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

Launched 2016

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.