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Effective supply chains

Iron ore train

Iron ore train

Skilled management of the supply chain is critical and allows major project teams to deliver excellence on schedule, within budget and with quality outcomes.

Quick links

Understanding complexity

Managing risks 

Early involvement 

Planning and scheduling

Coordinating

Adapting for different project environments

Procurement and contracting approaches

 

Understanding complexity

On major projects, long lead times, inaccurate forecasts and unreliable suppliers can conspire to make it difficult to supply the right materials to the right place at the right time. 

Supply chain complexity is never set in concrete. It is determined by the unique nature of the items required and the complexity created by the number of components, many of which are designed and engineered to order. Added to this is the sequence in which the multiple items need to be combined, and the multi-layered approach to planning, controlling and contracting across the parties involved. 

“Typically, demand risks include inaccuracy in the data and documents, delays in design approval and late changes to orders,” says Scott McKay, Development Manager, Resources at Aurecon. 

“Supply risks include the fact that in many cases, the products are uniquely engineered to order, the parties in the relationship often won’t have worked together on previous occasions and by the distances and geographies that the materials and equipment must travel,” adds McKay.

The differentiators across all supply chain processes are commonly defined by the complexity of the project. For example, the construction of the Channel Tunnel from the United Kingdom (UK) to France was non-routine, with a unique outcome, whereas constructing multiple McDonalds restaurant buildings has standardised outcomes, requiring standardised processes and routines.

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CityManaging risks 

The most common supply chain risks in major projects are divided into high frequency, low impact events. Minor design flaws and lack of availability of quality demand and supply information along the chain are commonly encountered — hence low risk.

The low frequency, high impact events are typically the result of major design flaws, major supplier disruption, such as manufacturing interruptions, and supplier insolvency. Supply issues can be impacted by such things as natural disasters. 

Reducing risks, in a model such as the one used to deliver the UK’s Heathrow T5 building, required project design and material supply to be planned to occur throughout the project so that every party gains.

“Supply chain management practices need to exist in major projects to analyse, coordinate, standardise and constantly improve the construction supply chain,” says McKay. 

“A critical outcome is resolving silo control across discrete elements of the project, by coordinating procurement planning, sourcing, making and delivery of materials and components for the entire project.

“The demand side requires strong design management, forecasting and scheduling, and on the supply side, standardisation, customisation and supplier management. These processes must be enabled by a project-wide governance framework, with defined roles, aligned incentives and systems for data management, planning and tracking.”

The issues and challenges for major projects delivered by the public and private sectors are similar and need to be standardised, simplified and repeated to improve performance. 

In particular, there is a need for:

  • Single planning for design, supply and construction pulling demand as required and issuing the right work to the right people at the right time
  • Systems integration through co-located project teams to coordinate the design, engineering, integration and delivery of a fully-functioning operational system
  • Project and programme management focusing on critical path and supporting an integrated supply chain
  • Digital design technologies to support design, construction, integration and maintenance activities
  • Off-site fabrication, pre-assembly and modular production, to improve productivity and predictability, together with health and safety
  • Just-in-time logistics to coordinate the supply of materials and minimise rehandling and inventories on site
  • Logistics centres managing the delivery of materials and consolidating everything needed for site assembly
  • Standardised products and data to shift design and construction to specialty vendors and contractors to ensure efficient configuration (modular and pre-assembly) and composition to minimise onsite labour effort 

 

Huntly Power Station, New ZealandThese processes form a system of production that is coordinated and controlled by a systems integrator. This is established through a project governance structure, which assumes responsibility for risk, works with partners in integrated project teams and leads a transient network of external suppliers consisting of dozens of first-tier suppliers, hundreds of contractors and thousands of subcontractors.

Major projects with these processes in place have the potential to improve quality and reduce schedule and cost by at least 20 percent1

“At Aurecon, we employ the Supply Chain Operating Reference Model (SCOR) approach to define the planning, sequencing, coordinating and configuring the supply network for the information, materials and commercial flows of the project,” says McKay. 

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Early involvement 

Early involvement of the procurement function, for both supplier and contractor decisions, enables the project team to better understand the project requirements. It also enables the establishment of sourcing strategies to ensure contract plans are linked to engineering plans, the project schedule and the managing of communication along the chain.

This enables sourcing of quality materials, services, including fabricators, logistics providers and equipment suppliers and helps prevent defects. Ensuring decisions are made early in the project, mitigates large variations and enables changes to scope to be communicated along the chain and the impacts managed.

The result is a better understanding of the supply options and an ability to work with logistics providers to increase responsiveness and flexibility in the chain.

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Abbot Point X50 shiploader, AustraliaPlanning and scheduling

“In South Africa, further innovations are required to meet socio-economic development targets, which are aligned with the Government’s agenda on Broad-Based Black Economic Empowerment,” says Sibalo Dlamini, Head of Projects, Trans-Caledon Tunnel Authority, South Africa.

