Dire Dawa University | IOT Construction Procurement & Contract Management | COTM 6042

Group 3

Discuss in Detail the Application/Implementation of

Assignment 3
Supply Chain Management in Construction Projects.

 Requirement: Minimum 15 pages

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Dire Dawa University | IOT Construction Procurement & Contract Management | COTM 6042

Contents

1. Introduction ........................................................................................................................................... 3
2. Supply Chain and Supply Chain Management in Construction .................................... 5
3. The Application/Implementation of Supply Chain Management (SCM) in
Construction Projects ................................................................................................................................. 7
I. Advantages of Supply Chain Management ............................................................................ 12

II. Disadvantages of Supply Chain Management....................................................................... 13

4. Characteristics of the Supply Chain in Construction Industry..................................... 13

5. Key Components of Supply Chain Management ............................................................... 14
6. Conclusion ............................................................................................................................................ 16
7. References............................................................................................................................................. 18

Figure 1. Construction Supply Chains……………………………………………………………………………….6

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1. Introduction

The construction industry is a complex and dynamic industry that involves many
stakeholders, including clients, contractors, subcontractors, suppliers, and regulators.
Constructions are usually made to meet the requirements of a given customer.

Three separate groups of parties are involved in the construction process: the Client/
Owner, the Engineer/Designer and the Contractor. The Client is the initiator of the
construction process. The designer design a project and plans the main works. The
Contractor performs the whole construction works.

The work system in the construction industry is based on projects. Each project employs
from several to several hundred sub-contractors who have specific objectives.

Organization of the management of the construction process, in order to function

efficiently, requires from the project manager a comprehensive control of costs as well as
time and quality of undertaken activities.

Project management is temporary but exposed to constant pressure from time and cost
constraints, enormous competition during tenders and investor pressure to select the
cheapest bidders/subcontractors.

Organizations from the construction industry employ from several dozen to several
thousand employees. Large construction companies are divided into divisions, within
which individual projects are implemented, which are led by managers.

A project manager is responsible for the organization of the entire construction process,
including the delivery of materials and equipment, and after completion of construction,
for the procedure of handing over the facility to the user.

Recently most construction companies have begun to see supply chain management as a
new way of doing business. They adapted the supply chain concept to their needs and
defined it in many different ways. Implementation of supply chain management approach
was the consequence of various changes, especially in construction environments

The success of a construction project relies heavily on effective supply chain management,
which involves the coordination and integration of all stakeholders in the supply chain and
also it is the ways that the firms used to raise the cooperation between stakeholders in the
chain and link the key construction business processes.

Links in this chain are suppliers and recipients of raw materials, materials, machinery and
equipment, people (employees), money and technical documentation, as well as a variety

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of information and intangible assets that are necessary for the execution of projects and
construction works.

According to Cox and Thompson 1998, “the construction industry consists of three distinct
but interdependent supply chains, namely: building and assembling; professional services;
and materials supply.”

One of the most significant challenges faced by the construction industry is managing the
complex supply chain that is involved in the construction process. It encompasses
everything from the procurement of raw materials to the delivery of finished products. The
construction industry is known for having a highly fragmented supply chain with many
different stakeholders and suppliers.

This can lead to a lack of visibility and control over the supply chain, which can result in
inefficiencies, delays, and higher costs. To address this challenge, construction
companies can use technology-enabled SCM systems to manage their suppliers and
subcontractors more effectively.

These systems can help automate procurement processes, provide real-time visibility into
the supply chain, and improve collaboration between different stakeholders.

Effective supply chain management in construction projects can help to improve project
performance, reduce costs and delays, and enhance customer satisfaction, enhance
competitive advantage and satisfy the client requirements at the lowest cost and it involves
the integration and coordination of all the activities that are involved in the construction
process.

This includes procurement, transportation, logistics, inventory management, and

distribution. When done correctly, it can help to reduce waste, improve efficiency, and
increase profitability.

One key aspect of supply chain management in construction projects is the need for
effective communication and collaboration among stakeholders. This requires a high
degree of transparency, with all parties sharing information and working together to
optimize the supply chain. This can be challenging in the construction industry, where there
are often many different stakeholders with competing interests and priorities.

