LOGISTICS OF CONSTRUCTION PROJECTS

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1 F O U N D A T I O N S O F C I V I L A N D E N V I R O N M E N T A L E N G I N E E R I N G No Anna SOBOTKA, Agata CZARNIGOWSKA, Krzysztof STEFANIAK Lublin University of Technology Institute of Construction and Architecture LOGISTICS OF CONSTRUCTION PROJECTS The paper discusses selected aspects of logistics with regard to a construction company as an organisation and as a participant in a construction project. On the basis of a recent research in Poland, patterns of development of logistic systems and relations between the participants of construction projects have been presented. The project delivery systems and their connection with possible supply models have been analysed focusing on supply logistics. Experience of construction companies and comparison of supply systems cost simulations point out, that outsourcing of supply logistics processes may significantly reduce total logistic costs. Key words: logistics in construction, construction project, delivery systems in construction, logistic centre 1. INTRODUCTION The tendencies towards efficiency improvement and risk control in project management indicate the significance of logistics, i.e. a branch of knowledge applying new concepts to control material, service, information and finance flows between suppliers and customers. In the field of construction, procurement planning and execution (ordering, reception, transport and storage) dominates the logistic processes [7]. Following the example of other industries, there are attempts to integrate construction logistics into logistic chains of suppliers and customers, from the suppliers of raw material, manufacturers, distributors, to the end-users. Logistic processes, being crucial for successful completion of the project but in fact auxiliary, are often entrusted to external professionals specialised in logistic Publishing House of Poznan University of Technology, Pozna 2005 ISSN

2 204 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak services, such as logistic centres [1, 2, 3] and this tendency is also to be observed in construction. Traditionally, each contractor taking part in a project was responsible for his/her individual supply chain to provide materials and services required within his/her scope of works. At the present time of well-developed market for building materials and services, centralising and outsourcing the project supply logistics is seen as a more cost-efficient solution facilitating project control. With the development of project delivery and management systems, and as the choice of suppliers is considered, traditional decision-makers (designers and contractors) are replaced with new ones: project managers or even owners select materials and suppliers. The paper focuses on a number of aspects of logistics and its specific features regarding a construction company as an organisation and as a participant in a construction project. The results of a ten-year survey of changes of construction supply systems are presented and analysed in relation to the project delivery system as a premise for the selection of the supply system. The enclosed simulation-based calculations of logistics expenses present the impact of supply organisation on costs. 2. BASIC FEATURES OF CONSTRUCTION LOGISTICS Logistics is often defined as managing the supply chains, the latter being a network of organisations linked by material and information flows bounded with a product (project) life cycle (from the procurement of raw materials through processing and handling the products and the final product, distribution and sales to the end-user and finally, to waste utilisation). All the processes and relations concerning the above flows form a logistic system. A company, being a member of a larger supply chain of suppliers and customers, has its own system of internal logistics also in the form of supply chains (Fig.1) Fig. 1. A building contractor within a supply chain of materials and participants of a project

3 Logistics of construction projects 205 Logistic processes are present in various fields of activity within a company (purchase, production, sale etc.). Isolating and integrating logistic tasks performed by all organisational units of a company results in creating logistics departments that co-ordinate all the flows. Three basic models of logistic systems are to be observed in building companies: informal, where co-ordination of logistic tasks of separate departments and fields of activity is enforced within the existing organisational structure of the company, semiformal, where a logistics manager takes the responsibility for the coordination of logistic processes of the company, but is not in charge of the departments, where these processes are conducted, formal, where a separate department takes over all the logistic processes of the company. The particular model of logistics is selected according to the current organisation structure of the company, its targets and management strategy. The actual size of company is also important. 97% of all Polish contractors employ up to 20 people and, therefore, have no logistics department in their structure. The semiformal model with a single specialist is preferred. Larger enterprises that used to have well-developed logistics departments tend to go back to the semiformal model (reduce the number of employees) or decide to outsource their procurement. Numerous surveys on logistic systems in construction indicate dynamic changes in this domain [3,4,7,9]. Contractors are usually only single links of logistic chains that provide a project with products, services, information and finance. In contrast to manufacturing industries, which profit with long-lasting partnership with suppliers and customers, logistic chains in construction are considerably more difficult to manage and to optimise. This results from: diversification of projects (various materials, methods, location of each project means a new constellation of supply chain members each time) technical complexity of a project, number of participants in the project, domination of the bidding system of contractor acquisition (random partnership within the chain), difficulty in adjusting each member s logistic routines to the logistic system of the project. Therefore, the co-operation within the framework of the project supply chain is short-term. The participants of a construction project (builders, suppliers, employer etc.) tend to compete among one another to make the most of the project. For the next enterprise they are going to join new partners and form new supply chains [11]. Construction logistics may be considered in a number of aspects [6, 11], e.g.:

