provide the logistical services that have been highlighted above there needs to be a significant change in the way that relationships between customers and the distributors and suppliers has traditionally been managed. Intermediaries can take on a leading role in terms of procurement of materials. This can include scheduling material requirements in terms of quantities against programme and liaising with sites to arrange delivery. In some situations intermediaries can also be used to source and procure the entire range of materials and manage the entire logistics function.This wider role for the intermediaries than has traditionally been the case requires a high level of co-operation and integration with the intermediary’s own supply chain.One of the features often associated with intermediaries is the high volume of transactions and the associated paper-work involved with material requisitions and invoice payments. Reasonably priced electronic/web ordering and payment systems are now sufficiently well developed to be a viable option for SME companies from both the distributor/supplier side and the specialist and contractor side.
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4.4 Specialist Trade Contractors (STCs)
4.4.1 The role of the trade specialist in the supply chain  The role of the Specialist Trade Contractor (STC) is to provide and manage a skilled and competent workforce to undertake construction activities.The nature of construction activities means that the trade specialists are dependent on the performance of other trade specialists in terms of carrying out tasks in preparation for the works to be undertaken. Therefore, for projects to be carried out efficiently, STCs need to be able to respond to the main contractor’s programme by providing a reliable workforce capable of undertaking the agreed tasks. At the same time, they must collaborate with other specialist suppliers and contractors to resolve interface issues and comply with the contract programme.In an integrated supply chain, STCs will be expected to develop new methods of working in response to changes in technology or where circumstances require it. Multi-skilling may also be considered advantageous as it can assist in creating more reliable and efficient working.One of the key areas where STCs can contribute is in relation to detailed design development. STCs usually possess considerable knowledge on issues of buildability and their contribution can have a significant effect on cost, and operability and maintainability of the finished project.  Tip: STCs can usefully promote their supply chain expertise to their potential customers by arranging events on supply chain integration through their trade organisations or in association with representative reform bodies.
4.4.2 Support from customers  When selecting an STC to form part of an integrated supply chain, consideration must be given to their level of genuine commitment to partnering principles as well as to factors such as their technical competence, quality control standards, skills levels, health and safety record and financial stability.By working with an effective integrated supply chain the cost/quality ratio, i.e. value for the client, can be significantly better than that which might be achieved by traditional tendering methods.In all supply chain situations, continuity of work is an important issue in that it allows close relationships and expertise to develop between the members. Therefore, working with a relatively small number of STCs will help to ensure that there is a reasonable supply of work available. This does require the STC to commit to making resources available when required.A lead contractor may need to make the business case to a client in a negotiated situation for using a particular STC which forms part of the contractor’s integrated supply chain structure. Tip: Get close to your favourite lead contractor. Many of the country’s foremost lead contractors possess a great deal of knowledge and expertise that they are prepared to pass on to their established supply chain partners. A lead contractor may consider developing a mentoring relationship with key supply chain partners.
4.4.3 Support from suppliers  Distributors and suppliers can support trade specialists by providing them with assistance on the adoption of new products and systems. They can also assist in terms of providing effective logistical support. Please refer to section on Distributors and Suppliers.  See Module 2: Intermediary integration
4.5 Lead contractor
4.5.1 The role of the Lead Contractor in the supply chain The role of lead (main) contractor is essentially one of co-ordination. This makes the contractor’s role pivotal in an integrated supply chain. An SME lead contractor may also directly employ a significant number of skilled operatives, so many of the issues discussed in the section dealing with STCs will be relevant to these lead contractors.Much of the work in assembling, developing and maintaining an integrated supply chain will be down to the lead contractor. This will cover all elements from manufacturers, distributors and materials suppliers, trade specialists and designers.The first issue is the selection of preferred partners. For the assembly of strategic supply chains it is necessary to conduct the selection of partners on the basis of rigorous pre-qualification and selection procedures. It is obviously of vital importance that any long-term commercial relationship is based on objective selection criteria and quality assessments to ensure that the necessary degree of competitive pressure and quality rigour is maintained throughout the selection process.Due to the need to need for efficiency and the considerable investment and effort required to develop effective standing relationships, this exercise will usually result in a considerable reduction in the number of supply chain parties. However, the supply chain integration process will often open up doors to other organisations that can offer the requisite skills and temperament to succeed in this new collaborative trading environment. See Module 1: Customer/supplier procurement integration
The process of developing and maintaining an integrated supply chain then needs to take into account:

  • Reducing costs of carrying out business, known as transactional costs. These include tendering, invoices, non-standard forms of contracts and any other aspects of doing business which adds cost but does not contribute significant value.
