DERIVING VALUE THROUGH MANAGEMENT OF SUPPLY CHAIN INTERFACES

When looking into Supply Chain Management one of the most difficult problems that practitioners and researchers face is the number of interlinked connections between firms, projects, markets and technologies (or systems)... There are so many variables and uncertainties in construction projects it is very hard to map the associations between vast number of supply chain firms involved in a construction project. However, in this post I will briefly discuss the importance of a management of supply chain interfaces so that more value can be derived from supply chain interaction process.

The interfaces where two or more firms come together depends on nature and type of above-mentioned factors. An interface can be between people, technologies and systems.  It is very important to identify the key interfaces as these interfaces can shape the interrelationships (at project and organisational level). Identifying the key interfaces is also important to manage them more effectively. Not all interfaces of supply chain interactions can be managed at project or organisational level . In other words in a supply chain relationship, it is not possible to manage all the entities of a relationship.  As I mentioned in the beginning, this is largely due to the fact that there are so many interlinked connections between various actors, resources and firms in construction supply chains.

To give an example, the key interface in a relatively small scale project may be the inter-personal relationships between high-level managers.  Therefore managing the inter-personal relationship may be more important and commercially beneficial for the interest of both firms. In much larger scale construction projects the key interface may be the technological integration between supply chain firms, or the interface at the construction site where multiple firms come together to physically engage with the site and construction activities.  To avoid any friction and improve inter-firm relationships, the interface between dyadic and supply-chain firms at construction site may need the majority of effort and focus... Just to remind that the key interfaces in a supply-chain interaction can be different project-to-project so priorities for  managing these interfaces can be different.  Hence identifying the key interfaces can help to improve value generation, performance in terms of cost and time, and relationship aspect of supply chain processes.

WHY WE NEED TO MANAGE CONSTRUCTION SUPPLY CHAINS?

“In every chain of reasoning, the evidence of the last conclusion can be no greater than that of the weakest link of the chain, whatever may be the strength of the rest.” Reid, Thomas (1785: 674), Essays on the Intellectual Powers of Man. University of Glasgow.

We can describe the above quote in supply chain management context as: “effectiveness, efficiency and other resource qualities of a supply chain can only be as good as the weakest link in the chain”. Let’s look at this in more detail.

In collaborative supply chains weakest firm in the chain can cause chain of reactions which can cascade upstream or downstream in the chain. Within the AEC (Architecture, Engineering and Construction) industry it is generally advocated that supply chain management should be in the form of partnering and long-term collaborative arrangements with key and strategic suppliers/buyers. Strength of these collaborative and partnering relationships is said to have an effect on each other's business, however, in a wider context, performance of all members involved contribute to the overall performance of the entire supply chain. Therefore performance of collaborative supply chains is no longer affected by a single firm, so what happens in one relationship will always affect all connected relationships, sometimes marginally, but often substantially.

We can depict supply chains as engines of a machine (see Figure below), where each firm is depicted as a gear working in combination with other firms (gears) towards a common goal (collaborating). Therefore, if we assume that each gear is rigid and connected to one another in a tight form, consequently the performance of the faulty gear will affect the performance of whole system. Furthermore, it can also be argued that the size of the gear will determine the level of impact on the system. For example, where a contractor experiences problems with its internal operations, this will have a serious impact on relationships which are dependent on those operations.

In view of the above, it can be argued that supplier relationship management within the AEC industry must be extended beyond dyadic relationships to manage, monitor and coordinate wider network of supply firms. Greater efficiency and effectiveness can be obtained by improving these connections in supply chains so that all firms benefit from the extended supply chain relationships. Research shows that there are three principles which must be adopted to achieve this supply chain synergy: trust, partnering and collaboration. I will talk about each of these three relationship attributes in more detail in my future posts.