4 206 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak the building site as a production system and a member of many logistic chains, where complex processes are executed within time, space and budget constraints whole project logistics, supply chains delivering products from external sources to the building site (supply logistics), co-ordination of material flows on the building site (on-site logistics), participants of the construction project as separate entities participating in other projects at the same time. As the success of the project depends on the co-ordination of the on-site and external logistics in all above aspects, a considerable managerial effort is required to bring the efforts of all participants of the project in consonance and to reach the synergetic effect [10]. The construction project comprises a number of stages from its conception to commissioning. Each stage involves logistic processes. Serra and Oliveira [6] propose a set of guidelines (table 1) for the preparation and implementation of an integrated logistic plan of a construction project. Project phase Design Planning Supplies Execution Table 1. Logistics production plan guidelines [6] Guidelines and tools Logistic guidelines for the conception Analysis of technological alternatives Definition of the plan of attack for on-site work Production design, site design As-built design Gantt physical chart Gantt materials consumption chart Gantt equipment chart Histogram of own labour Gantt subcontractor chart Gantt chart of implementation of work safety-related preventive measures Materials specification plans for materials delivery to the site Gantt chart of the start-up of the purchasing process Materials/supplies purchasing rules Materials and services suppliers qualification Guidelines for equipment purchasing or leasing Use of indices of material losses and wastage Plan for the execution of work Documentation, implementation and maintenance of the information system Use of labour and equipment productivity indices Work safety and health rules

5 Logistics of construction projects 207 A carefully developed logistic plan accounts for all possible relations among the participants of the project: the project owner and management, designers, contractors, suppliers of services and products, insurance companies, financial institutions and regulatory bodies [6]. 3. CHANGES AND PATTERNS OF SUPPLY SYSTEMS IN CONSTRUCTION The chapter presents results of a ten-year survey of logistic systems of building contractors and construction projects [9]. Considering contractors, the data were collected in years and relate to: sources of supply, delivery contract routines, criteria of suppliers selection, reasons of delivery inaccuracies, bases of material demand forecast and distribution of responsibility for logistic decisions. Figure 2 presents an average share of value of purchase according to source of supply for years There is a tendency of decreasing direct purchase from manufacturers for the benefit of wholesalers. This is related to other trends of reducing own transport and using suppliers delivery services. Manufacturers often concentrate on production and offer no transport services. Fig. 2. Share of value of purchase according to the type of supplier in 1996 and 2002 In most cases, delivery contracts concern single projects and there are no exclusive suppliers, but a long-time co-operation with a number of suppliers occurs quite often. Such partnership allows the contractor to negotiate better terms of contract (discounts, terms of payment). The long-time contracts usually regard selected ranges of goods. Figure 3. shows the proportion of long and short-term delivery contracts.

