Supply Chain Partnerships - Collaborative Planning and Collaborative

Replenishment for the Malaysian Construction Industry

Chapter 1

1.1 Construction Industry and Supply Chain Management (SCM)

1.1.1. Background of Construction Industry and Supply Chain Management

(SCM)

The construction industry is considered to be an engine which drives a country’s

economy. It is a large, mature business and it has many important links to the

rest of the economy, e.g. private costs for housing, business investments and

infrastructure and improvements in public services (health, education and urban

renewal). Supply chain management (SCM) is conceptualized as significant tool

which is important in enhancing corporate competitiveness and profits for today

industry (Dale et.al., 1994). The origin of supply chain management initiated in

manufacturing and slowly adopted by automotive industry and was targeted to

improve efficiency and productivity as well as reducing cost (Lambert et.al.,

1998). All issues are viewed and resolved in a supply chain perspective, taking

into account the interdependency in the supply chain. SCM offers a methodology

to relieve the myopic control in the supply chain that has been reinforcing waste

and problems.

Construction supply chains are still full of waste and problems caused by myopic

control. Comparison of case studies with prior research justifies that waste and

problems in construction supply chains are extensively present and persistent

and due to interdependency largely interrelated with causes in other stages of

the supply chain (Vrihjoef & Koskela (1999). The characteristics of the

construction supply chain reinforce the problems in the construction supply chain,

and may well hinder the application of SCM to construction. Previous initiatives

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to advance the construction supply chain have been somewhat partial. The

generic methodology offered by SCM contributes to better understanding and

resolution of basic problems in construction supply chains, and gives directions

for construction supply chain development. The practical solutions offered by

SCM, however, have to be developed in construction practice itself, taking into

account the specific characteristics and local conditions of construction supply

chains.

1.1.2 Background of Malaysian Construction Industry and Supply Chain

Management (SCM)

Generally, Malaysian construction industry is separated into two (2) areas. One

area is general construction, which comprises residential construction, non-

residential construction and civil engineering construction. The civil engineering

construction is special trade work, which comprises activities of meal works,

electrical works, plumbing, sewerage and sanitary works, refrigeration and air-

conditioning work, painting work, carpentry, tiling and flooring works and glass

works.

The construction industry is strategically important for Malaysian providing

building and infrastructure on which all sector of the economy depend. With

many million operatives directly employed in the sector, it is one of the Malaysia’s

largest industrial employer and it accounts for a major share of the of total

employment pie.

The relationship between construction activities, and the built environment on the

one hand, and sustainable development on the other, is both significant and

complex. Construction uses more raw materials than any other sector, and the

creation and operation of the built environment accounts for an important

consumption of natural resources. There is also a growing focus to address the

regeneration of many urban areas of Malaysia.

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Even though, Malaysian construction industry has been growing significantly in

contributing towards nation’s productivity, there remain a number of critical

issues within the construction industry that need to be considered and rectified.

A long list of problems could be itemized including lack of trust and commitment,

adversarial relationships, co-ordination problems, training problems, which

considered as inefficiency of the Malaysia construction industry observed by

several study (CIDB, 2006).

1.2 Research Problem Statement

Much has been explained on the benefits of supply chain management in solving

the problems associated in the construction industry (Egan 1998). However,

very little effort has been carried to explore the concern and awareness between

vendors in the local construction industry.

Traditional silo based Planning and Replenishment processes are causing delays

leading to creation of hurdles in their operations for construction organizations

therefore it needs to be addressed by providing a suitable solution.

1.3 Research Objective

The construction industry faces various hurdles in carrying out its operations. In

this thesis an attempt was made to evaluate how collaboration would improve by

examining the key points were these hurdles occur.

Based on the current construction firms in Malaysia, this research aims at

achieving the following research objectives:

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- To examine the issues occurring due to their traditional silo based

approach in the Malaysian construction industry

- To relate the core issue occurring in the Malaysian Construction

Industry to a successful collaborative approach and provide a solution

based on this relationship

1.4 Research Methodology

In order to achieve the above objective, the writer has chosen to perform

questionnaire survey to obtain data from Malaysia construction firms and

Construction related firms to study the effects on issues primarily related to

delays, in the area of planning and material availability, overall business

performance and also to get data on the role of IT and its related awareness.

