SUPPLY CHAIN MANAGEMENT - THEORETICAL CONSTRUCTS FOR CONSTRUCTION

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1 Supply Chain Management - Theoretical Constructs for Construction SUPPLY CHAIN MANAGEMENT - THEORETICAL CONSTRUCTS FOR CONSTRUCTION Scott Fernie 1, David Root 2 and Tony Thorpe 3 ABSTRACT This paper describes an ongoing research project addressing the issue of Supply Chain Management within a construction context. SCM is described as having various generic characteristics that have been rationalised from an initial literature review and open dialogue with practitioners in the field. The scope of the research and its direction are concluded from the review and a methodology for conducting the research outlined. KEYWORDS Supply Chain Management, Culture, Attitudes Research Associate, Construction Management Research Unit, Department of Civil and Building Engineering, Loughborough University, Loughborough, Leicestershire, LE11 3TU, UK, , s.fernie@lboro.ac.uk Research Associate, Construction Management Research Unit, Department of Civil and Building Engineering, Loughborough University, Loughborough, Leicestershire, LE11 3TU, UK, , d.root@lboro.ac.uk Professor of Construction IT, Head of the Construction Management Research Unit, Department of Civil and Building Engineering, Loughborough University, Loughborough, Leicestershire, LE11 3TU, UK, , a.thorpe@lboro.ac.uk Proceedings IGLC-7 1

2 Fernie, Root, and Thorpe PREFACE The intention of this paper is to introduce one aspect of the work currently being undertaken by the authors on a construction management research project (IDAC 4/035) entitled Integrated Collaborative Design (ICD). ICD is funded in the UK by the Engineering and Physical Sciences Research Council and the Department of Transport and the Regions. The project is led by an International Design Manage and Construct (DMC) organisation, AMEC Construction Ltd, in collaboration with Loughborough University and eleven other industrial collaborators. The industrial collaborators transcend both the construction and manufacturing sectors and act as first tier suppliers to the DMC organisation. The main aim of the ICD project is to develop a toolbox of techniques and strategies that can be applied within a new collaborative working framework to help the construction industry optimise supply-chains. The scope of the project is wide ranging and consists of five components which address issues and opportunities within: Process Modeling, building on the work of Austin et al. (1999) and linking to the work of Kagioglou et al. (1998) Value Engineering, drawing on the work of Male et al. (1998) Supply Chain Management, drawing on the work of Evans et al. (1997) Implementation of Supply Chain Management Waste minimization The scope of this paper is to introduce the ongoing research related directly to Supply Chain Management (SCM) and to demonstrate the current thinking surrounding the project and its future direction. INTRODUCTION Supply chain management has received a great deal of attention from the construction industry recently although the term has been around for a very long time in the manufacturing industry. Indeed, Forrester (1961) refers to supply pipelines in much the same way that supply chains are referred to in current management literature, and Ford (1991) makes reference to a similar concept in the 1920 s. The need for UK construction organisations to become more efficient, in light of Government funded reports by Latham (1994) and Egan (DETR 1998), has resulted in interest in various management systems as a means to achieve the recommendations set out in these reports. Currently, Supply Chain Management is one of the main focuses of construction management research as it is recognised that it is at the interfaces between organisations that gains in efficiency can be realized. In focussing on SCM, the construction industry and its clients are seeking to gain the benefits that have already been achieved by other sectors, most notably the automotive and offshore industries. The importance of this issue may be gauged from the fact that it is at the top of the agenda for the Institution of Civil Engineers (ICE) and its new President, Sir Alan July 1999, University of California, Berkeley, CA, USA