6 208 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak Fig. 3. Share of long and short-term delivery contracts in Polish construction (2002) The co-operation between contractors and suppliers tends to grow. The suppliers offer additional services of warehousing and deliver on request in batches. Each batch may be paid separately. The criteria of supplier selection are presented in Figure 4. Figure 5 shows methods of supplier acquisition. Fig. 4. Criteria of supplier selection in Polish construction companies (2002) Fig. 5. Methods of supplier acquisition used by Polish contractors (2002)

7 Logistics of construction projects 209 Delivery inaccuracies occur quite often in spite of the consumer domination in the market. Basic grounds for them are the financial difficulties caused by employers delay in payment and change of sequence of works on the building site. Further reasons are errors in the design, errors in orders, difficulty in obtaining non-typical materials. Typical supplier failures such as problems with transport are rare. Bases of contractors forecast of material demand are: the construction schedule (57%), the bill of quantities (14%) and experience (29%). As for logistic decisions, there are usually a number of decision-makers within the organisation whose scope of actions differ according to the structure of the enterprise. With regard to the supplies, most decisions are made by construction or site managers and purchasing departments (Fig. 6) Fig. 6. Distribution of responsibility for logistic decisions in Polish construction companies (2003) The results of the survey also point at the changes in the contractors supply system, consisting in the reduction of the scope of logistic tasks performed by their own departments. Firstly, own transport and warehousing are being kept to the minimum. Secondly, processes connected with information flows, e.g. supplier selection, are being limited. These tasks and functions are often taken over by the members of the external logistic chains such as transport companies, wholesalers or manufacturers. The stock stored traditionally on the building sites is often kept by the suppliers and delivered on request in batches. The project management, designers or even employers often select materials and suppliers. Also the project management, hired logistics professionals or specialised wholesalers take

8 210 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak over the supply planning and scheduling. Therefore, more participants are involved in a construction project. The relations among them evolve continuously (Fig. 7) and further specialisation is to be observed [3,4]. Fig. 7. Relations among members of a project supply chain [4] It is clear that there is no typical or best system of project logistics. In a longer perspective each system must be readjusted to the external conditions or even completely redesigned. New, effective solutions have to be implemented to reach the expected efficiency of a project. Currently, the employer dominates the highly competitive construction markets and his decisions are binding for any actions of designers, contractors and suppliers, which reflects in the network of relations of project participants. The ultimate relation model depends also on the delivery system of the project. 4. DELIVERY SYSTEMS AND LOGISTICS SYSTEMS OF CONSTRUCTION PROJECTS The logistic system of a construction project influences considerably the project s time and cost. The selection of the logistic system depends, however, on economical, physical and organisational conditions of the project e.g. scope of the project, location and delivery system. Any arrangements concerning the project delivery system are meant to be most economic for the owner and allow him to be involved in any decisions he wishes to influence. The most common delivery systems in construction are [12]: the design-bid-build systems the design and build or turn-key systems the professional construction management systems

9 Logistics of construction projects 211 The design-bid-build system requires the owner to manage the planning phase, to hire an architect and then to select and hire contractors or a general contractor to execute the designed works. The three main actors of the project (owner, designer and contractor) work separately within their scopes of responsibility (Fig.8). The whole process is sequential: first comes the design, then bidding and finally the construction. Fig. 8. Schematic diagram of the relations within the design-bid-build system with independent contractors (left) and with a general contractor (right) In the case of the design and build or turnkey systems, the owner employs a single contractor providing managing, design and construction services (Fig. 9), acting as a general contractor or hiring contractors. There is only one contractual relationship involving the owner. The contractor takes over the whole responsibility for the completion of the project. The design and construction processes may be conducted simultaneously (within one team or one company) and therefore improve information flows and shorten the time of the project delivery. Traditional conflicts between designers and contractors are eliminated. Fig. 9. Schematic diagram of the relations within the design-build system with and without a general contractor Professional construction management systems introduce another party to the traditional triangle of the owner, designer and builder - a professional whose task is to represent the owner s interests, integrate and manage all the processes