On the second part in the research, the writer has chosen due to mainly on

secondary data such as library research, information will be gathered from

previous study journals, book reference, the conference report and various

publications from the library and Internet.

1.5 Scope of Study

This report focuses on arranging reviews of the construction issues using supply

chain management through collaborative planning and collaborative

replenishment issues. Importance is given in identifying the awareness of

construction parties and their readiness in implementing collaborative supply

chain management through partnership arising out of collaboration throughout

the construction process. This report limits itself to the proposed solution and not

its implementation using any technology.

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1.6 Chapter Attire

Chapter 1 will give an overview of the entire study, brief introduction on

construction industry, supply chain management in local construction industry

and the concept of collaborative of planning and replenishment. Research

objective and scope of the entire study is also highlighted.

Chapter 2 focused on literature survey, as well as past study relating supply

chain management in construction industry. Some consideration on benefits of

supply chain management is also highlighted. CPFR issues, benefits of supply

chain management will be the main theme in this chapter and supply chain

management in Malaysia is also explained in depth.

Chapter 3 will be on Research Methodology of the study. This includes

questionnaire design and structure. Data collection method as well as analysis

approach is also discussed in this chapter.

Chapter 4 on Results and Discussion reporting the findings and analysis

obtained on the impact of planning and material delays, awareness and

application of IT in the industry and usage of collaborative practices in

Malaysia‘s construction industry. Important attributes related to the chapter also

discussed and highlighted.

Chapter 5 on Conclusion and Recommendation discussed the relation between

the problem and research questions and how it is justified and solved.

Recommendation also proposed to aid future study in the field of supply chain

management in local construction industry based on the collaborative approach

dealt in this report.

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LITERATURE REVIEW

In this section we review literature dealing with the problems in the construction

supply chain primarily with focus on the construction organization; also literature

review was also carried out for understanding the concepts related supply chain

management, supply chain collaboration and CPFR. Thereby use the information

to better understand the problem and arrive at a suitable solution.

Supply Chain Management

Definition

According to CSCM 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.

Origin of Supply Chain Management

SCM is a concept that has originated and flourished in the manufacturing

industry. The first signs of SCM were perceptible in the JIT delivery system as

part of the Toyota Production System (Shingo 1988). This system aimed to

regulate supplies to the Toyota motor factory just in the right - small - amount,

just on the right time. The main goal was to decrease inventory drastically, and to

regulate the supplier’s interaction with the production line more effectively. After

its emergence in the Japanese automotive industry as part of a production

system, the conceptual evolution of SCM has resulted in an autonomous status

of the concept in industrial management theory, and a distinct subject of scientific

research, as discussed in literature on SCM (e.g., Bechtel and Yayaram 1997,

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Cooper et al. 1997). Along with original SCM approaches, other management

concepts (e.g., value chain, extended enterprise) have been influencing the

conceptual evolution towards the present understanding of SCM. In a way, the

concept of SCM represents a logical continuation of previous management

developments (Van deer Even and Robben 1997). Although largely dominated

by logistics, the contemporary concept of SCM encompasses more than just

logistics (Cooper et al. 1997). Actually, SCM is combining particular features from

concepts including Total Quality Management (TQM), Business Process

Redesign (BPR) and JIT (Van der Veen and Robben 1997).

Fundamentals of Supply Chain Management

Supply chains are a network of inter-related entities, involved in procurement,

conversion and distribution of goods and services. And it has evolved from

logistics management, which primarily focused on material movement and

storage issues to include other issues like Finance, IT, Human resources etc.

The three flows that are important in a supply chain are the Physical Flow, the

Cash Flow and the Information Flow. The Physical Flow deals with the

movement of goods, Cash Flow is the movement of money based on

transactions between the various supply chain stakeholders and Information flow

is the flow of information between the various systems managed and utilized by

the different stakeholders in the supply chain.

Supply chain management works on the basis of various concepts affecting the

various components of the supply chain. The Bull Whip Effect is a popular which

states how inventory gets accumulated at various levels. Further other concepts

like Material Requirements Planning (or MRP I) which was changed to

Manufacturing Resource Planning (MRP II) and now used as the Enterprise

Resource Planning (ERP).