3 Supply Chain Management - Theoretical Constructs for Construction Cockshaw. In his first regional address he accused the industry of retaining its adversarial approach and not delivering what clients want - namely certainty (Anon, 1997). The research detailed in this paper takes on board the necessity to investigate the practice of SCM within other industry sectors, notwithstanding a review of literature relating to current SCM. It is contended that a review of both current practice and literature coupled with an understanding of the context within which SCM is applied, will allow the development of strategies, tools and techniques tailored to meet the needs of the peculiar characteristics of the construction industry (Ballard & Howell 1998). WHAT IS SUPPLY CHAIN MANAGEMENT Whilst an awareness of the existence of SCM and a possible interpretation of its meaning could be demonstrated by most, an acceptable common perception or definition for the research was required. The development of a common language and common meanings, understood by all the collaborators will also be vital to the success of the project (Root et al. 1999) DISPARATE VIEWS An initial investigation demonstrated a lack of consensus on a definition or meaning of SCM. This difficulty in establishing common meanings is highlighted by Saunders (1997), who explains that: terms tend to lack commonly accepted definitions and the problem of ambiguity is compounded by the fact that users do not always make clear the meaning they attach to those terms, and sometimes use them inconsistently. Understanding is thereby diminished rather than enhanced, and confusion, rather than clarity, clouds communication. A contributing factor to this general problem is the need to take into account the context Thus, interpretations of SCM are based upon the contexts and purposes of the various authors whether professional, industrial or academic. The research has therefore sought to isolate the contextual aspects in order to identify the generic features of SCM and reconcile the disparate views of SCM across the literature and industry practitioners. The very fact of the existence of disparate definitions of SCM leads to another question; whether SCM can be defined as a management tool or technique, or whether SCM is a label or umbrella term which encompasses a host of concepts, tools and techniques. Franks (1998) answers this question by stating that historically:.organizations who developed and implemented Lean manufacturing, TQM, etc., used the term SCM to get over the conceptual view that organisations are connected both internally and externally Certainly, as is demonstrated later in Figure 5, using SCM as a label leads to a more comprehensive understanding of SCM and what is necessary to achieve it. Thus, this research project has concluded that SCM is an emergent term arising from intra- and interorganisational action following the application of concepts, tools and techniques. Thus, the label allows practitioners and theorists to bring together a variety of tools techniques and strategies which when applied give rise to a commonality of attitude towards something Proceedings IGLC-7 3

4 Fernie, Root, and Thorpe which has no actual physical presence or objective reality but, does have certain generic characteristics. GENERIC CHARACTERISTICS OF SCM Holistic approach An approach, which captures all the relevant organisations in delivering solutions/products to the end-users, is considered by most to reflect the scope of SCM; e.g. from raw materials through to final consumer/customer (Kochan, 1996, Gattorna, 1996, Cousins 1995, Cox and Lamming 1997, London et al. 1998). This is perhaps best demonstrated by Metz (1998) who, describes multi-stage supply chains (Figure 1) as replications of single stage supply chains. The single stage supply chains can be used to represent an organisation as a supply chain within itself. This view has led to the conclusion that supply chain issues must be considered as both inter-organisational as well as intra-organisational. Multi-Stage Supply Chain Stage 1 (e.g. supplier) Stage 2 (e.g. producer) Stage 3 (e.g. retailer) Information Funds Material Processing Information Processing Figure 1: Section of a generic supply chain. (Metz 1998) In the case of the automobile industry, SCM may seek to optimise the delivery of a completed vehicle from raw steel supplier through to the car dealer ultimately responsible for selling the car to the end user. It is possible to take this example even further by considering the disposal of the automobile as a reusable material sourced for use within another supply chain, or indeed the same supply chain. As a material, the steel not only passes through separate organisations within the chain but also through separate operations (functional areas) within each organisation. Opportunities to improve the efficiency of the chain therefore exist both internal and external to the organisations within the supply chain. Networks It should be noted that the multi-stage supply chain in Figure 1 simply represents one linear strand of a possible supply chain. It is more realistic to assume that the retailer will be aligned with numerous producers as will the producer with numerous suppliers, there will also be a degree of alignment between producers and suppliers. Also, the chain if used in this July 1999, University of California, Berkeley, CA, USA