10 212 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak and to co-operate with the designers and the contractors. The manager offers his expertise to support any decisions from the conceptual phase to the commissioning of the project and to co-ordinate planning, design and execution activities to reach the synergetic effect and to shorten the project s completion time. The manager may enter the project as a consultant with or without being at risk (i.e. entering contractual relationship with contractors or not Fig. 10). Fig. 10. Schematic diagram of the relations within the construction management (left) and management contracting systems (right) Regarding the project logistics, four basic models of supply systems are possible: independent supply chains for individual contractors, where selection of suppliers, supply planning and scheduling is the duty of each contractor, centralised supply system managed by general contractor or other party managing the whole project, by means of their own logistics departments, centralised supply system managed by an external logistics company, combination of the above. Supply systems based on independent chains or services of an external logistics company are possible in any type of project delivery systems. In the case of delivery systems with a general contractor or other party that disposes of necessary logistic resources, it is reasonable to use them to create and manage the whole project supply system. Such party benefits directly from any improvement of logistics. Integrated logistics for the whole project means the possibility of optimising supply chains and co-ordinating deliveries, which is significant for sizeable construction projects that involve many contractors working in confined space. Shifting responsibility for supplies to many subcontractors may result in the building site congestions, excessive expenses and delays. Business organisations offering service in the field of logistics may exist in the form of independent companies or be created specially for the needs of a construction project. According to their scope of activities they may take over all the logistic processes within the project s life cycle or focus on some functions, e.g. supply control, transport and warehousing. The complete logistic service of a construction project may comprise [2]:

11 Logistics of construction projects Developing logistic concepts for designing and planning: feasibility study of logistic alternatives, plans of logistic processes and information flows, economic efficiency study, environmental impact assessment. 2. Developing strategic guidelines for bidders: preparing bidding requirements, assisting bidders and supervision over their logistic solutions, evaluating bids, participating in contractors selection. 3. Assisting bidders (potential suppliers, forwarders and contractors) in bid preparation: developing specific logistic solution to improve the quality of service, developing logistic standards for bid preparation. 4. Developing plans of the building site logistic and supervising their execution, integrating purchase, transport and execution of construction works: creating operational logistic centres servicing a complex of projects, implementing IT systems, constructing IT networks to improve information flows and to optimise them, implementing ideas of the supply chain management on the building site. 5. Controlling developing and implementing systems of quality assessment for logistic processes, recording feedback information on the effects of implementing integrated logistic systems. 6. Optimising supply and purchasing process within the scopes of manufacturers, general contractors and subcontractors, benchmarking logistic systems of other industries. The scope of the above logistic services partly complements and partly overlaps the constituents of the logistic plan for the whole construction project life cycle as presented by Serra and Oliveira [6]. Centralisation of logistics is meant to lower total cost of the project, improve quality of works and reduce the project completion time. As the Polish construction companies keep no account of material cost (and buying cost) according to the source of their origin, it is not possible to specify the cost of supply logistics directly on the basis of the account. If a material is delivered by a number of suppliers and also by means of the contractor s own delivery services, it is only possible to estimate buying costs.

12 214 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak A simulation of acquisition costs of a single building material (bricks) [9] has been based on two supply models: 1. three contractors use the service of a logistic centre, 2. the contractors supply themselves individually. The prices, discount rates for bulk purchase, storage, transport and unloading costs and charges assumed for the simulation base on real market conditions in the Lublin region in the last quarter of 2002, the material consumption is a random variable for the period of simulation. The results of the simulation (Table 2.) show that using the common supplier for this particular material allows the customer to save 6% of acquisition costs. The logistic centre is able to negotiate better discounts and offers lower buying costs, but its average stocks are heavier and the cost of frozen capital grows. There are also costs of internal transport (from the logistic centre to its customers). Cost type Table 2. Results of supply cost simulation [9] Individual supply cost [z ] Advantage Centralised supply cost [z ] Contractor 1 Contractor 2 Contractor 3 Total of logistic centre services [z ] (3+4+5)-2 Material value Buying cost Price discount Cost of shipping Int. transpor t Frozen capital (stocks) , , , , , , , , , , , , ,80 0, , , , , , , , , , ,72 0,00 0,00 0,00 0, , , ,09 648, , , ,80 Total , , , , , ,62 The advantages of logistic centres are not limited to cost reduction. The quality of service is also higher due to specialisation of logistic organisations. Logistic centres are able to co-ordinate and optimise their transport and therefore diminish the traffic loads (important in cities) and reduce air pollution.