To overcome these challenges, construction companies have started to adopt new

technologies and tools to help manage their supply chains more effectively. This includes
the use of data analytics to track and monitor supply chain performance, as well as the use
of automation and robotics to improve efficiency and reduce costs.

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Additionally, companies are exploring new partnerships and collaborations with suppliers
to improve the flow of materials and resources.

In conclusion, effective supply chain management is essential for the success of any
construction project. By optimizing the flow of materials and resources, construction
companies can minimize waste, reduce costs, and improve efficiency.

To achieve this, companies must focus on improving communication and collaboration

among stakeholders, adopting new technologies and tools, and developing partnerships
and collaborations with suppliers.

2. Supply Chain and Supply Chain Management in Construction

Some definitions have been proposed concerning the concept of the supply chain and its
management. Supply chain is an activities network of involved companies client/ owner,
designer, consultant, the prime contractor, subcontractor, and supplier) to create and put
a completed building to use.

And it includes all activities associated with transforming goods from raw material stage
to acceptance of product or service by a client.

According to Christopher (1992) the supply chain is “the network of organizations that are
involved, through upstream and downstream linkages, in the different processes and
activities that produce value in the form of products and services in the hands of the
ultimate customer.”

According to (Cox and Thompson 1998), “The supply chain in construction industry can be
considered as a process of series of activities that transforming raw materials into finished
products (e.g. roads or buildings) and services (e.g. design or budget) for use of a client
irrespective of organization boundaries.”

And also Supply Chain Management (SCM) in construction is the ways that the firms used
to raise the cooperation between stakeholders in the chain and link the key construction
business processes. Its purposes are to improve construction productivity, enhance
competitive advantage and satisfy the client requirements at the lowest cost.

Other distinguished point in construction supply chain management is involvement of

various organizations performing unique activities due to project-based nature of the
industry and its fragmentation.

Supply chain management in construction projects involves the process 0f coordination

and integration of all stakeholders in the supply chain, including clients, contractors,
subcontractors, suppliers, and regulators.

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The aim of supply chain management is to ensure that the right materials, equipment, and
services are delivered to the right place, at the right time, and at the right cost.

Effective supply chain management can help to improve project performance, reduce costs
and delays, and enhance customer satisfaction.

Supply chain management (SCM) is a systematic approach to the planning, organizing,

controlling, and managing of resources, information, and funds involved in moving a
product or service from supplier to customer.

In the construction industry, SCM can be applied to the procurement, delivery, and
installation of materials and equipment, as well as the management of subcontractors and
other resources.

The goal of SCM in construction is to ensure that the right materials are available at the
right time and place, at the right cost. SCM can also help to improve the quality of
construction projects, reduce waste, and improve safety.

Figure 1. Construction Supply Chains

Supply chains in the construction industry can be characterized by high complexity. In

large-scale projects, the number of suppliers and subcontractors involved is huge (Fig. 1).

In a construction project, a delay in the supply of materials may cause a domino effect in
the form of a delayed work, which in turn may lead to a delay in the completion of the
entire investment. A similar effect may be caused by delays on the part of subcontractors.

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According to Titus and Bröchner, the supply chain in the construction industry deals with
the management of materials, but also with the relationship between contractors, suppliers
and distributors.

But the general contractor, who is the main project coordinator, has a strategic position to
manage all project participants and resources in the supply chains.

Implementation of the project on time, within the set budget and with a certain quality
level, means that it must adequately manage delays or disruptions in the flow of the supply
chain during construction.

3. The Application/Implementation of Supply Chain Management

(SCM) in Construction Projects

The contribution of the application of SCM in construction is vital and important.

According to Wisner et.al, 2011, “SCM is a vital tool in controlling business processes in a
defined and systematic way to improve quality, save time and increase profit.”

As we know that the construction industry is complex and fragmented, with numerous
stakeholders involved in the supply chain, including designers, contractors, and
subcontractors, suppliers, and logistics providers.

A construction project involves numerous activities, from design and planning to

procurement, construction, and delivery.