5 Supply Chain Management - Theoretical Constructs for Construction context can only show those organisations involved with a particular product, project or service consumed by one customer at one end of the chain. For the construction industry, each client represents a separate customer with unique requirements. The satisfaction of these will be achieved by those in the supply chain who are best placed to do so, having the required core competencies to facilitate the fulfilment of these requirements. In essence, organisations within a supply network delivering an office development will differ from those required to deliver a pharmaceutical plant. It may be easier to consider supply chains as extractions from a supply network based on the nature of the product/project. It is therefore more useful to consider the chain as a network of organisations or a network organisation (Chadwick and Rajagopal 1995) operating within the same market or industry to satisfy a range of clients. McHugh et al. (1995) describe this network as holonic, in which each organisation in the network provides a different process capability. The organisations in the network are fully integrated, with business opportunities developed in reaction to customers needs. The view of SCM as both an inter- and intra-organisational issue is also strengthened by Nohria and Eccles (1992) who confirm the existence of networks within and external to organisations as a whole. Relationships Nohria and Eccles (1992) view the network as a field of relationships that bind organisations together. These relationships are both vertical (between first tier and second tier suppliers) and horizontal (between organisations on the same tier of the supply network) in nature. Relationships are discussed by Lamming (1995) who describes, using Figure 2, the pressures on organisations in the nineties, arguing that no one organisation can realistically cope with these pressures in isolation. The way forward for these organisations is seen through the adoption of different approaches to inter-firm relationships as demonstrated in figure 3. Customers who demand more sophisticated products and services The emergence and availability of new technological solutions: processes and products which are often very complicated. The Business Unit There is a need to optimise resource bases Time to market for new products is becoming ever more critical Figure 2: The pressures facing business organisations in the 1990 s (Source: Lamming 1995) Lamming (1995) describes this new approach as a complex organisation involving ownership of a centre core and collaborative management of an external organisation, which confirms the premise of a holistic approach. Christopher (1998) also makes reference to this approach when dismissing the idea that supply chains provide little competition by stating that: Proceedings IGLC-7 5

6 Fernie, Root, and Thorpe Customers who demand more sophisticated products and services The emergence and availability of new technological solutions: processes and products which are often very complicated. Smaller Business Units There is a need to optimise resource bases The Business Unit Strong collaboration with suppliers Time to market for new products is becoming ever more critical Figure 3: Response to the pressures Strategic collaboration (Source: Lamming 1995) We are now entering the era of network competition where the prizes go to those organisations who can better structure, co-ordinate and manage the relationships with their partners in a network committed to better, faster and closer relationships with their final customers. Christopher (1998) concludes by stating that a new paradigm of competition is emerging from the above approach. However, Cousins (1995) underlines the importance of focussing internally prior to the development of this approach externally by stating:.it is crucially important that relationships are cemented internally so that the internal functions of the organisation are pulling in the same direction. This is probably the most crucial factor for success: without this internal relationship in place there is a tendency for a failure to share information to occur and for communications to breakdown. This results in suppliers receiving conflicting signals, which undermine relationships. A shift is therefore occurring within the construction industry from the traditional adversarial culture to a culture that encourages a more collaborative approach (Cox 1995, MacBeth and Ferguson 1994). This concurrent shift in attitude will allow the effective application of concepts; tools, techniques and strategies to effectively deliver to the end user what is required to satisfy needs and wants. Attitudes Attitudes manifest themselves in current embedded business practices such as payment arrangements, contracts, dispute resolution procedures etc. and impact on the behaviour of organisations and individuals. In this way the are symbolic of industry culture. This behaviour is represented by Sako s classification of the two extremes of inter-firm relationships; the Arms Length Contractual Relationships (ACR) and the Obligation Contractual Relationships (OCR) The principles behind each are shown below in an SCM context (adapted from Macbeth and Ferguson 1994 and Bouverie-Brine and Macbeth 1995) From this, an industry would lie along the continuum between the two extremes and, the general consensus is that the culture described by Latham (1994) and the DETR (1998) lies July 1999, University of California, Berkeley, CA, USA

