Andrew M. Clark, Consultant
Construction Solutions Division, Unisys Limited, UK
Brian L. Atkin, Professor
Royal Institute of Technology, Stockholm, Sweden
Director, Atkin Research and Development Limited, UK
Martin P. Betts, Head
School of Construction and Property Management, University of Salford, UK
David A. Smith,
Unisys Limited, UK
SUMMARY: This paper follows an element of the research programme of the Construct-IT Centre of Excellence, a UK-based organisation responsible for promoting the strategic awareness of IT within construction enterprises. Funding has been granted from the Department of the Environment to benchmark the use of IT within ten mission-critical business processes. Supplier Management is the first benchmark with ten construction contractors interviewed between July and November 1995. The results show that the internal exploitation of IT within the contractor is more advanced than between the separate legal entities of contractor and supplier. Hard copy transfer dominates information transmission with few companies experimenting with technologies such as Electronic Data Interchange (EDI). Of the two measures used, use of IT to support a process and importance to the process, the importance of using of IT is recognised, but does not translate into use. Summaries of the comments made at interviews are provided to give the reader background to the companies' attitudes towards IT in this process area. Reference is made to comparisons with a shipbuilder and automotive parts supplier as out-of-industry examples of companies performing a similar process to assess how other industries use IT within a similar process.
KEYWORDS: IT, Strategy, Supplier, Management, Relationship, Benchmark
Unisys (Unisys, 1996) show from a multi-national, cross-sector study that construction does not lag other sectors in its implementation of IT systems, but it does lag other sectors in the impact of IT to the business. 78.9% of respondents felt that IT does not allow profit generation, against an average of 54.5% for senior managers within other industries answering the same question. Respondents from the construction sector outranked other sectors when citing an inadequate organisation of information management systems when asked why they did not have direct access to the information needed to do their job. Inappropriate IT architecture was seen as the prime disadvantage with current management information systems, in common with other sectors. A lack of external links was cited by 13% of construction professionals while the same disadvantage attained no response from the other sectors. Betts (Betts, 1992) articulates the overall problem facing construction, reflected by the Unisys study:
`The opportunity for a big-bang in construction exists. Our problem is not the lack of technology but more a lack of awareness of how to exploit it.'
The term `holonics' is used by McHugh et al. (McHugh et al., 1995) to describe a group of companies who collaborate as a "virtual organisation" in taking advantage of a particular business opportunity. The analogy to the construction project is clear. It would seem that the construction sector has been pioneering in the development of what is currently called a "virtual organisation" to satisfy a customer need, although the sector's use of IT to co-ordinate the disparate companies has lagged significantly behind other sectors.
The technological trajectory of the construction industry has little choice other than to adopt electronic trade and supply chain management if it is to remain competitive in a global market or against other industries. Supplier and sub-contractor (hereafter supplier) management in the UK construction industry is a process of particular importance to construction contractors due the value of supplier input to a completed construction project. Suppliers commonly contribute 75-80% of the value of a construction contract (Atkin et al., 1995) making their effective management and co-ordination essential to cost, quality and time objectives during the construction process. Improved ways of managing the supply chain are therefore essential to overcome the problems that have plagued the construction industry, i.e. late completion, exceeded budgets and poor quality (Ball, 1988).
Improvements to the supply chain have been achieved in many industries through partnering arrangements with a few selected suppliers (Gomes-Casseres, 1994), lean production methods (Womack et al, 1991) and information technology (Hammer and Champy, 1993). There is a wealth of information that can be readily drawn upon providing a plethora of examples of diverse industries. IT as an enabler of process change is the focus of the work of the Construct-IT Centre of Excellence for the UK construction industry and the basis of the research, which this paper documents.
Improving supply chain management in the UK construction industry is a key foundation of `Construct-IT: Bridging the Gap' (HMSO, 1995). Particular recommendations were the utilisation of an electronic communications infrastructure, shared project planning information direct from project planning packages and electronic processing of orders and payments within supply chain relationship frameworks. The supply chain relationship frameworks will be the essential element to enable parties to a construction contract to trade electronically. Suppliers will be engaged by contractors on a regular basis and strong working relationships will develop with time. This form of work has found success in other industries, particularly automotive manufacturing (Womack et al, 1991).
