Improved Integration of the Supply Chain in Materials Planning and Work Packaging

RT-344 Topic Summary
RT 344

Overview

Timely and accurate materials flow is a critical component of capital project success. All too often, even well planned and executed projects face disruptions to materials flow. Indeed, late or missing materials are common occurrence on almost every project. While there are many challenges, a fundamental problem is lack of visibility of materials status in the supply chain. Current silos of data across participants in the supply chain impede visibility. A routine example is decision making to reduce procurement transactional costs but materials are delivered in a way that is costly to construction due to ill prepared planning. These costs arise due to late delivery, lack of responsiveness to site need dates, extra materials handling on site, expediting costs, etc. Improved visibility provides the chance to break down traditional silos and associated behaviors that are suboptimal.

Visibility of information is a prerequisite to more opportune decisions, improved processes and hence the ability to manage risk. Being able to see where materials are and subsequent ability to accurately forecast delivery dates enables effective work in the field and supports timely corrective action. Moreover, improving materials visibility can be tied to other productivity and quality enhancement efforts such as Advanced Work Packaging. Indeed, almost all project improvement efforts can benefit from heightened supply chain visibility.

This research is contained in two volumes. Part I provides concrete starting points from which firms and projects can take action. It provides detailed definitions of desired visibility across common decisions during execution. A complement of enablers is also provided to enhance the benefit of increased visibility. The definitions represent the broad input of the research team, including owner, designer, contractor, supplier, and technology perspectives. Projects and firms are encouraged to use the visibility definitions and enablers to audit their own capabilities and prioritize actions for improvement. To support such assessment, firms can score themselves against averages collected by the research team. Definitions can also support contracting for desired information and provide input into information systems for materials tracking.

To better demonstrate the potential improvement of increased visibility, Part II of the research investigates the current state of inventory on capital projects, finding that many projects carry excess inventory. (Carrying such inventory is, at least in part, a result of poor visibility.) The research further focuses on the costs of carrying inventory, finding that the costs, while large, are often not tracked or managed well. A basic recommendation is that there is opportunity for improvement here and that better understanding of these costs can lead to planning and policy improvements.

In Part I, the research findings point up the need for better integration of the supply chain through improved visibility of information regarding materials:

  • The research team assessed the current state of visibility in the construction supply chain through case studies and state of the industry survey. The case studies included successful efforts to improve visibility using technology. Principal findings demonstrate the capability for existing technologies – even basic ones – to provide improved visibility. The survey results indicate that there is definite need for visibility improvements across the supply chain. Opportunities for improvement exist on-site, but in general the further from site, the more the need for better visibility.
  • The team isolated 10 key supply chain activities (KSCA) that require decisions at the tactical and operational level, organized by phase timing – from detailed design through construction.
  • The team defined 79 visibility needed items that require decisions, contained in all 10 KSCA, and these items define the desired state of visibility supporting the KSCA. As such, there are multiple uses for these definitions, not least as a basis for the contractual requisition of information. These definitions will also support development of information systems to provide information.
  • The team also identified 76 enablers across the 10 KSCA. These represent organizational capabilities to process information from supply chain visibility. Implementation of these enablers is key to achieving the benefits from improved visibility.
  • The team's assessment of visibility needed items and enablers shows a generally poor performance by the industry, as well as the wide spread of competencies. Low abilities to access or trust information and low frequency of competent execution of enablers support observations of low visibility and indicate its impacts on productivity and performance. These assessments speak to a call to action for the industry to improve.
  • Collectively, firms can use the lists of visibility needed items and enablers to self-assess, providing a path forward by which they can understand their needs and prioritize which actions to improve.

In Part II, the research findings further point to a need to better track and manage costs related to inventory, with the possibility of significant savings:

  • Costs related to inventory – both direct costs and costs of capital or financing costs appear to be poorly tracked or measured in the industry. Cost of capital or financing costs due to inventory (particularly excess inventory) are seen to be a large cost that is seldom tracked.
  • The research provides definitions and metrics for excess inventory in terms of counts and percentages as well as a method to estimate excess inventory costs.
  • Excess inventory costs, that is, costs due to holding inventory longer than a planned period, were seen to be a significant expense. The team’s initial estimate for planning was 15–20% of materials costs, but this figure will vary considerably by project (particularly due to variations in cost of capital and financing costs). 
  • Part II of the report outlines a four-step process to improve planning for effective inventory levels on projects, taking into account needs to hold inventory as well as costs for such inventory.

Key Findings and Implementation Tools

1 : Business Case for the Need for Visibility Improvement

A response to the industry survey question, “Would better supply chain visibility materially change how you do business.”

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2 : Key Supply Chain Activities Requiring Decisions

Ten key supply chain activities support tactical- and operational-level decision-making in the detailed design, procurement, and construction phases:

Reference: (FR-344)

3 : Visibility Needed Items and Definitions

Visibility needed items with detailed definitions at the tactical and operational level across the 10 key supply chain activities requiring decisions for detailed design, procurement, and construction phases.

Reference: (FR-344)

4 : Visibility Needed Items – Average Ratings

Average ratings of visibility needed items in terms of ease of access, accuracy, and importance, as rated by RT-344:

Reference: (FR-344)

5 : Enablers and Definitions

The following organizational competencies are needed to achieve visibility improvement benefits with detailed definitions at the tactical and operational levels across the 10 key supply chain activities requiring decisions for detailed design, procurement, and construction phases:
  • Level or degree of inspection – Assigning critically ratings based on the type of equipment that needs to be inspected (i.e. static equipment, rotating equipment, electrical and instrumentation).
  • Review of supplier's quality plan and inspection test package – Confirming alignment to the order expectations.
  • Establishment of proper witness points – Ensuring the number of witness Points are in aligned to meeting the committed delivery dates.
  • Dissemination of quality performance issues to detailed planners – Timely dissemination of non-conformance reports and similar production issues to appropriate stakeholders (including detailed planners, such as workface planners and senior site supervision) to incorporate known issues into site sequence and inspections plans.
  • Information specification in contracts – Contractual definition of desired information and its format to facilitate sharing of supplier design information into project information systems (design tools).
  • Data exchange specification and process – Process and definitions for standardized supplier data exchange (i.e., materials handling and design data).
  • Establishment of a non-conformance report (NCR) process – Ensuring all non-conformance issues are captured and the proper stakeholders are identified. Have a defined supplier inspection process that enables capturing supply issues at the fabricator as opposed to on site when it may be too late to correct.
Reference: (FR-344)

6 : Enablers – Average Ratings

Average ratings of enablers in terms of ability to impact project and frequency of competent execution rated by RT-344:

Reference: (FR-344)

7 : Inventory Metrics

To obtain better insight into the state of inventory on industrial projects, the research team obtained data from 14 sample projects. The researchers found inventory metrics and representations around excess inventory or inventory held longer than plan, and an appendix in Part II shows the inventory levels on each project for recorded materials types in multiple graphical formats.

These metrics can be used with firms’ cost data to calculate specific costs as well as make estimate of holding costs. These metrics are paired with sample representations of the data that are shown to be useful and easily interpreted by project professionals.

Reference: (FR-344)

Key Performance Indicators


Research Publications

Improved Integration of the Supply Chain in Materials Planning and Work Packaging, Version 2.0 - FR-344

Publication Date: 04/2020 Type: Final Report Pages: 232 Status: Tool


Presentations from CII Events

Session - Improved Integration of the Supply Chain in Materials Planning and Work Packaging

Publication Date: 07/2018 Presenter: Number of Slides: 43 Event Code: AC2018


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