“Contractors are expected to develop people and enterprises that will be able to do similar works in future on their own. Preferential procurement from black and women owned enterprises must also be incorporated into major projects,” adds Dlamini. 

Using the project master plan to establish the sequencing of the plans drives the coordination of the supply chain. Linking the definition and planning phases, by establishing the sequencing and scheduling that define the materials requirements and the procurement plan covering sourcing, manufacturing and delivery, help to configure the sequencing and identify constraints in advance. 

The integration between the construction, materials and delivery schedules throughout the design, procurement, manufacturing and installation stages enable coordinating, as well as managing, the dependencies to reduce time and cost. 

Confirming the best form to supply (e.g. modularisation) and the sourcing, assembly and supply network options and the delivery mechanisms in the planning phase will drive schedule, cost and quality efficiencies in the project. 

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Coordinating

Supply chains of major projects consist of many parties requiring coordination. Successful projects are supported by aligning the objectives between the client, contractor, subcontractors, suppliers, third party logistics operators and freight forwarders. 

This coordinated approach incorporates shared responsibility for the people, processes and systems that operate the project supply chain and centralises communication, command and control. 

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Abbot Point Coal Terminal, AustraliaAdapting for different project environments

There are many environments in which major projects are undertaken but these can be broken down into three main areas: the developed world, the developing world and remote locations.

Within the developing world, project environments are typically influenced by political, economic, financial and operational risk, such as poor infrastructure (roads) beyond cities, poorly developed ports and limited availability of secure warehouse facilities. 

Environmental and operational challenges presented during the transfer of project materials and equipment through such countries can result in significant time and cost penalties. Also, legislative risk, where corruption, unorthodox business rules and arrangements and absence of laws covering ownership and transfer are often prevalent.

Finding the right partner (if they exist) to manage the logistics in the developing world is imperative. In countries such as China, local governments may actually mandate the providers. In other developing countries, finding the best partners to navigate customs and access local infrastructure will be the only way to successfully move materials and equipment. 

Limitations in remote area projects typically include the lack of port facilities for construction materials. Even in areas with larger ports facilities to deal with the volume of equipment required for major remote projects can be stretched. Planning as far in advance as possible is essential — to survey routes, reserve the equipment, gain the approvals and put in place the infrastructure and avoid unnecessary delays.

Another common supply chain challenge is people logistics, particularly associated with remote locations. It is project-critical to manage the movement and accommodation of people required for major projects. This typically involves establishing the infrastructure to handle the project staffing needs effectively and efficiently. 

Aurecon has developed people demand histograms and movement schedules to optimise flights, buses and ferries on major mining projects. These processes require detailed modelling, inputs from all proponents, working with government to secure approvals for accommodation camps, airport planning/upgrades or in the management of transport and traffic. 

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AirportProcurement and contracting approaches 

“Since the publication of the Latham and the Egan reports2 in the mid to late 1990s, there has been considerable effort expended by public authorities in the UK to unlock benefits through improved procurement,” says Gary Wright, Director of Rowsell Wright Ltd, a leading provider of procurement consultancy services to the UK’s public and private sector.

“In particular, the key building blocks of any delivery strategy that needs to be addressed include supply chain management. Roles and responsibilities also need to be clarified for managing the different building blocks within the delivery strategy and how the interfaces between elements will be managed,” says Wright. 

“Clients should be concerned with ensuring good quality communication with the supply chain from an early stage. They should ensure that market soundings inform delivery strategies, while the market should also be well-informed of packaging and programme so that resources can be mobilised and managed to maximise competition and secure delivery.”

An example of an innovative contracting approach was the Channel Tunnel and London’s Jubilee Line Extension. These projects were managed via fixed-price or private finance initiative contracts, which transferred risk and responsibility to a prime contractor.

Penalties were incurred for delays and mistakes, and scope changes were incorporated under a fixed-price contract design and construct, or construction management, where the client transfers responsibility for the risk of delivery to the contractor. 

This contracting approach typically has an adverse impact on supply chain efficiency. The result is adversarial practices and protracted legal battles between clients and contractors, leading to projects that are delayed, over budget and poorly integrated. 

The British Airports Authority (BAA) decided that a radically new approach was required to deliver Heathrow Terminal 5 in London. BAA developed a novel type of cost-plus incentive contract, with the Authority itself assuming full responsibility for the risk.  They worked collaboratively in integrated project teams with first-tier suppliers to create innovative solutions. 

By removing the risk from the supply chain, avoiding adversarial relationships and offering incentives to perform, the T5 contract was designed to encourage teams to work together to create innovative solutions.

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Sources
1. O’Brien, WJ & Fischer, MA 1993, ‘Construction supply-chain management: a research framework’
2.
Latham, M 1994, ‘Constucting the team’; Egan, J 1998,  ‘Rethinking construction’