At its core, supply chain management is the oversight of materials, information and finances and the coordination and integration of flow within and among companies. While a relatively new and still somewhat unsophisticated concept within the construction industry, the process was formalized in the 1980s and has been entrenched in the manufacturing sector for nearly three decades.
Perhaps the best way to illustrate the need for Construction Supply Chain Management (CSCM) is to first cite an example of an especially messy project aftermath. The result is an epic battle between MGM Properties and Dubai World, the owners of the new CityCenter in Las Vegas, NV; and Perini Building Company, the primary contractor on the job. In late March, the simmering dispute erupted into a full-blown legal confrontation with nearly a half-billion dollars up for grabs.
Perini's central claim is that late design changes and project modifications nearly doubled Perini's contract from $3.5 billion to $6.8 billion. The company is seeking $491.2 million in mechanics' liensagainst CityCenter to preserve the rights of contractors, subcontractors and suppliers to seek foreclosure against the owner as leverage to get paid.
MGM countered that it would file a claim seeking hundreds of millions of dollars from Perini while stressing the original contract mandated binding arbitration if a dispute arose, citing a 2005 contract provision. Since Perini hasn't been paid by MGM, it hasn't paid its subcontractors, at least two of which have sued both parties.
EDUCATING AN INDUSTRY
Slowly but surely CSCM is making inroads. In February, Linda Conrad of Zurich Insurance and Don Nabor of the Gilbane Building Company presented a session on weak links in the global supply chain at The Associated General Contractor's of America (AGC) Surety Bonding and Construction Risk Management meeting.
They explained the need for implementing sound risk management to offset those unforeseen natural and man-made catastrophes that could impact materials suppliers' ability to deliver goods to a project on time, if at all. They identified additional risks, such as regulation changes and damage to company reputation. Both urged seminar attendees to consider the global supply chain as an overarching financial issue, instead of just a purchasing issue.
The 'Construction Supply Chain Management Handbook', published in 2009 and co-edited by international experts William J. O'Brien (University of Texas), Carlos T. Formoso (Federal University of Rio Grande do Sul, Porto Alegre, Brazil), Vrijhoef Ruben (Delft University of Technology, The Netherlands) and Kerry London (Deakin University, Victoria, Australia), provides an in-depth review of methodologies and discusses the integration of theories and approaches.
They note that construction clients are demanding faster, more responsive construction processes and higher quality facilities, thereby placing pressure on the supply chain.
Author Stephen Pryke's 'Construction Supply Chain Management' catalogues a wide range of observation and analysis from the first decade of CSCM strategies in the UK. Pryke's book combines research from leading international academics with tangible case study examples. The book makes a strong case for the need for innovative integrated delivery systems as projects grow increasingly complex.
A MATTER OF PRACTICE
Poor quality, unmanageable costs and missed deadlines have led to the demise of the hard-bid process. Time and again during the past two years, the vast majority of construction company principals interviewed by Construction Digital have stressed the need for nurturing long-term relationships, developing repeat business and involving owner-clients in the complete process from start to finish.
Managing Director Chad Courty of Texas BBL says: 'The biggest difference is the relationship we have with owners. From the moment we start a project, everybody is part of the team and everyone is involved in the process. It's in the owner's best interest to get involved early and have us work with them every step of the way because they save money in the long run,' Courty says.
At Dellbrook Construction in Braintree, MA Vice President of Project Management Ed Sople oversees job coordination, maintaining detailed long-range calendars and holding weekly meetings to ensure all parties are on the same page and that schedules are met. The company makes it a point to know its many subcontractors' workloads and parcels out work accordingly. 'We know all of the subs we work with and their existing workload intimately and we work very hard to make sure everything is coordinated. A lot of times we will buy necessary materials ourselves,' he points out.
Moving forward in a post-recession economy, the primary industry goal should be squeezing out waste and inefficiency at all levels - precisely what formalized supply chain management is designed to do.
For more information and news be sure to check out Construction Digital.
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