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Supply Chain Management Concepts

RT-172 Topic Summary
RT 172

Overview

RT-172 focused on using Supply Chain Management (SCM) tools on capital projects and the benefits of employing SCM. SCM was developed as a result of EPCs/End-Users' inability to complete projects on time. The research argues that by using SCM on capital projects stakeholders throughout the supply chain will receive benefits from: reduced cost, shorter lead times, better quality, and safer construction. To make the transition to SCM on capital projects the research stated that companies must employ a corporate initiative to shift their focus from single projects to enterprise level efforts that involve strategic planning. In the past companies have used tactics such as competitive bidding, separation of business functions and untimely early deliveries. 

The research team relied on eight case studies to demonstrate the benefits SCM. The research team further asserts from the case studies that for SCM to be successful it should be across multi projects instead of just a single project focus. Success will also depend on advance supply chain planning from all stakeholders in the supply chain.

Key Findings and Implementation Tools

1 : SCM Shortens Lead Time

Research Team 172 found that using Supply Chain Management practices (taking a longer-term view of the supplier and buyer relationship and working collaboratively to improve processes) can lead to shorter fabrication durations. The findings from Case Study 7 highlighted lead-time reduction in the procurement of pipe supports. Through SCM, the project case study realized schedule improvement of from three to six weeks, but further along in Case Study 6 there was greater schedule savings of eight to 12 weeks. (RR172-11, p. 123)
Reference: (RR172-11)

2 : Product Standard

Research concluded that using SCM tactics to standardize products will have benefits for all stakeholders on the project. In Case Study 7, standardization led to reduced lead-times as illustrated in Figures 9.19 and 9.20,  shown below. In Case Study 1, standardization led to reduction of inventory and shortened the procurement cycle time. In Case Study 8, Butler Manufacturing Company used SCM tactics to standardize its product offerings, which led to less customized products and more efficiency. Ultimately, standard materials allows for greater manufacturing efficiency by the seller, less design review and approval cycles by the EPC, and ultimately better price, schedule, and quality for the end user. The pitfall is sub-optimization, which is where design changes required by the project outweigh any savings at the equipment level. (RR172-11, p. 123)
Reference: (RR172-11)

3 : Supplier Managed Inventory (SMI)

Case Study 2 discussed the advantages of using SMI on projects. Some of the advantages documented were: reduction in buyer’s inventory, supplier can provide better quality service at less cost, and multiple suppliers tiers are funneled through the tier 1 supplier reducing administrative efforts. The case study was based on an owner organization and not a project. If SMI is used on a project-by-project basis, the case states that some difficulties may arise in forecasting demand for SMI materials and adapting to an ever-changing project schedule. (RR172-11, p. 47) 
Reference: (RR172-11)

4 : Preferred Supplier Relationship

Case Study 1 illustrates the benefits of forming preferred supplier relationship with key suppliers. The buying organization in this case study was able to achieve the following goals by initiating a preferred supplier relationship: (RR172-11, p. 27)

  • Reduce non-value adding activities (Table 3.3 below)
  • Assure only owner-approved materials are supplied
  • Implement Just-in-Time (JIT) deliveries through greater flexibility in warehousing, expedited delivery and access to inventory
  • Reduce internal overhead cost
  • Reduce total cost to the owner
Reference: (RR172-11)

5 : Pre-project Procurement (PEpC)

Case Study 6 illustrates how using PEpC SCM tactics can improve the lead time of engineered-to-order (ETO) equipment. In this case study the buyer had an alliance agreement with the seller which led to reduced lead times because the terms of the agreement do not have to be re-negotiated with the supplier. Instead of taking a month or more to negotiate an agreement, alliance agreements can allow contracts to be placed in as little as a day and a half. Time is further reduced by shortening the engineering and information exchange time. Overall, using PEpC and Alliance agreements can reduce the lead time of ETO equipment by two to three months. (RR172-11, p. 90)
Reference: (RR172-11)

6 : Owner-acquired Raw Material

Case Study 5 reviews a scenario where project schedule and cost were ultimately improved through owner procurement of stainless steel piping material. The study begins by discussing a pinch in the supply of stainless steel piping materials, which was causing risk in cost and schedule to the end user. The owner procured these materials from mills, then paid a distributor to receive, manage, and store the materials. Economies of scale and positive relationships with the supply chain enabled this situation (PEpC). RT-172 also reviewed the benefits of collaborative information technology systems (isolated shared networks or webpages). (RR172-11, p. 67)
Reference: (RR172-11)
rt-172

Key Performance Indicators

Improved cost, Improved schedule, Improved estimating/forecasting, Improved quality (reduced errors & omissions), Reduced claims, Reduced project growth, Improved safety, Improved materials management

Research Publications

Improving Capital Projects Supply Chain Performance - RR172-11

Publication Date: 05/2003 Type: Research Report Pages: 245 Status: Reference

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Presentations from CII Events

Session - Capital Project Supply Chain Management

Publication Date: 07/2002 Presenter: Jay Jean Number of Slides: 22 Event Code: AC02

Tags

Knowledge Areas:
Procurement & Contracts
Project Phase:
Concept, Detailed Design (Engineering), Detailed Scope, Feasibility, Procurement
Project Function/Role:
Business Development & Proposals, Construction, External Stakeholders, Procurement & Contracts, Project Business Sponsor, Project Management, Risk Management, SBU/Corporate Functions
Industry Group:
Buildings, Heavy Industrial, Infrastructure, Light Industrial
Regions:
Africa – South Africa, Asia – China, India, Southeast Asia, Australia, Europe – Scandinavia, Russia, Middle East, North America – USA, Canada, Mexico, South America – Central America, Brazil
10-10 input Metrics:
Design Efficiency, Leading, Planning, Quality, Supply Chain

Keywords

Supply Chain Management, Moduralization, Alliance Agreements, Fast Track, Standardization, Cycle Time Reduction, Inventory Management, PEpC, Supplier Managed Inventory, preferred supplier relationship, rt172

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