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How to establish or participate in an integrated supply chain

Introduction

In today’s competitive construction climate, savvy clients are starting to demand wholesale improvements in the construction procurement process as they serve notice on the industry’s notorious levels of inefficiency, i.e. high cost, poor safety, late completions, adversarial relations.

And the mounting focus on more fully integrated supply chains is being driven, not only through overt client pressure, but also by the increasing realisation that, in an increasingly interdependent world, it is supply chains that compete, not individual companies.

In an age where the vast majority of construction work is outsourced, each organisation is highly dependent on the performance of its suppliers (and customers) in the construction supply chain. Increasingly, if a supply chain is less adaptable and efficient than that of its competitors, its constituent companies will be competitively disadvantaged.

By becoming an integrated supply chain player you will be giving your operation a head start in the new construction economy. Clients are increasingly demanding supply chain solutions where issues such as resource efficiency, waste elimination, continuous improvement, innovation, whole-life costs, sustainability, replicability and predictability are addressed ‘up-front’.

But, remember, one-off partnering can be an expensive option. It is in strategic and repetitive partnering where the real savings start to kick in. The potential across-the-board savings from strategic partnering have been shown to be very real (estimates range upwards of 20%).

Integrated supply teams and integrated supply chains

To make sense of ‘new age’ construction procurement as envisaged by the authors of Accelerating Change, it is essential to understand the distinction between integrated supply teams and integrated supply chains.

By their very nature, the majority of integrated supply teams will be project-specific and impermanent. To carry out their work they will increasingly seek to employ stable supply chains which they can utilise as necessary in line with project demands. This gives them freedom and flexibility in line with specific project or term-contract demands.

Supply chain integration – the bottom line

Pre-assembled supply chain modules or ‘mix and match mini-chains’

It has been shown that there are many benefits to be derived from working with fully integrated supply chains. However, the dynamics and diversity of the construction market and its tendency towards bespoke designs mean that the scope for permanent, or even semi-permanent, top-to-bottom, i.e. fully integrated, supply chain groupings is poor. Notwithstanding the potential benefits from long-term partnering, it is almost certain that the industry will continue to require the flexibility of more transient project-specific procurement arrangements.

The answer to this quandary rests in the concept of ‘pre-assembled supply chain modules’ and ‘mix & match mini-chains.’ In this scenario the Integrated Project Team or other project leader will assemble appropriate supply lines from a matrix of pre-assembled and pre-qualified supply chain modules and disband them as necessary in line with specific project or term-contract demands.

In other words, the integrated supply chain for a given project is formed on a ‘mix & match’ basis by joining up a series of discrete ‘mini-chains’ from a pre-established pool with all of whom the project leader has a formal, yet flexible, strategic partnership. This approach differs from a basic project-partnering scenario since the different modules or ‘mini-chains’ will be used on different jobs on a recurring basis. In this way the procurer will enjoy the necessary supply flexibility and guarantee of availability and all parties will benefit from an ongoing, continuously improving relationship.

Indeed, intrinsic flexibility is one of the key advantages of using a ‘mix and match’ integrated supply chain structure of this type. You can partner with any matrix supply chain, mini-chain or cluster supplier, and if a particular group or company fails to add value, it can be removed from the chain.

In this way, ‘market forces’ will tend towards an efficient outcome, unlike the situation in competitively tendered procurement which is inherently sub-optimal or the situation that prevails in monolithic (vertically integrated) organisations where there are instinctive tendencies towards protectionism, inflexibility and inertia.

Forming or joining an integrated supply chain

For maximum benefit and efficiency, Integrated Project Teams need to utilise fully integrated supply chains that can be assembled and dismantled on a project-by-project basis to meet specific requirements. To work in this way and still realise the huge and continuously improving benefits of supplier collaboration requires access to a network of pre-integrated suppliers.

Whilst the formation of this integrated supplier matrix is the responsibility of project management, the formation of the individual supply clusters or ‘mini-chains’ is not necessarily the preserve of lead contractors, major repeat clients or even Integrated Project Teams. In the majority of cases, individual downstream supply clusters will be initiated, for wholly commercial reasons, by the participants themselves. As an illustration, a commercially-aware manufacturer might establish formal partnerships with a network of sub-contractors and offer the result to project teams as a ready-made integrated unit. In this way, for example, a specialist roofing/cladding manufacturer or contractor could enter an integrated project supply chain as a provider of total building envelope solutions.

The Supply Chain Toolkit provides guidance to different supply chain parties on how to establish integrated supply chain modules. It also provides directional assistance to project teams seeking to assemble supply chain matrices as well as fully integrated lines of procurement.

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