7 Supply Chain Management - Theoretical Constructs for Construction towards the OCR end of the scale. Consequently, it is recognised that this shift in attitude and culture inevitably falls within the scope of the research (Figure 6). Table 1:Two extremes of inter-firm relationships SCM (OCR) Pro active Co-operative Trust Two way information Mutual Obligation Honour bound to repay Long term focus Interdependence Co-destiny Non-SCM (ACR) Reactive Competitive No trust One way information Contractual obligation Take advantage Short term focus Independence Survival Unfortunately, there are large numbers of individuals and organisations where the existing attitudes are firmly embedded and which will be resistant to such changes (Christopher 1998). However, it is recognised that the construction industry is becoming increasingly aware of the necessity to change current working practices and the attitudes they represent. Similarly, a number of organisations and individuals within the construction industry are already moving in the SCM direction (albeit indirectly) through the use of partnering, framework agreements and techniques to rationalise their supplier base. Responsibility for managing the supply chain The term managing embodies planning and co-ordinating activities. The question as to who will do this work in the supply chain must therefore be addressed. With so many organisations involved in the delivery process from raw material suppliers to end users, it is not clear who takes overall responsibility for its management. It is perhaps useful at this point to understand the structure of particular chains within networks, with a view to identifying which organisations are best placed to co-ordinate and facilitate communication throughout the network. As is demonstrated below, chains within the network may be structured in a variety of ways depending on the product, service or relative position in the network. What is demonstrated in Figure 4 is an adaptation of what Macbeth and Ferguson (1994) call 'plants' when discussing the structure of supply chains. It is logical to assume that a degree of co-ordination is essential. In a construction context, it is contended that the main contractor (certainly in the Design Manage and Construct context of the lead industrial partner) fits most closely the 'A' plant structure and so will be seen as the organisation instrumental in managing the supply network since a high degree of convergence occurs at this point. However, convergence of the chain also occurs at numerous other points in the network and therefore, there exists localised points throughout a network where co-ordination is essential (e.g. existence of several 'A' structures). Therefore, exercising co-ordination and communication at these localised points in the supply network will be necessary to achieve effective holistic supply chain management. It is important to note that the importance of Proceedings IGLC-7 7

8 Fernie, Root, and Thorpe managing the network where there is no convergence and where the link is linear in nature should not be overlooked. The holistic approach can only be fully achieved if all organisations in the network contribute to the SCM approach. A B A A B C B C C D D E F G D E T - Plant A - Plant I - Plant Figure 4: Structures of Supply Chains CHANGING CULTURE As discussed above, a change in culture is viewed as a central tenet of SCM. However, culture does not exist or operate as a process in isolation, and should be viewed in relation to context and strategy. This is demonstrated below in Figure 5; culture context The Actor strategy Figure 5: Culture/Context/Strategy Model The actor represents any individual or member of any group who performs any mental or physical activity. The activity itself cannot not be modelled and is effectively a black-box not because what is happening in the action cannot be described, but because it is unique in the circumstances of culture, context and strategy. Culture is a collective mental construct that arises out of social action and is dependent on the development of inter-subjective meaning amongst social actors within and between groups that might variously be expressed as organisations, professions etc. What the July 1999, University of California, Berkeley, CA, USA

9 Supply Chain Management - Theoretical Constructs for Construction individual identifies as culture will be subjective but created through inter-subjectivity to create an illusion of objectivity (a social fact or social institution). Context represents the formal social structures of the industrial process; procurement process, client demands/aims/objectives, organisational structures, legal and economic environments. Thus, it may be useful to describe the whole model as representing the activity of building (incorporating design and construction; we cannot differentiate between the two in any attempt to integrate activities), previously referred to as building process by Groak (1992). Strategy is the dynamic of management. It expresses where the organisation wants to go (where management wants it to go). It is a statement of intent (detailed) with tools acting as symbols and indicators of how to achieve that intent and underpins both their use and is underpinned by them. The individual actor impacts on and is influenced by all three of the substantive parts of the model. Although, the degree of influence will differ, depending on example and individual. Thus, the diagram shows interdependency but not the relative importance or strengths of those relationships, as they will always be unique at any moment in time. Unfortunately it is not possible to capture culture or directly influence in the desire to shift attitudes, it is too complex a concept to be amenable to direct change and influence. Therefore, context and strategy are two areas where change can be instigated with the intent to impact (and change) current prevailing industry culture or attitude. This is reflected in Figure 6 through the focus on inter- and intra-organisational issues which, is designed to alter the current context and strategy within which the construction ACR organisations currently operate. THE RESEARCH METHODOLOGY Drawing on what has been discussed above, the methodology developed for this research embodies the notion of SCM as: an emergent concept directly related to a set of attitudes; a network as opposed to the understanding of a 'chain'; a holistic approach, viewing all organisations involved in the delivery of a product as the scope of the approach including an understanding of organisations being a supply network within themselves; an examination of the relationships between organisations (and within) to reveal opportunities to increase effectiveness and efficiency of both the delivery process and the product itself; and particularly important for those organisations in the chain acting as a point of convergence for others. These are graphically depicted in figure 6 below indicating the scope of the research. The top section in the figure indicates the present environment, alluding to the current prevailing attitude based on the existence of ACR and, what is described as project constraints, illustrating the current context and strategies within which construction operates. Proceedings IGLC-7 9