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Apart from the concepts Supply chain management is primarily driven by the

Push and Pull processes. A complete Push process is a forecast driven

approach resulting in a Responsive Supply chain whereas the complete Pull

process is a Lean Supply Chain. But supply chains cannot be in extremes like

complete push or complete pull. There has to be strategic mix of the push and

the pull which advocates that supply chains should be communicated and

managed properly.

Key Stakeholders of a Supply Chain

There different key stakeholders of a supply chain are the Supplier, the

manufacturer, the wholesaler or distributor, the retailer and the end consumer.

The supplier supplies the raw material and / or semi finished goods to the

manufacturer who in turn completes the manufacturing and assembly processes

to supplies the finished goods to the Wholesaler or Distributor. The Wholesaler or

Distributor then sends the finished goods to the retailer which would be

consumed by the end consumer.

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Fig 1 shows the flow between the various key stakeholders. In some supply

chains the manufacturer directly communicates and deals with the end

consumer. A classic example to this is the Dell’s Supply Chain. Dell takes its

orders from its website, it holds a very minimal inventory and as the order is

received it the packs and delivers the product to its customers. So the key

stakeholders vary according the factors like Distribution channel, product type,

cost etc.

Importance of Supply Chain Management

There are various factors which are emphasizing the importance of Supply Chain

Management. Increasing inventory in the supply chain is adding costs and

inventory unused is cash trapped, due to the highly volatile market conditions

and due to increasing competition products are becoming obsolete faster also

Manufacturer

Raw materials supplier Equipment supplier

Regional Warehouse of the manufacturer

Regional Warehouse of the Supermarket

Local Supermarket

Household

Baby: The Ultimate Consumer

Flow of materialsFlow of information

Fig 1. A Typical Supply Chain

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the other side of the coin is that due to high demand in certain industries there

frequent stock outs resulting in loss of business.

Today the Time to Market has become a key metric which is because

response to demand to spontaneous and proactive else would result in loss of

business. Changing patterns of human movement and occupation like remote

places becoming a seat of economic activity has resulted in reconsideration of

the distribution network at least once every fiscal year. Today to stay in market

and if all the above factors need to be overcome it is possible only when all the

stakeholders in the supply chain have a single vision and work towards reducing

cost and increasing efficiency thereby helping the product for which they work

gain an major market share.

Managing the Supply Chain

We have seen the various aspects about a supply chain. There are various

strategies adopted in managing the supply chain. Generally managing the supply

chain means managing the key stakeholders in the supply chain.

Supply chains can be divided into Internal Supply Chain and External Supply

Chain. Managing Internal Supply Chains is usually done using IT (Information

Technology); Quality initiatives like Six Sigma, Quality Circles etc.; using

concepts like Lean Management and also through other recognized

organizational initiatives.

Although managing the Internal Supply Chain is a challenge even bigger

challenge is managing the External Supply Chain which is complex than the

Internal Supply Chain. External Supply Chain can be managed successfully

through a collaborative approach. Various industries and organizations are in

favour of the collaborative approach as it reduces ambiguity by bringing in more

clarity in each every step where it is practiced. Opposed to the collaborative

approach is the Force approach where an organizes forces the initiatives with the

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other key stake holders. In this thesis we give more importance to the

collaborative approach as there are lot of concepts and initiatives drawn along

this approach.

Collaboration

What is Collaboration

The field of consumer behavior is broad, and vast amounts of research exists

which theoretically pinpoints triggers to and deterrents against consumer

spending. On a practical level, understanding and predicting consumer’s wants

and needs are the greatest challenge companies – especially retailers – face.

Nonetheless, some things are fundamental to trigger consumer spending.

Consumers would like to have a proper mix of products at their disposal, they

would like fresh, flexible products, they want products in stock, and so on. As

retailers become more sophisticated in their offerings, the expectations of

consumers have increased accordingly. Fig 2 shows the collaboration between a

supplier and a retailer.

What is cooperation or collaboration? Intelligence Community Collaboration

(1999) broadly defines collaboration as: “…the interaction among two or more

individuals which can encompass a variety of behaviors, including

communication, information sharing, coordination, cooperation, problem solving,

and negotiation.".

In general collaboration exists in multiple ways. How parties collaborate depends

on the division of tasks and decision-making responsibilities in the relationship.