  • Standardising methods of working so that repetitive processes become familiar and quality can be improved. These can include design details for common elements or standardised methods of carrying out certain construction activities.
  • Developing the capability of every business in the supply chain. The supply chain can become a great source of knowledge and ideas for performance improvement. Particularly where its members are SMEs, there can be considerable advantages in companies sharing the cost of training and staff development.
  • Planning, scheduling and controlling construction projects so that site activities become increasingly stable with more predictable outcomes.
 See Module 1: Customer/supplier procurement integration.Tip: Lead contractors may find running regular business workshops with their design teams, STCs and manufacturers a useful way of developing closer working relationships.To develop expertise on supply chain and other best practice issues, contractors may wish to join the Best Practice Managers Network being set up by Construction Best Practice www.cbpp.co.uk.
4.5.2 Support from customers Providing continuity of work is probably the most important assistance that a client can provide to a lead contractor. This allows stability to be created in the supply chain which is a necessary condition for continuous improvement. The other main area of assistance is in ensuring that payments are made according to the agreed time schedules.
4.5.3 Support from suppliers  Manufacturers and Intermediaries can support Lead Contractors through appraising them of new materials and systems, and also in assisting with effective logistical arrangements for the supply of materials.  See Module 2: Intermediary Integration.
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4.6 The designer
4.6.1 The role of the designer in the supply chain Recently there has been a realisation that design activity is undertaken right throughout the supply chain, with the best solutions often being delivered when all the design capability is assembled/utilised in an integrated fashion. However, the formal design function is normally carried out by architects, building services engineers, structural and civil engineers, and by STCs who have design responsibility.The various forms of conventional procurement under different forms of contract involve designers in different ways but in the general context of a fully integrated construction scenario, the designer will invariably be part of the core group within an Integrated Project Team. In this capacity he will have a close interaction with the other core group members and their individual supply chains who all bring different skills and disciplines to the process. For information and guidance on the role of designers in partnered projects go to the Integrated Project Team ToolKit.
4.6.1.1 Design development In other cases the architect might be a permanent member of a discrete supply chain itself, especially where there is a large up-front or very specialist design/detailing load relating to a proprietary system. This is where a designer has an ongoing, i.e. non-project-specific, relationship with, say, a manufacturer and/or STC as part of a single-source procurement package. In either case, designers that the architect works in close proximity with to the other construction parties in performing two fundamental roles:The first role of the designer is to understand the needs of the client, and pull together the expertise of the supply chain to develop a design solution that will provide a building that satisfies the client’s needs in terms of functionality, operability, maintainability and sustainability. The designer will need to make initial proposals that can then be developed and commented on by others in the team.This technical and creative process of design development is essentially iterative and, in the case of an Integrated Project Team following an accelerated or fast track programme, this design process will be largely concurrent with construction on site. The success of this process will largely be dependent on the skill of the designer in managing the flow of information and seeking out and acting on ideas from the team.The second role of the designer is to manage the flow of design information so as to ensure that drawings and schedules are produced in a timely fashion, and that designs are clear, consistent and buildable.The resolution of details and the timely production of design information and drawings are clear examples of design issues that demand a close working involvement between the different parties to a construction project. By dint of this role, the designer occupies a central position in an integrated project’s core team and consequently exerts a great deal of influence on the success, or otherwise, of the partnered approach.  For further guidance on the role of architects in project partnering integrated supply go to the RIBA website.
4.6.1.2 Production of design information A clear timetable of information requirements is a starting point. But this must be followed up by agreement as to how this information can be generated within the time frame. As design development is both an iterative and collaborative process, an understanding of this process by all parties will allow it to be managed more effectively.Clarity and consistency of design information requires standardisation of drawings, schedules and design detailing. This in turn requires investment from both the designer and the rest of the team in agreeing these standard methods and details. The level of investment required is generally only economic when there is continuity of work. Buildability requires a detailed knowledge of both the construction process and the specification of the building materials and components. This in turn requires close collaboration between all the integrated supply chain members.
