SCM IN CONSTRUCTION

INDUSTRY
Deepak Ojha
Roll No. 5
Div II (E)
Indian Economy
 Fastest growing economy after China
 Changing composition of GDP
 Reduced dependence on agriculture and growing
industrial and services sector
 Next phase of growth expected to come from
rural markets
 Per capita income grew by 50% over the last 10
years
 Among the world's youngest nations with a
median age of 25
Infrastructure Investments in India
 Roads: Investments to pick momentum
through award of new BOT projects
 Irrigation: Driven by state governments
 Power: Private sector capacity addition to
bolster growth
 Water & urban infrastructure: JNNURM
investments through Urban Local Bodies
(ULBs)
 Others: Railways, ports, airports, oil & gas,
mining are primarily government driven
• Procurement (Direct and indirect suppliers Main
Contractor
and subcontractors)
• Construction Site (Fabrication, Construction)
• Tender Principal
• Interaction with Architect and Consultants on
Design aspects
• Initiative User
Construction Industry Supply Chain
 Information flow (order, schedule, forecast etc)

Material Flow (Supplier, Production, Delivery etc)

Architect
Consultant
Designer

Direct
supplier Indirect
Procure sub- supplier
Initiative Tender contract
ment
Main
User Principal Fab Mfr of
Contractor
element parts

Constr Own Mtrl

Use Handover Prodn Prodn
Site
Problems in Construction SCM
 full of waste and problems caused by myopic
control
 characteristics of the construction scm reinforce the
problems in the construction supply chain, and
infact hinder the application of SCM
 initiatives belonging to the domain of SCM have
been rather partial covering a subset of issues (e.g.,
transportation costs) in a limited part of the
construction supply chain (e.g., the construction site)
 issues are regarded from a main contractor’s point
of view
 ‘collaboration is confused with ‘collusion’ in
construction industry
Problems in Construction SCM (Continued)
 most organisations operate within a one-
dimensional view of the Supply Chain in
that only ‘surface’ level relationships are
considered. A 3- dimensional view is
needed to fully understand and absorb
the varying interests and requirements
from within the supply chain
 lack of ‘best practice’ and ‘lessons learnt’
within the construction industry
MGM Properties and Dubai World v/s Perini Building
Company
 MGM Properties and Dubai World, the owners of the new CityCenter in Las Vegas

 Perini Building Company, the primary contractor on the job.

 Perini's central claim is that late design changes and project modifications nearly
doubled Perini's contract from $3.5 billion to $6.8 billion. The company is seeking
$491.2 million against CityCenter to preserve the rights of contractors,
subcontractors and suppliers to seek foreclosure against the owner as leverage to
get paid.

 MGM countered that it would file a claim seeking hundreds of millions of dollars
from Perini while stressing the original contract mandated binding arbitration if a
dispute arose, citing a 2005 contract provision

 Since Perini hasn't been paid by MGM, it hasn't paid its subcontractors, at least two
of which have sued both parties
Need for Effective SCM in Construction
Industry
 sound risk management to offset unforeseen natural
and man-made catastrophes that could impact
materials suppliers' ability to deliver goods to a
project on time
 regulation changes
 damage to company reputation
 Consider supply chain as an overarching financial
issue, instead of just a purchasing issue
 clients are demanding faster, more responsive
construction processes and higher quality facilities
 innovative integrated delivery systems as projects
grow increasingly complex.
Need for Effective SCM in Construction
Industry (Contd)
 nurturing long-term relationships, developing
repeat business and involving owner-clients in
the complete process from start to finish.
 to know subcontractors' workloads vis-à-vis
financial capability and allot work accordingly.
 squeezing out waste and inefficiency at all
levels
 interface of supply chain management and
information communications technology is an
important factor for businesses to achieve
efficiently their long-term goals
Improving supply chain performance
 The Chain should be value driven and not cost driven.
 If a process does not add value then it should be removed from
the Supply Chain process
 All process activity should be evaluated and where possible
simplified / improved
 Members of the Supply Chain must adopt a common
terminology and a collaborative approach
 The agreed drivers and a shared set of values must be openly
communicated and embraced by the supply chain members.
 All parties must look to adopt an attitude of shared knowledge
and learning and agreed methodologies, communication and
processes
 The industry must look to be regarded by client groups as
seeking profit whilst providing value add for the client.
 ‘best practice’ and ‘lessons learnt ‘should be identified and
applied to Construction industry organisations.
Improving supply chain performance (Contd)
 Initially, current supply chain performance
should be measured and understood. A
reflective approach must be adopted, where the
knowledge ‘gained’ is stored, shared and
applied to the next activity.
 look to improve the management of processes