There are three types one party decides, other party does nothing; one party

decides, other party has advising role; or two parties decide jointly.

In the first relationship, no collaboration exists at all. In the second relationship,

one party is assigned to take end-responsibility of the collaborating processes.

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The responsible company counts on the contribution of its partner. Such a

contribution can consist of simply sharing information, sharing forecasts,

presenting own viewpoints, or communication (in case of exceptional events), or

a mix of all aforementioned. Finally in the third option, two parties decide jointly in

a collaborating strategy. In practice, however, this rarely occurs. It was revealed

both through the company interviews and VICS (Voluntary Inter-industry

Commerce Standard) that in the joint decision-making process there is always

one company that takes end-responsibility. In order to avoid friction in the

relationship, collaborating companies can act on an exception basis.

The notion of collaboration requires a change in the way decisions are made.

Consensual decision-making must dominate, and individual corporate interests

may sometimes need to be sacrificed for the greater interest of the business

community. Note the great importance of trust in collaboration. In each

collaborative relationship there is one decision-maker. However, collaboration

may and must influence the decision-making process. Provision of advice

(information, forecasts, view points, handling exceptional cases) provides

guidance to the decision process.

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Collaboration in the Supply Chain

Collaboration is in the supply chain and it is not new to supply chain

management. CRM (Customer Relationship Management), ERP and SRM

(Supplier Relationship Management) these have driven the collaboration

approach. CRM is a demand focused approach, SRM is a supply focused

approach while is a combination approach based on both demand and supply.

These major approaches are supported by various collaborative initiatives.

Various concepts have come into existence due to various collaborative industry

initiatives VMI (Vendor Managed Inventory), ECR (Efficient Consumer

Response), CR (Continuous Replenishment) and CPFR (Collaborative Planning

Forecasting and Replenishment).

Fig 2 Collaboration between Supplier and Retailer

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Vendor Managed inventory (VMI) was developed in the late 1980s in an effort to

reduce inventory and stock-outs at retail stores. In a VMI configuration, tasks

traditionally performed by a retailer – like stocking and ordering product – are

managed by the supplier of the product. The first highly visible VMI model was

between Wal-Mart and P&G in the diaper product category in the late 1980s.

Another example of a long ongoing VMI initiative is Frito-Lay, in which

drivers/salespersons stock the store shelves for small retail customers to keep

the shelves full, the product fresh and paperwork to a minimum.

Efficient Consumer Response (ECR) started in the early 1993 as a voluntary

group in the grocery industry to use technology and strategic alliances to reduce

costs. The ECR movement is based on the principle of just-in-time inventory

management as discussed by Drayer [49]. It aims to expand the benefits

observed form quick response initiatives – i.e. operating based on a demand

signal – by broadening the scope to include product promotions and

introductions. ECR has four key areas: (1) efficient replenishment, (2)

efficient promotion, (3) efficient introduction, and (4) efficient assortment.

Efficient replenishment was reassessed with Continuous Replenishment. Using

POS data (mostly on DC level, so orders from stores to DC) instead of variations

of inventory levels, refined forecasting. Still historically determined forecasts and

the lack of retailer expertise remained weak points in replenishment.

Collaborative Planning, Forecasting and Replenishing (CPFR) is a recent

initiative aimed at creating common language standards and standardized

processes to facilitate inter-company coordination. It was introduced in 1995 by

an industry group led by Wal-Mart, Benchmarking Partners, Warner Lambert,

SAP, and Manugistics through the Voluntary Inter-industry Commerce Standards

Association (VICS) in an attempt to standardize collaborative processes across

companies.

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These initiatives show how various collaborative initiatives have been started and

are proving to be beneficial.

Impact of Collaboration in the Supply Chain

The various collaborative efforts mentioned have shown positive impacts. For

example from VMI the benefits achieved were reduced costs and improved

service. Thus lower costs are achieved through better demand visibility –

reducing the need for large buffer stocks –, smoothing of uneven orders, and

increase the percentage of low-cost full truckload shipments. And increased

service is through coordination of replenishment orders and deliveries across

multiple customers that allow inventory balancing across the

customer’s distribution centers.

