Supply Chain Management – the key to profitable Construction Logistics

Profitable Construction Logistics - The Logistics Business UK

When the term Construction Logistics is used most people think of the storage and handling of materials on site and the haulage bringing goods to the site. But the fact of the matter is that what happens on site is just the tip of the iceberg; what comes before – what lies under the visible surface – has a huge impact and largely determines the outcome of your project.

Over the last three years The Logistics Business has undertaken a number of projects for WRAP (the Waste and Resources Action Programme) focusing on reducing the environmental impact (waste and CO2 emissions) of the construction industry by the adoption of good logistics practices. During that period we have produced a number of case studies on construction projects ranging from the small (a few hundred thousand pounds) to the very large (£1billion plus). While the aim has been to reduce the volume of waste from construction going to landfill, it has become clear that this is one area where environmental objectives and project performance in terms of programme certainty and profitability go hand in hand. Yet the full potential of effective construction logistics is seldom realised. Why is that?

In this article we will highlight three necessary factors that must be in place for the full profit potential of construction logistics to be realised. These are supply chain collaboration, construction and supply chain integration, and supply chain visibility.

Many construction projects are organised primarily on a financial basis; projects are broken down into fixed price elements that are purchased separately and as late as the programme will allow, in order to conserve cash flow. This makes cost control easy – but it makes collaboration between contractors well nigh impossible. And while this strategy makes it easy to control cost it makes it extremely difficult to minimise cost. As an example parallel contractors on the same project often buy the same, or similar, materials separately. Neither contractor is able to negotiate the best terms and there is no coordination with regard to detailed specifications, delivery to site and stockholding. The result is that the project over-pays, over-stocks and over-wastes. In the end the client pays.

Some of the most successful logistics strategies in construction use an element of pre-manufacture or pre-assembly often also referred to as Off Site Manufacturing (OSM). This covers a wide spectrum from pre-assembled parts in the M&E supply through larger units such as toilet podwalls to complete bathrooms. While this approach is now common in highly standardised projects such as hotels, its full potential is far from realised in the industry as a whole. This is just one example where successful adoption of a proven strategy depends on management having an integrated approach to the whole process of design, sourcing and manufacturing, and construction. It also requires some disciplines not always present in the construction environment; the ability to agree and freeze a design and the ability to commit funds upfront and pay for activities not yet visible on site.

Productivity is lost on construction sites because trade contractors spend time waiting for materials, searching for materials and handling materials and waste rather than doing the construction work that is their speciality. Congestion and queuing at gates and poor storage conditions cause disruptions and waste. Most vehicle arrive at construction sites with less than full loads and leave empty – transport costs are high. Construction Consolidation Centres and dedicated logistics operators are often highly effective solutions that significantly improve performance. The only trouble is that in the planning phase the cost of such a strategy is very visible yet any cost reductions are hard to identify even though numerous case studies testify to the reality of significant savings. It typically falls on the main contractor to implement, and pay for, these strategies. But the cost reductions occur throughout the supply chain; faster vehicle turnaround and reduced haulage costs for suppliers, reduced material wastage for trade contractors, reduced shrinkage and improved productivity by trade contractors on site. Some of these benefit the main contractor and client directly in terms of programme certainty and less overtime. But many cost reductions are absorbed in the supply chain without the beneficiaries contributing to the costs. There simply isn’t the supply chain visibility to fully appreciate both costs and benefits.

The above examples show how a fundamental shift in management approach is needed for supply chain thinking to take hold. Achieve that and reap real rewards.