Effective Supply Chain management (SCM) involves managing these activities and
stakeholders to ensure that the project is completed on time, within budget, and to the
required quality because Supply Chain management (SCM) refers to the whole project.

The links in this chain are the suppliers and recipients of raw materials, materials, machines
and equipment, people (workers), money and technical documentation, as well as many
different information and intangible assets that are necessary for the execution of works
and structures.

Well planned and developed logistics concepts and logistics management solutions
provide the opportunity for efficient project execution and cost reduction related to
logistics as well as total project cost.

An important element in increasing the efficiency of the project is the proper coordination
of the logistics processes of all its stakeholders at every stage of the investment cycle.

According to Roth and Martin, (2000), the application of the SCM, mainly in the
construction industry, has been successful and has achieved the expected benefits.

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Some of these benefits are: cost reduction, competitive advantages, productivity

improvement, value creation and better relationships between parties.

Benefits of effective supply chain management Overall, effective supply chain management
can provide a number of benefits for construction projects, including reduced costs,
improved quality, increased productivity, and improved customer satisfaction.

Effective supply chain management can provide several benefits for construction
projects, including:

 Reduced costs: SCM can help to reduce costs by optimizing the use of resources.
This can be done by reducing waste, improving inventory management, and
negotiating better prices with suppliers.

Effective supply chain management can help to reduce costs in a number of ways,
including:

 Negotiating better prices with suppliers;

 Reducing waste and duplication of effort;
 Improving efficiency.

 Improved quality: SCM can help to improve quality by ensuring that the right
materials are delivered to the right place at the right time. This can help to reduce
defects and improve the overall quality of the project.

Effective supply chain management can help to improve quality in a number of

ways, including:

 Ensuring that the right materials and resources are used

 Using the right tools and techniques
 Monitoring quality throughout the process

 Increased productivity: Effective supply chain management can help to increase

productivity in a number of ways, including:
 Reducing delays and disruptions
 Improving communication and collaboration
 Streamlining processes

 Improved customer satisfaction: Effective supply chain management can help to

improve customer satisfaction in a number of ways, including:
 Delivering projects on time and on budget
 Meeting or exceeding customer expectations

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 Providing excellent customer service

 Clients can develop improved ability to identify strengths, weaknesses,
opportunities and threats in the chain, and increased value for money and
efficiency
 Contractors can access improved early and continuous communications
with clients and stakeholders, and a more competitive subcontractor base
offering better skills, expertise, innovation and value for money, and
 Subcontractors can engender improved communication with contractors
and assurance of continuity in business.

The following are some of the key steps involved in implementing SCM in
construction projects:

1. Define the scope of the project: The first step is to define the scope of the
project. This includes identifying the materials, equipment, and subcontractors
that will be required.

2. Develop a supply chain plan: Once the scope of the project has been defined,
the next step is to develop a supply chain plan. This plan should include a timeline
for procurement, delivery, and installation of materials and equipment.

3. Identify and select suppliers: The next step is to identify and select suppliers.
This should be done based on factors such as price, quality, and delivery time.

4. Establish relationships with suppliers: Once suppliers have been selected, it is

important to establish relationships with them. This will help to ensure that
materials and equipment are delivered on time and to specifications.

5. Monitor the supply chain: It is important to monitor the supply chain on an

ongoing basis. This will help to identify and mitigate potential risks.

6. Continuously improve the supply chain: The supply chain should be

continuously improved over time. This will help to ensure that the project is
delivered on time, on budget, and to the required quality standards.

7. Define your goals: What do you hope to achieve by implementing SCM? Some
common goals include:
 Reducing costs
 Improving efficiency

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 Improving quality
 Reducing waste
 Improving communication
 Improving collaboration.

8. Get buy-in from all stakeholders: SCM is a team effort, so it's important to get
buy-in from everyone involved in the project. This includes the owner, the
contractor, the subcontractors, the suppliers, and any other stakeholders.

9. Understand your supply chain: What are the different steps involved in getting
materials from suppliers to the construction site? Who are the key players in your
supply chain? Once you understand your supply chain, you can start to identify
areas where improvements can be made.