 An understanding that all parties will benefit /

profit
• Where possible freeze expectations but include
change where necessary through joint
agreement through the use of contingency
plans.
Improving supply chain performance (Contd)
 The change processes must start at the very top
of organisations
 First, carry out internally within the
organisation , then extend to all parties external
to the organisation (but within the supply
chain)
 Organisations should look to adopt innovative
approaches to their activities and embrace best
practice rather than adopting an out-dated
approach
effective management of subcontractors
 Regard the sub contractor as being part of the
supply chain (key to the value add process)
 Sharing a full picture of the project
 Sharing the values that are required by the
Supply Chain
 Inviting input where the sub contractor can
add value
Information Communication Technology
in Construction SCM
 External benefits: efficient procurement and B2B
communications
 Internal benefits: network communications between
headquarters and the different field offices
 ability of management to coordinate the different
segments of the operations of the company has become a
determinant of competitive edge
 fast and convenient channels of communication
 the reduction of ‘clerical’ transaction costs, such as
involving contracting, ordering, confirming, invoicing and
settlement.
 In addition, fewer errors.
Information Communication Technology in
Construction SCM (contd)
 internet and its unlimited potential for businesses
 contract negotiations
 buying and selling of products
 monitoring transport of goods
 payment of goods and services
 coordination of internal tasks
 low-cost
 easily shared by multiple parties
 travels in real-time.
 Because of its technological resources and capabilities,
L&T is the only construction firm pre-qualified for
accomplishing large-scale, process-intensive projects for
petrochemical, fertilizer, oil and gas, and refinery sectors.
Information Communication Technology in
Construction SCM (contd)
 scale and geographical spread of projects requires the
development of a supply chain management that
coordinates the 6,000 suppliers of the company based in
350 locations as in case of L&T.
 need to establish a system of communicating with
customers in the international market, that is convenient
for customers, giving them information about the
company, its capabilities and policies as well as the option
for the customer to pose further inquiries into the
company.
 tracking the progress of the different processes in the
supply chain as well as networking the communications
between headquarters and the field site
Information Communication Technology in
Construction SCM of L&T
 L&T developed a web-based information communications system
to enhance its supply chain management
 Enterprise Information Portal (EIP) as a tool for communications
with its external partners and for in-house communications
 website also facilitated bidding and negotiations by suppliers
 website also has a security system that allows people to log in to the
secured components of the site by logging in using a username and
password
 EIP brought together the various stages of construction cycle
starting from the design or plan to the bidding, budgeting and
scheduling to the actual construction and completion of the project.
 Company now maximizes its purchasing power by reducing total
project cost and increasing return on capital by eliminating the cost
of the time required to find and communicate with suppliers.
Importance of Long Term B2B Relationship in
Construction Industry
 with different reliable firms supplying the construction materials
 with various business firms seeking the construction services and
expertise of the company
 success of company’s operations depends upon the efficiency of
its information communications system throughout the different
process links of the entire supply chain.
 existence of the company depends upon the strength of its supply
chain management that involves a solid relationship with key
business partners
 the company is assured of reliable suppliers in its current and
future construction projects.
 enables the company to procure supplies according to its unique
or specific requirements
 to provide construction materials and services that considers the
particular needs of its industrial customers
Materials Procurement Strategies and
Mechanisms
 Should translate to cost minimization and output
maximization. 
 Company chooses from the supplier database & allows
suppliers to bid online
 company only has to post its qualifying requirements in the
website that invites interested suppliers to make a bid
 All the company has to do is to choose the top 5 or 10 suppliers
with the lowest bids and choose from this short list or the
company may opt to go with the lowest bid provided the
bidder meets all qualifications.
 negotiate and finalize a sales contract through the internet
 company is also able to create a supplier database that shows
the track record of the different suppliers