10 Fernie, Root, and Thorpe Current Attitude (ACR) é adversarial é defensive é focused on end-result/product é narrow ly focussed é conservative é resistant tochange é parochial é concentrates on short-term gains é insular/narrow ly technical é lack of imagination Project/Industry Constraints é Procurement routes é Building types é Client Types é IT Systems é Financial arrangements é Contractual arrangments é Dispute resolution arrangements INTER-ORG INTRA-ORG IDAC 4/035 CHANGE IN ATTITUDES What: identify needs and w ants build consensus common systems network supplier days How : information flow long-term relationships aligned strategies Achieves: openess -communication trust common aims/objectives client satisfaction What: Partnering + Alliance Benchmarking Value Management How : long-term relationships repetition (certainty) feedback Achieves: continuity of w orkload/profit continuous improvement learning Supply Chain Attitude (OCR) é co-operative é interested in long term gain é seeks continuous improvement é innovative é mutual obligation é shared destiny SCM Figure 6: The scope of the research The center section indicates both the scope of the research project and the intention of the research to focus on the context and strategy as a means to achieve a change in attitude based on the Culture/Context/Strategy model. It also illustrates the view of SCM as an inter- and intra-organisational issue based on the existence of networks within and external to organisations. The last section indicates the future and, the concept of SCM as an emergent concept. It links the changes achieved in context and strategy back into the Culture/Context/Strategy model and the achievement of a shift to OCR attitudes embodies the SCM perspective/paradigm July 1999, University of California, Berkeley, CA, USA

11 Supply Chain Management - Theoretical Constructs for Construction CONCLUSIONS It has been demonstrated that SCM within the literature, which is grounded in the manufacturing and retail sectors, reflects disparate views on the nature, scope, focus and objective of SCM within these sectors. However, an analysis of the literature, isolating the contextual aspects related to manufacturing and retail, has allowed the development of generic characteristics relating to SCM and consequently, the development of a research approach designed to elicit a SCM framework within the context of construction. The research approach benefits from the collaboration of the DMC organisation and the other collaborators who constitute first tier suppliers to the DMC organisation. The nature of the relationship between the first tier supplier and the DMC organisation allows the identification of a supply network at the point where a convergence occurs and consequently, where co-ordination is necessary. Exploring this part of the network and, using it as a test bed for any developed SCM framework grounds the research and its findings directly in live operational construction arena. This facilitates not only a process of implementation but also the ability to monitor implementation and document for other organisations within the wider context of the construction industry. The end result is an implementable SCM framework applicable to any construction network. REFERENCES Austin, S., Baldwin, A., Li, B., and Waskett, P. (1999). Analytical Design Planning Technique: A Model of the Detailed Building Design Process., Design Studies, 20 (3) Ballard, G. and Howell, G. (1998). What kind of production is construction? Proceedings of the 6 th Annl. Conf. Intl. Group for Lean Construction (IGLC-6), Guaruja, Brazil. Bouverie-Brine, C. and Macbeth, D.K. (1995). Managing Supply Chains: A collaborative project between London Underground and the Supply Chain Management Group. in Lamming, R. and Cox, A. Strategic Procurement - Management in the 1990 s - Concepts and Cases. Earlgate Press, UK. Chadwick, T. and Rajagopal, S. (1995). Strategic Supply Management - An implementation toolkit. Butterworth-Heinemann, Oxford, UK. Christopher, M. (1998). Relationships and Alliances. in Gattorna, J. (ed.) Strategic Supply Chain Alignment. Gower Pub. Ltd., England. Cousins, P. (1995). Partnership Sourcing: a misused concept. in Lamming, Richard. Cox, Andrew. Strategic Procurement - Management in the 1990 s - Concepts and Cases. Earlgate Press, UK. Cox, A. (1995). Strategic procurement management in the public and private sectors: The relative benefits of competitive and collaborative approaches. in Lamming, Richard. Cox, Andrew. Strategic Procurement - Management in the 1990 s - Concepts and Cases. Earlgate Press, UK. Cox, A. and Lamming, R. (1997). Managing Supply in the Firm of the Future. in Cox, A. and Hines, P. (Ed) (1997) Advanced Supply Management. Earlsgate Press. DETR (1998). Rethinking Construction. Dept. of Environment Transport and the Regions. European Construction Institute (1993). Total Quality in Construction - Measurement Matrix and Guidelines for Improvement. European Construction Institute, Loughborough. Proceedings IGLC-7 11