4.6.2 Support from customers The best assistance that a customer, whether a client or contractor, can give to a designer takes the form of a comprehensive, well-thought-out brief. Time, care and money spent by the customer in determining the brief will be repaid many times over when the project gets under way. Very often clients have not explored their real business needs fully before commissioning a design and the ‘value criteria’ against which the project will be judged is not clearly defined.This means that the design process will be flawed. It will result in either an unsatisfied client at the end of the project or considerable delay and disruption during the design process as client requirements filter through. It is for these reasons that the ongoing inclusion of clients as part of an Integrated Project Team can pay handsome dividends in terms of cost control, time to build and functional outcome.Lead contractors and STCs are key customers of designers in their capacity as users of their design information. This is regardless of what form of contract the lead contractor or STC happens to be working under.To make these customer/supplier relationships effective there has to be a considerable investment of time and resources into understanding each party’s processes and requirements. This may require a level of investment that can only be justified in long-term strategic partnering relationships or larger projects. However, clients with repeat business will benefit greatly from using integrated supply chains offering that offer established solutions, concerted working, consistent performance and the benefits of continuously learning and improving culture.  See the Integrated Project Team (IPT) section of this Toolkit for further details on Integrated Project Teams.
4.6.3  Support from suppliers Suppliers are any organisations that supply information to designers. Clients in this respect are both customers and suppliers to a designer. Their role has been dealt with above.Manufacturers and STCs having design responsibility or input are the key suppliers to designers.For the manufacturer they need to provide designers with information concerning the products/systems they provide and how they can be used/detailed within a project. This issue here is not that manufacturers are reluctant to provide this information but rather that the conventional channels through which manufacturers communicate this information are not always effective.This issue is due to both the large volume of information and the widespread perception (often justified) of the manufacturer’s representative as a sales ‘rep’ only interested in selling product. An integrated procurement solution will normally require the manufacturer to work with the lead designer in a prime technical support role as part of the design remit of the Integrated Project Team (IPT).
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4.7 The client
4.7.1 The role of the client in the supply chain  The client plays an important role in establishing the working environment in which the supply chain operates.Through exercising strong leadership the client can motivate a supply chain to deliver exceptional value. This would be through setting out clearly its requirements, encouraging innovative thinking and problem solving to develop best-value solutions and provide incentivisation through shared savings.  For a client guide publication on how to use partnering for a construction project go to the CIOB website.
Client selection or development of supply chains  Clients can both seek out established supply chains and support their further development or they can assemble and develop their own integrated supply chains.For an occasional client the most practical route would be to identify an existing supply chain. An independent client adviser would be able to assist in the selection process.The selection process should be aimed at identifying a supply chain that has the closest match in terms of its capabilities of delivering the desired outcome. Selection on price, preliminaries, overheads and profit or any other cost-based indicator is unlikely to successfully identify the most capable supply chain for delivering a best value solution.Instead, qualitative indicators such a previous experience, approach to managing team relationships, efficiency of processes and operations, openness and honesty, and testimonies from previous clients and existing supply chain members provide the most reliable information on which to base a selection decision.Regular (repeat) clients may seek to develop their own supply chain with companies that have demonstrated a reliable track record of performance. To be successful a company will also have to demonstrate an ability to work in a collaborative manner.Again strong client leadership will be necessary to develop an effective supply chain. This will be in terms of supporting the supply team members in their individual development as well as the development of the chain itself.
4.7.2 Support from customers  Client organisations are often made up of networks of departments, groups and individuals who themselves act as customers of the supply chain client. These internal client customers may be representatives of end users or departments, management boards, finance departments, etc.Their support is often crucial in maintaining a commitment to working with integrated supply chains. It is the responsibility of the client to educate and involve their internal customers in the supply chain development process to ensure their continued support.
4.7.3 Support from suppliers Suppliers are any organisation working within a supply chain. They all play a role in adding value to the client.These suppliers must continuously seek out improved ways of delivering value to their clients through understanding their needs and continually improving their procedures and processes to remove unnecessary cost and add value. This is a fundamental obligation, and natural outcome, of working within an integrated supply chain.A truly integrated supply chain will invariably deliver greater value at lower cost than can be achieved in the market through a traditionally tendered procurement process. Combined with its dedication to continuous improvement, this means that an integrated supply chain offers clients a truly self-sustaining route to high-quality, best-value construction outcomes.
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