Principles in Logistics and Supply Chain Management in Construction Industry - Coursework Example

Top 10” Key issues/ Principles in Logistics and Supply Chain Management in Construction Industry Name: Lecturer: Course: Date: Table of Contents Table of Contents 2 Introduction 3 Brief Background of Logistics and Supply Chain Management 4 “Top 10” key issues/ principles in Logistics and SCM 5 Lack of coordination and follow up actions 5 Poor management in the supply chain company 6 Issues of supply chain sustainability 6 Integrating construction project strategies and supply-chain specific strategies 7 Issues of managing transaction costs 9 Procurement management 9 Integration of data and information 10 Issues of supplier competency requirements 11 Issues of culture and change 12 Conclusion 13 References 14 Discuss what you consider to be the “top 10” key issues/ principles in Logistics and Supply Chain Management and apply to a real world situation Introduction Oil and gas projects face a wide range of issues which include; increasing project intricacies, intensified international involvement and the complex size of projects. Meeting the project objectives can be a challenge in terms of timely completion due to issue in logistics and supply chain management (Vrijhoef & Koskela 1999). Schramm et al. (2010) suggests that under such circumstances, selection of the contracting strategy is the key determinant of the entire project realisation. Engineering, Procurement and Construction (EPC) is a single-point contract awarded to a contracting firm that does the entire engineering, procurement and construction activities (EPC Engineer n.d.). In Australia, ABB offers a range of EPC plants, such as process engineering, in addition to procurement and construction (ABB Australia 2011). Hence, this report is based on the premise that construction supply chain and logistics still face myopic control. In particular, the underlying issues and problems are extensively existent and persistent due to interdependency that is in most part related to the features of the stages of the supply chain. On analysis of an offshore project by ABB, an engineering company which operations in Australia, issues or principles in logistics and supply chain management are explored. ABB Group’s 2011 contract with QGC Pty Limited’s Queensland Curtis LNG Project involved supplying safety, automation and telecommunications systems and other related equipment for an upstream coal seam gas project in Queensland, Australia (ABB Australia 2011). Brief Background of Logistics and Supply Chain Management Logistics describes the “inbound and outbound flow and storage” of commodities between or within organisations (Lambert & Cooper 2000). Ali et al. (2008) describe logistics as a component of supply chain management that maps out, implements and manages the effective and efficient flow of storage commodities between a point of origin and that of consumption so as to meet customer needs. According to Vrijhoef & Koskela (1999) supply chain consists of a network of organisations that participate in various activities, whether through downstream or upstream linkages, that generate value in the form of commodities in the hands of the ultimate consumer. Ali et al. (2008) suggested that supply chain management covers the planning and management of the entire activities concerned with sourcing and procurement, conversion and entire logistics management activities. It also covers collaboration and coordination with channel partners (Storey & Emberson 2006). The concept of supply chain management has thrived in the construction industry over the last two decades. The concept depicts an independent managerial concept that is however still dominated by logistics. SCM seeks to oversee the whole scope of supply chain (Petrovic-Lazarevic et al. 2006). The concept offers a methodology that has helped mitigate the short-sighted control in the supply chain that has perpetuated wastage and problems. This report shows that construction of supply chains are full of waste and face a range of problems because of the interdependency. “Top 10” key issues/ principles in Logistics and SCM Lack of coordination and follow up actions An underlying issue facing logistics and supply chain management is poor coordination and lack of follow up of actions between ABB and QGC Pty Limited. These result to construction delays for the Queensland Curtis LNG Project. Supervising and follow up actions lacked hence causing construction delays. This implies that, information gained from the discussions and meetings are not shared by other parties in the network of suppliers. In some cases, this may be caused by the inexistence of local branches specifically at the significant corridors across the country. Studies have showed that since more and more contractors are buying more construction materials than before, they have become increasingly reliant on other actors within the construction supply chain (Vrijhoef & Koskela 1999). Despite this, lack of coordination and collaboration hinders effective supply chain management. Studies have indicated that the construction industry is generally a low productivity industry (Vrijhoef & Koskela 1999). Delays and lack of coordination are evident in situations where the site workforce has to take a lot of time waiting for materials to arrive at the site. As a principle, the issue of business process integration comes into perspective. As a rule, process has to be coordinated between all the firms in the supply chain to attain improved logistics and supply chain management performance and service (Awad & Nassar 2010). Such a form of external process integration, also known as value chain coordination, should be the focus of the management. Fortunately, e-commerce has opened up opportunities for construction projects to connect their internal process and the firms in the supply chain. A key challenge however is improving the business process which has to be coordinated between all the firms to attain improvement