In focusing upon the construction sector, Grilo et al. (Grilo et al., 1996) found that the main reason for the lack of electronic trading relationships is the unwillingness of either party to invest in a technological infrastructure that is characterised by the inherent risk of managing a supply relationship within an unclear legal framework. The litigious nature of the UK construction market provides a strong barrier to electronic trading. Analysis of Porter's five forces model in construction also highlights the relative lack of power of construction organisations in a trading relationship (Betts et al., 1991). The trading power of large buyers has been a method by which other industries have forced electronic trading on to suppliers (Atkin et al., 1995).
Despite the inherent difficulties of trading electronically within the context of the UK construction industry there are examples of contractors forming partnering relationships that rely on electronic trading. Tarmac Construction is reducing their supply base to partner with fewer key suppliers in a bid to reduce administrative costs of managing a large supply base (Nunn, 1995). Single monthly invoices from builders merchants who will have the opportunity to be sole suppliers will be supported by an IT infrastructure. Reduced costs to Tarmac and a bigger business opportunity to the supplier will be the competitive reward offered under a new method of trading. The research findings in Section 6 of this paper will show that this is a common objective for major contractors in the UK, although Jamieson et al. (Jamieson et al., 1996) have found that few suppliers have the IT infrastructure to manage this relationship and do not view this as important to their competitive future. The outlook for the supply base of the UK construction industry is that those with the strategic vision and technical know-how may be the competitive winners as the sector develops its use of electronic trading.
Initiatives such as Construction Industry Trading Electronically (CITE) (Kavanagh, 1995) and the Construct-IT Centre of Excellence are vigorously promoting the use of IT in the UK construction industry. The following section looks at best practice benchmarking as a method of improving the use of IT in construction by raising the awareness of the use and potential of IT.
As a tool to manage change, benchmarking recognises the futility of maintaining a competitive edge in a dynamic marketplace. A reliance upon the replication of internal best practice forces companies into myopic management practices that fail to recognise a panoptic competitive environment. One of the responses to competitive threats has been to study internal and external practices of efficient companies with a view to learning and implementing superior processes that will contribute to a strategic competitive advantage (Leibfried and McNair, 1994). Benchmarking is the response that has a well-developed management toolkit for identifying the processes that will migrate between companies and for providing a methodology for enacting the implementation of the improved process.
Before embarking upon benchmarking some limitations need to be considered. Successful strategic management relies upon component processes to be sufficiently coherent to support the aims of the company (Davenport and Short, 1990). Processes have to be designed with care to ensure that the chosen combination support the strategic vision: contradictions should be rectified before they are operational. Without caution, benchmarking could lead to a mix and match approach to improvement with the potential consequence of being strategically `stuck in the middle' (Porter, 1985). Care should also be exercised to choose an analogous process to benchmark. Leibfried and McNair (Leibfried and McNair, 1994) advocate process mapping and the development of an activity grid to define the salient features and the economic or regulatory constraints of the process for benchmarking.
Lewis and Naim (Lewis and Naim, 1995) identify four types of benchmarking; internal, competitive, parallel industry and best practice. The research that forms the basis of this paper uses all except internal benchmarking. Internal benchmarking is often a first step for many companies in learning a benchmarking methodology. The comparison is between different operating divisions or regions of the company where data are often readily accessible.
Competitive benchmarking occurs between firms within the same industry sector who sell an identical or similar good or service. This form of benchmarking is often the most difficult as it relies upon competing firms to share details of how processes are performed with each other. In this case ten major construction contractors, all of whom could be considered as competitors to each other, took part in the research. It is the opinion of the research team that their independence from all of the participating firms was a key factor in the willingness of the firms to be interviewed about their supplier management processes.
Parallel industry benchmarking occurs between companies from different sectors who undertake a similar process of production or service. This type of benchmarking is considered easier than the previous example as issues of access and willingness to participate in a comparative study will not be as problematic between companies who are not in direct competition.