13 Logistics of construction projects SUMMARY Construction logistics deals with many technical, organisational and environmental issues affecting the cost of a project, time and quality of execution. Traditionally, each contractor uses and manages his own supply chains. In the case of larger projects involving a number of contractors, incompatibility of logistics concepts and lack of co-ordination results in serious disturbances in material and information flows. According to modern ideas of management, centralisation of logistic functions and management allow many actors of a construction project to reach the synergetic effect of their efforts. Implementation of integrated logistic systems such as these offered by logistic centres may be particularly effective in larger construction projects located in city centres (confined space, limited transport possibilities), where massive flows of material have to be managed (e.g. extensive earthworks requiring transport of excavated material). The main task of an integrated logistic system is to provide just-in-time deliveries, eliminating most of material handling and storage on site, to shorten the time of project completion by eliminating reasons of work stoppage, to minimise disturbances in local traffic and air pollution due to exhaust gases emission. Shifting most of the logistic processes on logistic professionals allows construction companies to reduce their fixed costs and to concentrate on the development of their core competencies. REFERENCES 1. Baumgarten H.: Erfolge mit zukunftsorientierter Baustellenlogistik, Bereich Logistik, Technische Universität Berlin, Berlin Baumgarten H., Penner H.: Baumstellenlogistik Potsdamer Platz, Technische Universität Berlin, Fachbereich Wirtschaft und Management, Berlin Buszko A.: Modele wspó pracy przedsi biorstw logistycznych, Gospodarka materia owa i Logistyka, 8 (2003), Buszko A.: Zmiany w logistyce dostaw materia ów dla wykonawczych firm budowlanych w latach , Gospodarka Materia owa i Logistyka, 4 (2003), Poortman E.R., Bons H.N.M.: Information for the management of the building-materials flow. Engineering Construction and Architectural Management, 1/2 (1994), Serra S.M.B., Oliveira O.J.: Development of the logistics plan in building construction. System-based Vision for Strategic and Creative Design, Bontempi (ed.), Lisse, Swets&Zeitlinger, 2003,

14 216 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak 7. Sobotka A.: Wra liwo decyzji logistycznych w przedsi biorstwie budowlanym, Wydawnictwa Uczelniane, Lublin, Sobotka A.: Simulation modelling for logistics re-engineering in the construction company. Construction Management and Economics, 18 (2000), Sobotka A., Stefaniak K.: Zmiany w organizacji zaopatrzenia materia owego przedsi wzi inwestycyjno-budowlanych), Przegl d Budowlany (in press). 10. Stevans G.C.: Integrating the supply chain, International Journal of Physical Distibution and Materials Management, 19, 8 (1989), Veiseth M., Rostad C.Ch, Andersen B.: Productivity and logistics in the construction industry, Conference Proceeding, Nordnet 2003, Oslo Tenah K.A.: Existing and emerging delivery systems for construction projects. System-based Vision for Strategic and Creative Design, Bontempi (ed.), Lisse, Swets&Zeitlinger 2003, A. Sobotka, A. Czarnigowska, K. Stefaniak LOGISTYKA PRZEDSI WZI BUDOWLANYCH S t r e s z c z e n i e Artyku zawiera omówienie wybranych aspektów logistyki i jej specyfiki w odniesieniu do przedsi biorstwa i z punktu widzenia przedsi biorstwa budowlanego jako uczestnika przedsi wzi cia, a tak e zachodz ce zmiany w logistyce na podstawie bada. Zwrócono uwag na zale no modelu obs ugi logistycznej od systemu realizacji przedsi wzi cia. Dokonano analizy systemów zarz dzania przedsi wzi ciem w aspekcie wyboru modelu obs ugi logistycznej. Zaczony przyk ad obliczeniowy przedstawia wp yw modelu obs ugi logistycznej na koszty logistyczne przedsi wzi cia. Received,