As defined by the council of supply chain management professionals “Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.”
In layman’s terms supply chain management can be defined as the management of 3 kinds of flows, the flow of information, the flow of products and the flow of finance. Also, there is one more flow which is the flow of transfer of ownership. The flow of product is in the forward direction, the flow of finance is in the backward direction and the flow of information is bidirectional.
Construction supply chain management
For construction companies, managing information and material flows is a top strategic priority. A strong performance in these areas can offer them important advantages and permit the addition of more value for clients. Construction organizations may find Supply Chain Management (SCM) to be a very helpful strategy in this area. This is especially appealing when we take into account that the construction industry is a highly fragmented process where successful integration, coordination, and management of the chain, from suppliers to final clients, is a requirement for positive outcomes.
To apply SCM in construction it is necessary to distinguish some characteristics of the construction production system, as follows:
(i) The construction product is for a single client most of the time.
(ii) The product changes for each project.
(iii) The place, equipment and methods of production change for each project.
(iv) Construction personnel have a high rotation index during the construction time and between projects.
(v) Not all the parts and materials can be stored at the site.
(vi) It is not easy to take advantage of economies of scale and learning.
Even though the construction process is unique, SCM can be effective and useful. Additionally, the fact that the construction industry is very fragmented and its supply chain is not integrated makes SCM a particularly alluring strategy for achieving integration between internal and external suppliers, designers, contractors, subcontractors, and internal and external clients.
The variety of site materials and parties (suppliers and subcontractors) necessary for a building project is one of the key aspects of the construction supply chain. As more people participate, the project may get more complicated. such as first-tier, second-tier, and additional subcontractor layers. Additionally, when a project’s scope expands and more people, parties, and resources are required to complete it, there is a correlation between this and the supply chain’s complexity. This may be complicated since it calls for extensive planning, coordination, and cooperation between supply chain partners.
A large construction company may interact with hundreds or thousands of suppliers and sub-contractors per year to deliver a project.
Types of Construction Supply Chains
Research on residential buildings and contributed that CSCs are normally converging, make to order, fragmented and temporary, as described below:
Converging supply chain
In typical construction projects, suppliers and subcontractors working under the direction of the primary contractor will assemble and supply operation capacity, papers, materials, and soon. The end-user is typically one or a small group of individuals. As a result, unlike the industrial supply chain, which is most likely to be diverging, the construction supply chain is in reality converging.
Make-to-order supply chain
Clients drive the creation of construction projects. This can be the result of the end user‘s tradition to take the initiative and start a construction project. Therefore, the end-user becomes involved in the whole production process.
Fragmented supply chain
This characteristic is the main feature of this industry. Construction contractors, suppliers and other participants are active in different stages, and the distribution of responsibility and authority changes during the project.
Temporary supply chain
Due to the project-based nature of construction, all participants and companies are typically fired after a construction project is over. As a result, everyone involved in the project must do their assigned tasks. This irregular collaboration with several participants may lead to issues and variations in productivity and performance.
SUPPLY CHAIN MANAGEMENT BENEFITS IN CONSTRUCTION
The transition to an integrated supply chain is a modern approach to processes involving the procurement process. Through the alignment of objectives, this strategy enables participants in the supply chain to have congruent goals, which benefits the client by adding value. Contracts with fixed costs and predetermined requirements were historically the only means of communication between businesses and their customers. Client involvement was minimal, contractors lacked the incentive to serve in the client’s best interest, and clients sometimes entered into one contract with clients and another with designers. The development of an integrated supply chain makes it possible to fully utilize SCM. Some of the major benefits that construction organizations can achieve utilizing applying SCM principles are:
(1) the development of internal capacities to carry out their processes more effectively and efficiently than that of their competitors;
(2) the development of strategies that will allow them to deliver better products and services to their targeted market segments and
(3) the effective organization and handling of the information and resource flow needed to improve the performance of their suppliers.
Clients and end-users ultimately benefit from participating in an industry that supports consumers’ needs. Customers are satisfied and have more faith in the construction sector because projects are finished on time, on budget, and with few flaws. Additionally, several studies have shown that an integrated supply chain in the construction industry increases control and lowers costs.
Construction companies can use SCM to better manage projects, boost profits, and cut down on time, expense, and waste. SCM faces numerous difficulties in the construction sector because of poor logistics planning, a lack of strategic alliances and partnerships with suppliers, reluctance to change, and communication issues. Clients, suppliers, contractors, and other parties in the supply chain must forge long-term partnerships, create clear communication channels, and draw on one another’s an experience for the greater good to establish an efficient integrated supply chain.
Both firms need to have access to an integrated information and communication system if they are to have stronger supplier-client relationships. The relationship will be bolstered by this framework, which will also help them better understand one another and align their goals. Additionally, it will offer pertinent information on how the relationship is performing, making it easier to implement improvement measures quickly and inspiring greater engagement in both groups.