10. Develop a plan: Once you know your goals and understand your supply chain,
you can start to develop a plan for implementing SCM. Your plan should include
the following:
 A timeline for implementation
 A budget
 A list of tasks that need to be completed
 A list of resources that will be needed

11. Implement your plan. Once you have a plan, it's time to start implementing it.
This will involve making changes to the way you do things, so it's important to be
patient and persistent.

12. Measure your results. It's important to measure your results so you can see how
your implementation of SCM is going. This will help you identify areas where
improvements can be made.

13. Make adjustments as needed. As you implement SCM, you may need to make
adjustments to your plan. This is perfectly normal. The important thing is to be
flexible and adaptable.

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Here are some additional tips for implementing SCM in construction projects:

 Use technology to your advantage. There are a number of software programs and other
technologies that can help you to manage your supply chain more effectively.

 Get everyone on board. SCM is a team effort. It is important to get everyone involved
in the project, from the project manager to the suppliers, on board with the SCM plan.

 Be flexible. Things don't always go according to plan. Be prepared to make changes to

your SCM plan as needed.

 Measure your results. It is important to track the results of your SCM efforts so that you
can see what is working and what is not. This will help you to improve your SCM plan
over time.

To apply SCM in construction it is necessary to distinguish some characteristics of

the construction production system, as follows:

 The construction product is for a single client most of the times.

 The product changes for each project.
 The place, equipment and methods of production change for each project.
 Construction personnel have a high rotation index during the construction time
and between projects.
 Not all the parts and materials can be stored at site.
 It is not easy to take advantage from economies of scale and learning.

Although the construction process is different, SCM can be useful and effective in
construction [O’Brien, (1999)].

Besides, construction is a process with strong fragmentation evidenced by the lack of

integration of its supply chain, a fact that makes SCM a very appealing approach to achieve
integration between internal and external suppliers, designers, contractors, subcontractors
and internal and external clients.

According to several authors [Vrijhoef and Koskela, (1999), Vrijhoef, (1998), O’Brien, (1999),
Ofori, (2000)], the construction supply chain is affected by many problems.

Most of these problems are not generated in the conversion process but in the different
interfaces that exist within the supply chain. Some of the general problems are as follows:

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 Lack of coordination, collaboration and commitment between suppliers and clients

within the supply chain.
 Design problems (many changes and inconsistent information).
 Poor quality of materials and components.
 Deficient communication and information transfer.
 Inadequate management within the supply chain, mainly poor planning and control.
 Poor training of contractor’s suppliers, subcontractors and workers.
 Lack of effective methods for measuring the performance of the different parties
within the supply chain.

In addition, the construction supply chain management used data and transactions as a
resource tool to help eliminate unnecessary labor division, decrease costs, improve
dependability and speed up facility building (Cheng et al., 2010; O'Brien et al., 2008).

The construction supply chain management also aids in the creation of an enabling work
environment that improves collaboration, coordination, commitment and cohesion among
all construction stakeholders (Meng, 2010).

It is well-suited to logistics costs, inventory to guarantee that supplies, controlling lead

time, machineries move freely to the job site and personnel, preventing
disruptions to the workflow. (Vrijhoef & Koskela, 2000; O'Brien et al., 2008) state that the
construction supply chain management plays a significant role in global sourcing of
assembly and materials, labor, and offshore value-added activity.

“By increasing visibility, training, awareness and transparency in construction procedures,

activities and operations. The supply chain management in construction removes
uncertainty issues” (Young et al., 2011).

I. Advantages of Supply Chain Management

 An incentive to be more confident in forecasting future turnover,

 SCM provides direction and promotes the establishment of a constant supply and
demand,
 SCM fosters a positive working connection and helps to expand the business as a
whole,
 An incentive to provide the client with more valuable material,
 The incentive system for reducing waste in the SC process,
 The motivation to do more repeat business with happy customers,
 An incentive to cut expenses and increase production cost certainty.