performance. The integration has to happen between the project activities layers and decision-making. Additionally, the managers must care about compatibility issues in the strategies, operational and the legal and political environment (Awad & Nassar 2010). Poor management in the supply chain company While there has been rapid development of the construction industry, there has also been a lack of emphasis on service excellence (Awad & Nassar 2010). This has given rise to the need for having a more sophisticated management of the series of supply chain firms for the Queensland Curtis LNG Project. The supply chain companies, such as ABB, in the construction industry face a challenge in acquiring sophisticated management knowledge for novelty construction projects. In addition implementing expertise in such new areas to bring the construction industry upfront becomes a problem (Awad & Nassar 2010). On the other hand, the client may have little understanding and formal training in logistics despite the fact that they face huge tasks that fall within the logistics umbrella. While the oil and gas project can be intricate and consisting of a vast number of interconnected components and subsystems that need considerable expertise and financial commitment, this is not always the case. The construction and building professionals, specifically contractors, tend to place emphasis on costs which in turn underscore and characterise the strategies adopted to manage the supply chain. Though cost may not be irrelevant, emphasis on cost may affect the focus on financing supply chain thus constraining the supplier’s efforts (Lambert & Cooper 2000). Issues of supply chain sustainability A key business issue facing the supply chain is sustainability, which affects ABB’s logistics networks and supply chain (Seuring & Muller 2008). Additionally, it is often quantified through comparison with the SECH (social, ethical, cultural, and health' footprints) rating (Oracle n.d.). The rating uses a triple bottom-line that integrates social, ethical and environmental aspects. Clients have become more aware of the environmental impacts of procurement and transportation of the construction materials (Amaeshi et al 2008). Studies have indicated that supply chains can account for about 75 percent of a construction firms’ carbon footprint. As a result, many actors in the supply chain have explored ways in which this can be reduced to better their SECH rating (Seuring & Muller 2008). Some reports have also indicated that construction companies are gradually taking environmental performance into account in their criteria for choosing suppliers. As a result, chain suppliers of the construction firms are expected to offer appropriate supporting information. Just within the construction industry, the collapse of the Savar building in 2013 killing some 1,120 victims triggered widespread debate on corporate social responsibility among the global chains (Ahmed & Lakhani 2013; Wieland & Handfield 2013). Findings of a study by Wieland and Handfield (2013) indicated that companies need to audit their suppliers and products. Additionally, supplier auditing should extend beyond establishing direct relations with the first-tier suppliers. Integrating construction project strategies and supply-chain specific strategies Supply chain management executives are faced with challenges of integrating construction project strategies and supply-chain specific strategies (Lambert & Cooper 2000). In the recent years, globalisation has made supply chain to be placed in the list of priorities by the managers although not for the right reasons. Indeed, the reasons why the project managers at Queensland Curtis LNG Project may pay attention to logistics and supply chain management is when they need to cut costs or in case deliveries are late. However, since supply chain is basically the lifeline of any construction project, process efficiency is essential to optimised project success. Larger firms within the oil and gas projects often use the matrix organisation in managing the projects. Overall, matrix organisations are a complex structure (Awad & Nassar 2010). Technically, authority and responsibility are shared between the functional supply chain manager and the project manager. Although a mutual commitment to completing a project may exist, the balance of power between the functional organisation and the project is unclear, which leads to challenges in integrating construction projects strategies and the supply-chain specific strategies. Depending on the individual managers’ strength and weaknesses, the power and influence may shift to disadvantage the overall project ((Lambert & Cooper 2000). Since there is no integrated teamwork between the operators, the client, the suppliers and the contractors, the logistics within these teams will be poorly addressed unless the teams work in more coordinated ways. As a principle, to improve logistics, using a more integrated approach will help dissolve the barriers that the existing contractual relationships create as well as help promotes cost transparency on projects. Issues in managing operation flexibility The issue of flexibility affects suppliers who need to rapidly realign the demand/supply mix to the shifting demands of the Queensland Curtis LNG Project. The coordination costs and the switching costs pose as the key barriers to operating flexibility. Switching costs can be minimised when all the supply chain partners standardise their products, which however is a challenge. At the same time, the coordination costs can be essential for the global integration of the multi-dimensional supply chain processes – particularly in the case of ABB that is headquartered in Switzerland. To a construction project, having a well-structured global demand planning and forecasting process is a vital method for global coordination across functions. Having regional representation to ensure that all relevant input is required for the success of the construction project can be greatly