Best practice benchmarking considers the merits of a comparison from a particular market leader who is known to have an exemplary process that is similar to the process under study. While all of the operations of the process may not be totally transferable between firms due to different industry structures, there will often be important lessons that can be learnt. Best practice benchmarking is called innovation benchmarking by Davenport and Short (Davenport and Short, 1990) as the target processes are often born out of innovative thinking and bold managerial implementation. Hammer and Stanton (Hammer and Stanton, 1995) conversely argue that benchmarking stifles innovation and should be used with caution.
The questionnaire contained over 60 questions covering six areas of supplier management: strategy; communication; project requirements; selection; enquiries, quotations and orders; and contract management. Not all questions were for scoring purposes as it was considered important to elicit qualitative information about company operation and procedures.
Interviews were conducted in the offices of the recipient companies and were concluded to the satisfaction of the research team. Apart from answers to pre-determined questions, interviewees were encouraged to input additional commentary wherever they felt this would add something to the quality of the answers. It was common to interview personnel simultaneously. These were drawn from a mix of purchasing, IT and management functions within the companies. All companies, irrespective of size, were able to respond to all six sections.
While the benchmarking results for the construction contractors are important, it is essential to place the contractors scores in the context of a best practice out-of-industry example. This has the effect of positioning the contractors amongst themselves and relative to a considered world-class example. A difficulty arises with the choice of a best practice example that has to be credible to be acceptable. Table 1 was drawn up and considered by the research team.
(+) implies a characteristic which is shared in some way with the construction industry; conversely, (-) implies something that is inconsistent with the construction industry.
Overall, shipbuilding appears to offer the most appropriate example
as a parallel industry for this process. Turbine manufacture, aircraft
manufacture and railway rolling stock were also considered as credible
comparisons. Ultimately, the search for a best practice comparison led
the research team to benchmark an automotive components company. It was
considered that supply relationships and IT infrastructure were sufficiently
well developed in the automotive components industry to provide an out-of-sector
example that used IT in an exemplary manner.
TABLE 1: Non-construction cases compared
(+) Supply chain very efficient and supported by IT
(+) Close relationships between suppliers and assembler
(-) Highly repetitive process producing long runs of similar products
(-) Epitome of single point responsibility
(-) Sell the end-product
(+) Made to order
(+) Major capital item
(+) Contracted to build the end-product
(-) Single point of responsibility for design and manufacture of the product
(-) Supplied as near complete to site, rather than assembled insitu
(+) Major capital item increasingly customised
(+) Components often sourced from around the world
(+) Considerable use of IT in all stages, not just the supply chain
(-) Too much of a high tech image for construction audience
(-) Selling the end product
(+) Major capital item, sometimes unique
(+) Uses range of materials having much in common with construction
(+) Some examples (cruise ships) are little more than floating buildings
(+) Contracted to build the end product
(-) Difficulty of acceptance by construction audience
Railway rolling stock manufacture - Channel Tunnel trains
(+) Major capital items
(+) involved major innovations and procured against tight budgets
(+) Contracted to build the end-product
(-) Short runs of similar, if not identical, rolling stock
(-) Probable lack of useful IT references/case studies
(+) Very close relationship between supplier and retailer
(+) Efficient ordering and payments system
(-) Has little in common with the nature of an assembly process
(-) Long runs (sometimes limited editions of low unit cost
(-) Sell the end product
Figure 1: Overall Performance of IT Across All Measured Areas
The parallel industry's IT systems are essential to the company. If its systems were to fail the company would be brought to a standstill within two days. An integrated system has been created to eliminate as much paper as possible which supports design, bills of materials, planning, scheduling, ordering, delivery, production, commissioning and payments. The company's main weakness is its CAD system, which needs replacing.
The best practice company is also totally reliant on IT, emphasising a strong cultural value system. A dedicated training centre is provided to all employees to develop IT skills and everyone relies on IT for their daily routine. Sophisticated backup and power systems have been installed to guard against system failure. Like the parallel industry example, the `best practitioner' would cease to trade within 24-48 hours of a total systems failure, but still, EDI is the primary technology for managing suppliers. The company is committed to achieving zero transaction costs.