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II. Disadvantages of Supply Chain Management

The following are some of the general concerns with SCM (Akintoye et al., 2000; Vrijhoef
et al., 2001; Dianty et al., 2001):

 A scarcity of suitable information technology,

 Uncertain strategic advantages,
 Having a weak organizational framework to back you up,
 Inadequate grasp of supply chain management,
 Partners' lack of commitment,
 Ineffective methods for assessing the performance of various parties,
 Labors, contractors and subcontractors performing subpar work,
 Insufficient SCM input, primarily due to inadequate planning and control,
 A lack of communication and exchange of information,
 Errors in design and poor materials quality.

4. Characteristics of the Supply Chain in Construction Industry

Construction supply chains (CSC) can be very complex particularly in large projects. This
complexity, one of the main characteristics, can be attributed to the variety of site materials
and parties (suppliers and sub-contractors) required for a construction project. The project
can become more complex as more people get involved.

Moreover, there is a correlation between the increase of the scope of the project and the
complexity of the supply chain as more manpower, parties and materials are necessary for
the completion of the project. This requires a great deal of planning, organizing and
collaboration between supply chain partners which may cause the complexity.

Fragmented supply chain: This characteristic is the main feature within this industry.
Construction contractors, suppliers and other participants are active in different stages and
the distribution of responsibility and authority changes during the project.

Converging supply chain: Normally in construction projects, operation capacity,

documents, materials and so on, are to be assembled and delivered to site by
subcontractors and suppliers under supervision of the main contractor. Usually, the end
user is one or a limited number of people.

As a consequence, the CSC is converging in nature unlike the manufacturing supply chain,
which is most likely to be diverging.

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Make to order supply chain: Clients drive the creation of construction projects. This can
be the result of the end user‘s tradition to take the initiative and start a construction
project. Therefore, end user becomes involved in the whole production process.

Temporary supply chain: For any construction project, on completion, all participants and
companies involved are normally dismissed and this can be traced to the project based
nature of construction.

Consequently, all participants in the project must finish their roles and duties. This short-
term partnership with different members may cause problems and fluctuations in
performance and productivity.

5. Key Components of Supply Chain Management

There are several key components of supply chain management in construction projects,
including procurement, logistics, inventory management, and quality control.

Each of these components plays a critical role in ensuring the smooth flow of materials,
equipment, and services throughout the supply chain.

 Procurement
It involves the selection and management of suppliers who provide materials,
equipment, and services for the construction project. The procurement process
includes identifying the requirements, selecting the suppliers, negotiating the terms
and conditions, and monitoring the performance of the suppliers. Effective
procurement can help to ensure that the right materials, equipment, and services
are delivered to the construction site on time and at the right cost.
 Logistics
It involves the transportation and storage of materials, equipment, and services
throughout the supply chain. Effective logistics can help to ensure that the materials,
equipment, and services are delivered to the construction site on time and in the
right quantity. Logistics also involves the management of inventory, which includes
the tracking and monitoring of the materials, equipment, and services throughout
the supply chain.
 Inventory management
Inventory management involves the tracking and monitoring of the materials,
equipment, and services throughout the supply chain.
Effective inventory management can help to ensure that the materials, equipment,
and services are available when needed and in the right quantity.

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Inventory management also involves the management of stock levels, which

includes the monitoring of inventory levels and the replenishment of stock when
necessary.
 Quality control
Quality control involves the management of the quality of the materials, equipment,
and services throughout the supply chain.
Effective quality control can help to ensure that the materials, equipment, and
services meet the required standards and specifications.
Quality control also involves the monitoring of the performance of the suppliers
and the identification and resolution of any quality issues.

The following are some specific examples of How Supply Chain Management can
be Improved in the Future:

 The use of big data to track and analyze supply chain data can help to identify
inefficiencies and opportunities for improvement.
 The use of predictive analytics can help to forecast demand and ensure that the
right number of materials is available at the right time.
 The use of block chain technology can help to create a more secure and
transparent supply chain.
 The use of drones and other autonomous vehicles can help to improve efficiency
and reduce costs.

By taking these steps, the construction industry can improve supply chain
management and achieve its goals of efficiency, sustainability, and profitability.
The construction industry is continuously evolving, and supply chain management
practices need to adapt to keep up with the changes.