beneficial. However, a globally integrated process that has regional representation demands costly information infrastructure and resources (Awad & Nassar 2010). To this end, having globally integrated information systems is important, as a principle, in reducing the cost of communication and to make sure that the required construction items are readily accessible to the project. Issues of managing transaction costs The need to outsource business processes and to establish a supply chain outside an organisation needs thorough assessment of where the boundary of the organisation should be positioned (Awad & Nassar 2010). In this case, ABB has to conduct frequent assessment of the advantages of integration against that of the market provision. Hence, the decision to outsource should be based on the transaction cost approach, where the comparative cost of planning is examined as well as where task completion is monitored using alternative governance structures. The outsourcing decision is in this case centred primarily on managing the recurrent transactions (Lambert & Cooper 2000). The main dimensions within this context include asset specificity uncertainty relevant to the transaction. Since such dimensions are likely to vary within the oil and construction project, such may create a range of contexts where the result will be diversity in the governance structures. Procurement management A typical construction project, such as the Queensland Curtis LNG Project, needs to procure hundreds of products from many suppliers. The issue however is managing the complexity of the procurement processes as well as establishing a formidable procurement infrastructure to implement strategic supply initiative through an empowered project management structure (Awad & Nassar 2010). Additionally, people training and development can be an underlying issue for procurement organisations, such as skill development and recruiting and retaining the right employees and establishing career paths in functions external of procurement. Issues may also involve setting up links with the global sourcing offices (Lambert & Cooper 2000). Integration of data and information Information integration describes the sharing of information among the actors within the supply chain. The capability to seamlessly link with partners, clients and co-workers is essential for the success of a construction project (Awad & Nassar 2010). However, most enterprise that store supply the construction materials for ABB and machinery exchange data use different formats, such as Electronic Data Interchange (EDIP, databases, XML-based applications and text files. The ability to map out such varied formats is mission-critical. This comprises any type of data that is capable of influencing the actions and performance of other actors in the supply chain (Schramm, Meibner & Weidinger 2010). Hundreds of the interdependence activities within the supply chain consist of intricately connected human activity system, such as in the case of large projects. Information transfer is critical. At the same time, iterations are typical. On the other hand, it can be a major challenge to pursue work fragmentation when multiple actors within the supply chain are involved. A typical lifecycle of the construction project in the Queensland Curtis LNG Project includes the construction team, design team, material suppliers, design team and architects, maintenance teams and operators of the facility. Typically, the actors must exchange information back-and-forth throughout the lifecycle of the project (Schramm, Meibner & Weidinger 2010). Hence, the meaning of all data items have to be understood while similar data must have a similar definition across a range of applications within the construction project and external of the project. To promote the success of the integration process, the information must be of high quality, relevant and dependable. Wieland and Handfield (2013) indicated that visibility needs to be improved if the supply chain has to be effectively and directly controlled and that electronic and smart technologies that play an integral role to improve visibility should be used. The researchers underscored the need to for collaboration with the local partners across the construction industry in order to coordinate the supply chain activities. Issues of supplier competency requirements Since construction project clients often prefer using fewer suppliers to reduce the complexity in coordination and investing in only those supply chain relations that are considered to be of strategic significance, then the suppliers have to make themselves attractive (Awad & Nassar 2010). However, the suppliers cannot make themselves attractive merely through economies of scale. Their scope must reduce their uncertainty and raise their asset specificity. Hence, ABB has to invest in activities that are appealing to the bid-buy supplier relations. ABB also needs to respond favourably to the shifting context and come up with stronger organisational and relational competencies. This is because the issues of performance and quality dominate as the baseline measure for client-supplier interaction (Schramm, Meibner & Weidinger 2010). Therefore, any underlying competencies have to support the attainment of this standard. Hence, it is the capacities to facilitate differentiation that will be essential. In a typical scenario, since the 1990s, EPC in the oil and gas industries have employed a range of strategies in procuring contractors (Awad & Nassar 2010). Despite the fact that the experienced EPC contractors have recently started to use varied strategies, little evidence exists that indicate that the inexperienced irregular purchasers have adopted the same strategy. An analysis of the oil and gas construction industry thus far shows that the leading strategy used is bid-build, where the lowest bidder is given the contract. Using the “low bid win” strategies may however raise a number of issues, specifically where the design has already been