Figure 2: Need for IT Strategy for Dealing with Suppliers
The shipbuilder's position in this section is rather curious as its use of IT is essential to operations, but strategically of low use and importance. Conversely, the automotive components company rates its strategic management as essential. Over half of the company's suppliers are working within a partnership framework that provides for detailed metrics of performance with clear targets. When these are reached, new metrics are devised to motivate both sides of the framework to continue to look for further cost savings.
Figure 3: Communication Using IT
The shipbuilder mirrors the contractors by communication through hard copy, telephone and fax while stressing the important need to use more advanced methods. Security of transfer of information over the Internet is seen as a barrier to use. Conversely, the automotive components company and supplier use EDI exclusively. The company does not stipulate that suppliers use EDI if a better, lower cost alternative is available. This business arrangement, interestingly, allows the supplier flexibility in changing the method of communication if they can prove the worth of an alternative. The company uses the Odette (Organisation for Data Exchange by TeleTransmission in Europe) standard to support most activities. IT systems are open to the supplier to locate the information it requires to fulfil the partnership arrangement. Suppliers are responsible for managing the company's inventory. Here, the traditional boundaries of organisational responsibilities are shifting to a significant degree.
Figure 4: Project Specific Information Exchange
The shipbuilder maintains a provision for exchange by floppy disk or modem where the supplier has a specified design responsibility. The ability of suppliers to make changes to the design is limited due to the precise requirements stipulated in ship design and construction. The automotive components company maintains close working relationships with its supply base to extract knowledge and information in partnership in order to develop solutions jointly for their customers. Working with an existing supplier to develop a new component is preferable to searching for a new company.
Figure 5: Selection of Suppliers
The shipbuilder has the benefit of a comparatively small supply base as it works in one location. Control over supplies to a fixed location has meant that database structure and the information contained within it are sophisticated. There is also the ability to track the progress of orders at any stage of the contract. Although an advanced IT system is deployed to manage suppliers, it is a rare occurrence to select a new supplier. When selection of a new supplier occurs lengthy procedures are followed to ensure that a profitable working arrangement will be operational between the companies. Commitment to IT and culture are essential factors in determining a possible supplier's compatibility with the company.
Figure 6: Enquiries, Quotations and Orders
When the quadrants of the graph are analysed, the following classifications appear:
Figure 8: Classification of Research Results
The effective current use of IT places a company with only a relatively small gap to bridge before reaching best practice use of IT and shows companies who are harnessing currently available technology effectively to support business needs. The high, ineffective use of IT positions companies who have extensive use of IT to support a particular process area, but do not view the technology as important to address business objectives. The non-priority area for IT at present and long term research priorities shows IT deployment to be undesired at present by companies, but with implications for the research community, as technological solutions may yet have been developed and are in need of development. The important area where IT is poorly used highlights immediate gaps in the companies' use of IT that are identified as one of remedy.
Imposing the average of all the process areas onto the same figure shows the following results:
Figure 9: Development Priorities in Supplier Management
Fig. 9 therefore shows the development priorities for supplier management. The position of overall performance would suggest that supplier management should be an area of research priority. Similarly, general communications and the communication of project specific requirements are short-term research priorities. Likewise, supplier selection, enquiries, quotations and orders and, contract management can be regarded as current system development priorities.
Fig. 10 shows Venkatraman's (Venkatraman, 1991) five levels of IT-induced exploitation. The use of construction companies' deployment of IT in support of supply chain management can only be seen to fall within localised exploitation. Venkatraman describes localised exploitation as:
`...the exploitation of IT within business functions such as manufacturing or marketing or even isolated business activities within the functions.'
Conversely, the next step of IT-induced reconfiguration, that is internal integration, is described as:
`...the deployment of a common IT platform serves to integrate the organisation's business processes, potentially enhancing efficiency and effectiveness.'
Further revolutionary levels are yet to be touched, although the interview process revealed that some companies are considering and piloting methods of harnessing IT to enable radical change in the forms of business process redesign, business network redesign and business scope redefinition.
Figure 10: Five Levels of IT-induced Reconfiguration
Clark (Clark, 1997) shows from a case study of a large UK construction company that internal integration of systems is a business issue of some seriousness. The use of integrated project databases for all project participants to access central information repositories is a central objective of construction IT research in the UK and would seem the most likely technological trajectory of the immediate future (HMSO, 1996).
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