12 Fernie, Root, and Thorpe Evans, G.N., Bailey, A., Reed, M., Naim, M.M., Brown, D., Towill, D.R., and Riley, M. (1997). Organising For Improved Construction Interfaces. in Leeming, M.B. Topping, B.H.V. (Ed) Innovation in Civil and Construction Engineering. Civil-Comp Press, Edinburgh, Scotland Ford, H. (1991). Ford on Management: Harnessing the American Spirit. Basil Blackwell (N.B. originally printed as Henry Ford, My Life and Work ) Forrester, J. (1961). Industrial Dynamics. M.I.T. Press, Cambridge, Mass. pp.138 Franks, S. (1998). Supply Chain Management: - Do we really know what we want?. SAPICS Gattorna, J.L., Walters, D.W. (1996). Managing the Supply Chain. Macmillan Press Ltd. Groak, S. (1992). The idea of building. E&F.N. Spon, London Kagioglou, M., Cooper, R., Aouad, G., Hinks, J., Sexton, M., and Sheath, M.D. (1998). A Generic Guide to the Design and Construction Process Protocol. Published by the University of Salford. Kochan A. (1996). It s in for a long Supply Chain Haul. Manufacturing Computer Solutions, July/August 1996, pp Lamming, R. (1995). The Future For Purchasing: Developing Lean Supply. in Lamming, R. and Cox, A. Strategic Procurement - Management in the 1990 s - Concepts and Cases. Earlgate Press, UK. Latham, M. (1994). Constructing the Team: Joint Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry. HMSO, London. London, K., Kenley, R., and Agapiou, A. (1998). Theoretical Supply Chain Network Modelling in the Building Industry. Proc. 14 th Ann. Conf. Assoc. of Researchers in Constr. Mgmt. (ARCOM), September 9-11, Univ. of Reading, Vol. 2, pp Macbeth and Ferguson (1994). Partnership Sourcing. Pitman pub. Male, S., Kelly, J., Fernie, S., Gronqvist, M., and Bowles, G. (1998). The Value Management Benchmark: a good practice framework for clients and practitioners. Thomas Telford, London. McHugh, P., Merli, G., and Wheeler III, W. (1995). Beyond Business Process Reengineering - Towards the Holonic Enterprise. John Wiley & Sons Ltd, Chichester, England. Metz, P. Demystifying SCM. Purchasing Magazine, available on the worldwide web, Nohria, N. and Eccles, R.G. (Ed) (1992). Networks and organisations: Structure, Form and Action. Harvard Business School Press, Boston, MA. Root, D., Fernie, S., and Baldwin, A. (1999). The languages of product and services: Barriers to the integration of Construction and Design. Association of Researchers in Construction Management (ARCOM), 15 th Annual Conference and Annual General Meeting, 15 th - 17 th September 1999, Liverpool John Moores University, UK Sako (1992). Prices, quality and trust - Inter-firm relations in Britain and Japan. Cambridge Univ. Press. Saunders, M. (1997). Strategic Purchasing & Supply Chain Management. Pitman Pub., London July 1999, University of California, Berkeley, CA, USA