established (Schramm, Meibner & Weidinger 2010). These include the Construction and Commissioning process, which are aimed at lowest cost instead of “best value” or “right first time.” Next is the bidding process that facilitates a culture where the subcontractors and the suppliers agree to use almost any parameter in order to win the project, while striving later to attain cheaper solution. Issues of culture and change Culture refers to the varied patterns of beliefs, learned methods of coping with experiences and values that have emerged in the course of the history of an organisation, and that tend to manifest in material arrangements and in the behaviour of members of an organisation (Awad & Nassar 2010). The definition highlights a background of the cumulative impacts of how history and experience play an integral role to the practical outcomes that are perceivable in the employee behaviours. This is significant for supply chain integration because the accumulated history of the experience and relationship in and between the supplier and the construction project client offers part of the context through which inter-organisational activities are enacted. In the Queensland Curtis LNG Project oil and gas EPC project, a range of complex one-off product development consisting of a large number of interconnected components and subsystems need considerable human efforts. The human efforts are affected by the cultures within the project and the supplying organisation. Existence of antagonistic cultures causes issues where unfriendly regulations or practices constraint the efforts of the supplier and the client (Vrijhoef & Koskela 1999). For instance, the contractor may use stringent rules that specify time slots for supplier delivery. In this case, while many trucks that carry loads of construction material arrive early or late, they may be denied access or remain unloaded and in some cases turned away due to violation of the designated time. Mostly, the delays may be caused by issues that are beyond the control of the supplier such as bad weather (Vrijhoef & Koskela 1999). In such situations where there is a drive to closer relationships in the supply chain, then the existing governance structures will be replaced as a result challenging the existing supply chain behaviours associated with antagonistic regulations or the traditional bid-buy interactions. Conclusion To conclude, the inherent characteristics of the construction industry strengthen the problems within the construction supply chain. They also hinder the application of logistics and supply chain management. As shown in the analyses, the “top 10” key issues/ principles in Logistics and Supply Chain Management include poor coordination and lack of follow up actions between ABB and QGC Pty Limited. Next is the supply chain is sustainability, which affects the construction firm’s logistics networks and supply chain. Supply chain management executives are faced with challenges of integrating construction project strategies and supply-chain specific strategies. The issue of flexibility is also relevant. Other issues include managing transaction costs during outsourcing, managing the complexity of the procurement processes, integration of data and information, supplier competency requirements and issues of culture and change. References ABB Australia 2011, ABB wins $58 million oil and gas order in Australia, viewed 26 April 2014, http://www.abbaustralia.com.au/cawp/seitp202/8931df4aeee9074dc125786f002a4126.aspx Ahmed, S & Lakhani, L 2013, Bangladesh building collapse: An end to recovery efforts, a promise of a new start, viewed 26 April 2014, http://edition.cnn.com/2013/05/14/world/asia/bangladesh-building-collapse-aftermath/ Ali, R, Jaafar, H & Mohamad, S 2008, Logistics and Supply Chain in Malaysia: Issues and Challenges, EASTS International Symposium on Sustainable Transportation incorporating Malaysian Universities Transport Research Forum Conference 2008 (MUTRFC08). Universiti Teknologi Malaysia. 12-13 August 2008 Amaeshi, K, Osuji, O, & Nnodim, P 2008, “Corporate Social Responsibility in Supply Chains of Global Brands: A Boundaryless Responsibility? Clarifications, Exceptions and Implications”, Journal of Business Ethics, vol. 81, no. 1, pp. 223-234 Awad, H & Nassar, M 2010, "A Broader view of the Supply Chain Integration Challenges," International Journal of Innovation, Management and Technology, Vol. 1, No. 1, pp52-60 EPC Engineer n.d., EPC - Engineering Procurement Construction, viewed 26 April 2014, http://www.epcengineer.com/definition/132/epc-engineering-procurement-construction Lambert, D & Cooper, M 2000, "Issues in Supply Chain Management," Industrial Marketing Management, vol. 29, pp.65–83 Oracle n.d., The Shape of Tomorrow’s Supply Chains: The Science of Sustainability, viewed 26 April 2014, http://www.oracle.com/us/products/applications/green/051300.pdf Petrovic-Lazarevic, S, Matanda, M & Worthy, R 2006, Supply Chain Management in Building and Construction Industry: Case of Australian Residential Sector, viewed 26 April 2014, http://www.buseco.monash.edu.au/mgt/research/working-papers/2006/wp21-06.pdf Schramm, C, Meibner, A & Weidinger, G 2010, “Contracting Strategies in the oil and gas industry,” 3R International, vol. 1, 33-40 Seuring, S & Muller, M 2008, "Core Issues in Sustainable Supply Chain Management – a Delphi Study," Business Strategy and the EnvironmentBus. Strat. Env. vol. 17, 455–466 Storey, J & Emberson, C 2006, "Supply chain management: theory, practice and future challenges," International Journal of Operations & Production Management, vol. 26 no. 7, pp. 754-774 Vrijhoef, R & Koskela, L 1999, Roles of Supply Chain Management in Construction, University of California, Berkeley, CA Wieland, A. & Handfield, R. 2013, “The Socially Responsible Supply Chain: An Imperative for Global Corporations,” Supply Chain Management Review, Vol. 17, No. 5., viewed 26 April 2014, http://www.scmr.com/article/the_socially_responsible_supply_chain_an_imperative_for_global_corporations Read More