Some of the future directions for supply chain management in construction projects
include:

 Integration of technology

Technology can play a critical role in improving supply chain management in construction
projects. Technologies such as Building Information Modeling (BIM), Radio Frequency
Identification (RFID), and Global Positioning System (GPS) can help to improve the tracking
and monitoring of materials, equipment, and services throughout the supply chain.

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 Sustainability

Sustainability is becoming an increasingly important consideration in construction

projects.
Effective supply chain management can help to promote sustainability by reducing waste,
minimizing the carbon footprint, and promoting the use of environmentally friendly
materials.

 Collaboration

Collaboration between stakeholders in the supply chain is critical for effective supply
chain management. Collaboration can help to improve communication, reduce conflicts,
and promote innovation.

6. Conclusion

Supply chain management (SCM) is a critical component of successful construction

projects. It provides the construction industry with opportunities to have more control on
projects, increase profits, and reduce time, cost and waste.

The CSC consists of many groups, although the material and the construction chains are
the largest. Integrating the construction and material chains helps in establishing more
collaboration, smoother information flow and more efficient information sharing through
the construction chain which assists the decision making process.

SCM in the construction industry encounters many challenges linked to poor logistics
planning, lack of partnerships and strategic alliances with suppliers, resistance to change
and communication problems. In order to establish an efficient integrated supply chain,
clients, suppliers, contractors and other parties in the supply chain need to establish long
term partnerships, form transparent communication channels and benefit from each
other‘s experience for the greater good.

There are a number of factors that must be considered when implementing SCM in the
construction industry. These include the unique nature of construction projects, the need
for collaboration between multiple stakeholders, and the use of technology to improve
communication and coordination.

Despite the challenges, the benefits of SCM can be significant. By implementing SCM,
construction companies can improve their bottom line, reduce risk, and deliver projects on
time and within budget.

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Effective supply chain management is critical to the success of construction projects. It

involves the coordination and integration of all stakeholders in the supply chain, including
clients, contractors, subcontractors, suppliers, and regulators.

Effective supply chain management can help to improve project performance, reduce costs
and delays, and enhance customer satisfaction. Procurement, logistics, inventory
management, and quality control are all key components of supply chain management in
construction projects.

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7. References

Arain, F. M., Pheng, L. S., & Wong, Y. D. (2015). A review of supply chain management
practices in construction industry.

International Journal of Managing Projects in Business, 8(3), Chan, A. P., Scott, D., & Chan,
A. P. (2019). Supply chain management in construction. Routledge.

Iyer, K. C., & Jha, K. N. (2005). Supply chain management in construction. CRC press.
Li, H., & Love, P. E. (2000).

Supply-chain management in construction: a critical review. Engineering, Construction and

Architectural Management, 7(3), 204-213.
Liu, L., & Wang, S. Q. (2010).

Study on the application of supply chain management in construction projects.

International Journal of Project Management, 28(7), Lu, W., & Peng, Y. (2020).

Supply chain management in construction industry: A systematic review and future

research agenda. Sustainability, 12(22), 9442.

Ogunlana, S. O., & Promkuntong, K. (2018). Construction supply chain management

handbook. CRC Press.

Zou, P. X., Zhang, G., & Wang, J. (2010). A comparative study of critical success factors for
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International Journal of Production Economics, 127(1), "Supply Chain Management in

Construction: A Systematic Review" by Samuel Laryea and Emmanuel O. Ibem

"Key Performance Indicators for Measuring Construction Success" by Albert P.C. Chan
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"Construction Supply Chain Management Handbook" by William J. O'Brien and David C.

Ryan Chan, A. P. C., & Kumaraswamy, M. M. (2007).

A comparative study of causes of time overruns in Hong Kong construction projects.

International Journal of Project Management, 25(5) Kamaruzzaman, S. N., Zawawi, E. M.
A., & Rahman, I. A. (2014). Supply chain management in construction industry. Journal of
Engineering and Applied Sciences, 9(3)

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Kim, H. J., & Park, H. S. (2017). Developing a sustainable supply chain management
framework for construction projects. Sustainability, 9(3)

Li, Y., Huang, L., & Ma, L. (2016). A review of supply chain management in construction:
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Zhang, L., & Ma, Z. (2015). A review of supply chain management in construction: an
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