Construction Supply Chain Management - who is taking the initiative?

The construction industry is one of the biggest contributors to the UK economy and in building design and innovation it is a world leader.  It employs hundreds of thousands of people and provides business for countless suppliers.  But it is a highly fragmented industry with many very small contractors.  Some of the largest main contractors employ very few people and they undertake very little direct procurement of materials, with the result that the industry relies on multiple layers of sub-contractors each managing small elements of work with almost no supply chain management from the top.  The fact is that compared with the manufacturing and retail sectors, supply chain management in the construction industry is in the dark ages.  Leading UK manufacturers and retailers learned many years ago that effective supply chains are vital in order to gain a competitive advantage but, apart from an enlightened few, UK construction companies seem not to understand what value supply chain management can add to a business.

Cost or benefit?

So what is happening and who is taking the initiative?  For businesses the key incentive to improve construction supply chains should be the desire to increase profits through more effective operation.  But this is the first stumbling block.  Mention logistics to many construction managers and they think only of costs; the costs of preliminaries (fencing and staff facilities) the costs of employing staff to manage vehicles movements, and the costs of finding space to store goods where there is limited space available at the construction site.  For example, one leading construction company is building two hospitals in London.  One of these is on a site, which has restricted road access and very limited storage space on site; hence some excellent logistics principles are being applied to control the delivery of materials, including the use of off-site consolidation.  The other site does have have these same constraints, so no similar logistics principles are being applied.  In other words good logistics practice is not being seen as beneficial for the construction project as a whole but merely as a means to overcome delivery constraints. It is too early to see what the impact might be on the overall outcome of these projects but simply walking around the sites would show you the difference.  The first site is well ordered with relatively small amounts of material waiting to be used whereas the second is far untidier with large quantities of material lying around, just waiting to be damaged or go missing.

High levels of construction waste

One result of the poor supply chain management is that the level of waste generated by the construction sector is staggering.  Typically 10% to 15% of total materials ordered for construction projects are either unused or end up as waste, and for some materials the figure can be as high as 45%.  According to WRAP (Waste and Resource Action Programme) a 35% reduction in this material wastage could be achieved by adopting more efficient logistics practices.  Waste seems to be taken for granted on construction projects and to a large extent is embedded in the project costing so that quantities are based on an expectation that there will be significant damage and other losses.  As an example of the levels of waste that are common consider this.  Construction logistics specialist, Wilson James, which runs the London Construction Consolidation Centre (CCC) reported that on completion of one construction project in London, some 38, 26 tonne lorry loads of unused, good quality plant and materials with a value close to £1/4 million were returned from site to the CCC.  The benefits of the CCC were that this waste could be controlled and managed, and ultimately most of it was re-used on other projects.  On other less well managed projects this material would simply have been skipped and probably sent to landfill.  The cost of such waste is normally just built into the project cost, increasing the cost to the client, or perhaps it is not built in, in which case contractor margins are reduced.

One of the most significant initiatives under way at the moment is that being promoted by WRAP and funded by Government through DEFRA.  WRAP has an active programme in hand, driven by targets for waste reduction, to promote much improved logistics in UK construction.  WRAP’s programme has resulted in the development of a number of tools to help construction companies with their logistics plans and is actively supporting a number of projects which are seen as exemplars for the industry as a whole.  WRAP’s work is important and is delivering results, but in the overall scheme of things the total effort is small.

Productivity improvement

WRAP’s programme is aimed at reducing physical waste and CO2 emission, but as important for improved profitability are the gains in productivity that improved supply chain management can provide.  Can you imagine a manufacturing plant where the skilled workers spend half their time walking to and from storage areas to find the materials they need?  Probably not, but that’s just what happens on most construction sites; skilled workers from numerous sub-contractors all managing their own small, inefficient supply chains with no overall logistics plan.  The idea that kits of parts can be delivered to the point of use has been shown to work on construction sites but examples are few and far between.  There are many other tools and techniques that could be used on construction projects but their application needs to be driven from top management with an overall plan for improving the supply chain.

Supply chain management can add value, it can reduce waste and it can improve productivity - why is it so difficult to persuade construction companies to embrace it?  There is much more that needs to be done and ultimately it must be for construction clients and major contractors to drive forward the change.

Unfortunately there is little sign of this change taking place and one still wonders just what is needed to make it happen.  Perhaps the current recession will provide the incentives to seek further performance improvements and perhaps those who may take up the challenge will be the ones that survive.

THE LOGISTICS BUSINESS, a leading specialist supply chain and logistics consultancy, has experience in planning and developing supply chain, distribution and warehousing operations throughout the world. From supply chain and distribution strategy, to development of distribution operations, warehouse design and layout, as well as manufacturing logistics and IT systems design, its clients include many blue chip companies.

We have also worked on government initiatives on sustainable transport and waste minimisation. For further information please call:Helen Morris, THE LOGISTICS BUSINESS on +44(0)1527 889 060, email helen.morris@logistics.co.uk