SUPPLY CHAIN INTERFACE MANAGEMENT IN CONSTRUCTION PROJECTS

In my previous post I introduced the theory of interfaces in construction supply chains. In this post I will introduce the key supply chain interfaces and briefly explain 'interface management' during a project's life-cycle.

Depending on type, nature and sourcing of a project most construction projects go through a linear or concurrent phases of brief, design, procurement, construction and operations.  The number of suppliers involved at each phase depends on the contractors' capacity to source them internally but generally in-sourcing only accounts up to 10% of projects' activities; hence around 90% of projects are outsourced from specialist subcontractors and suppliers.  In terms of firm-to-firm interactions, the number of project stakeholders involved in a project increase as project design and production information becomes finalised and concrete. Construction stage is probably the busiest stage where many firms are involved for practical completion of the project.  It is where many activities are executed on site in a simultaneous and concurrent process. Once the construction stage is over few firms engage with the operations or facilities management of the project. It is also worth to note that due to interdependencies, some supplier engagement may halt at a stage and resume later on when the specific conditions are formed or established. For example, a subcontractor may get involved in the design stage and wait for the project to progress to a certain stage to carry out its activities.

Figure:Timeline of supplier involvement in construction projects

In terms of managing the relationships with suppliers, one of the primary tasks of a contractor firm is to identify the key/critical suppliers in the execution of a project. For example, depending on the attributes of the project, the outcome of risk management strategy can give an indication to manage it's relationship with a mechanical subcontractor. Managing the relationship with a subcontractor, in turn, requires identification of interfaces with that subcontractor. Once these key interfaces are determined appropriate relationship management procedures can be applied for the relationship. Just to re-iterate, these interfaces can vary at different project stages, between organisational units/disciplines/teams and processes. Below diagram shows some of the areas of concern for interface management at different project stages. I will write more about this in my future posts..

TRUST IN CONSTRUCTION SUPPLY CHAINS

It is widely accepted within the domain of inter-firm relationships 'trust' is the single most important ingredient for non-adversarial, mutually beneficial, long-term and collaborative firm-firm (and individual-firm) relationships. Despite being recognised as the cornerstone of any interaction process, establishment, development and maintenance of trust based relationships is commonly neglected and often abused in the construction industry. In terms of its main function, trust has three primary roles: it’s a (i) ‘social mechanism’ that works outside formal arrangements; (ii) ‘lubricant’ that enables smoother flow of information, products and services; (iii) ‘glue’ that holds people and organisations together and creates synergy.

The importance of this crucial relationship attribute is well recognised in other industries. For example in aerospace industry it is considered to be the sine qua non of any business transaction. The previous CEO of Boeing has emphasized the necessity of trust-based relationships in his following speech:

“The magic word is ‘trust.’ As a substitute for trying to control a myriad of actions through detailed contracts, constant oversight, and the threat of litigation or dismissal, elevating the level of trust within an organization is the most powerful means in the world of raising performance. Nothing - and I mean nothing - is more conducive to "better, faster, cheaper" than a high level of openness and trust between people in disparate jobs and locations who are working together toward a common end.”

However, the short timeline of relationships, existence of uncertainty in construction projects, opportunistic behaviour and low-profit margins are some of the reasons for lack of trust in construction supply chains. The difficulty of defining, measuring and analysing 'trust' further complicates the subject. For example trust is a multi-dimension- e.g.: the ESPIO dimensions of trust (Economic trust, Social trust, Psychological trust, Inter-personal trust, Organisational trust)- multi-perspective (i.e. can be different in the eyes of the trustee and trustor) and dynamic construct which can be unique for every situation.

In construction projects relationships generally start with low level of trust (or distrust). As time passes, depending on the success/failure of the interaction, trust can be built or distrust persists. The red, blue and green lines in below Figure illustrate this. The black line represents the desired level of trust in, across and beyond a single construction project.

Figure 1 Development of trust in construction projects

Previously I carried out a short review of trust in construction supply chains where I found that this critical relationship attribute is not paid enough attention by the industry or academia. Further to the reasons I outlined above, I think the main barrier that stands in the way of researchers is the abstract nature of the topic. The main concentration in the construction research and the focus construction companies is usually on the development of tangible, physical and real entities of construction projects. Soft and abstract things such as trust and knowledge development etc. generally given less focus. I expect this challenge to be slowly eroded as we are currently changing the way we design, build and work. The shift, in terms of processes, technology and business, creates a very difficult environment to work in the same way as we did previously. As change is inevitable, those who adapt to change will be the winners in today's world. I think construction industry needs to realise this first. I am sure academia can generate the necessary theoretical foundation of the concept if they received support from the industry.   Without industry's support research will stay largely anecdotal and abstract which will not help its conceptual and practical development. In my opinion these two aspects need to go hand-in-hand to make progress.

There are lots of opportunities waiting to be explored in this area. I will talk more about some of these specific opportunities in my future posts.

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.