By adopting the ECR model P&G reported 6-9% in bottom line cost savings from

the initiative, distributed as follows: 40% logistics, 40% promotion, 10%

assortment, and 10% product introductions [50]. Since the early 1990s, Proctor &

Gamble’s market share has increased, prices decreased, and margins increased

due in part to the success of ECR

Apart from these two both CR and CPFR too have shown significant results and

gains. Although the impact of collaboration is on the higher side, but then there

are certain hurdles to collaboration. Often members of collaborative initiatives

remain reluctant to share sensitive business information with partners. This lack

of trust is often the single biggest barrier to collaborative relationships. Further,

the effects of instability in supply chains due to the bullwhip effect. With high

order variability, downstream firms find their suppliers to be unreliable. On the

other hand, suppliers find their customers ordering patterns volatile and

unpredictable. This can cause trust to rapidly break down despite collaborative

initiatives in place.

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Success of Collaboration

In another study, Clark and Hammond conclude that VMI programs have been

shown to increase inventory turns from 50 to 100% percent over those achieved

before implementation, even when the retailer and manufacturer were already

using EDI before.

These hurdles are often overcome by prospective organizations on seeing the

benefits achieved by the early adopters. So the impact of collaboration although

has some hurdles is by and large a success. The gains reported by big

organizations like P&G are big boost tot his approach. Moreover CPFR which

would be discussed as a separate chapter is making waves across industries

Concept of Collaborative Planning, Forecasting and Replenishment

Introduction

CPFR is a business practice that combines the intelligence of multiple trading

partners in the planning and fulfillment of customer demand.

Links sales and marketing best practices to supply chain planning and

execution processes

Objective is to increase availability to the customer while reducing

inventory, transportation and logistics costs

CPFR in Brief

The CPFR model presents the aspects in which industries focus. The model

provides a basic framework for the flow of information, goods, and services. In

the retail industry the “retailer typically fills the buyer role, a manufacturer fills the

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seller role, and the consumer is the end customer.”[4] The center of the model is

represented as the consumer, followed by the middle ring of the retailer, and

finally the outside ring being the manufacturer. Each ring of the model represents

different functions within the CPFR model. The consumer drives demand for

goods and services while the retailer is the provider of goods and services. The

manufacturer supplies the retailer stores with product as demand for product is

pulled through the supply chain by the end user, being the consumer.

Some of the main processes shown in the model can be found in the second ring

that has arrows in a circular pattern. This is displayed with collaboration

arrangement, joint business plan, sales forecasting, order fulfillment etc. This

stage will be described in detail below:

“Strategy & Planning, Collaboration Arrangement is the process of setting the

business goals for the relationship, defining the scope of collaboration and

assigning roles, responsibilities, checkpoints and escalation procedures. The

Joint Business Plan then identifies the significant events that affect supply and

demand in the planning period, such as promotions, inventory policy changes,

store openings/closings, and product introductions.”[5]

“Demand & Supply Management is broken into Sales Forecasting, which projects

consumer demand at the point of sale, and Order Planning/Forecasting, which

determines future product ordering and delivery requirements based upon the

sales forecast, inventory positions, transit lead times, and other factors.”[6]

“Execution consists of Order Generation, which transitions forecasts to firm

demand, and Order Fulfillment, the process of producing, shipping, delivering,

and stocking products for consumer purchase.”[7]

“Analysis tasks include Exception Management, the active monitoring of planning

and operations for out-of-bounds conditions, and Performance Assessment, the

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calculation of key metrics to evaluate the achievement of business goals,

uncover trends or develop alternative strategies”[9]

Evolution of CPFR

CPFR has its origins in a concept called ECR. ECR is a comprehensive

management concept based on vertical collaboration in manufacturing and

retailing with the objective of an efficient satisfaction of consumer needs, with

supply chain management (SCM) and category management (CM) being its main

CPFR Process Flow Chart

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components (Seifert, 2003). The goal of ECR is to create a win-win situation for

manufacturers, retailers and consumers alike. ECR provides specific steps to be

taken to address both its main components i.e. SCM on the supply side and CM

on the demand side (ECR Guide, 2001).

CPFR is a logical extension of ECR on the supply side. Hence analyzing ECR

success factors provides us with deep insights into factors that could influence

CPFR adoption. The ECR success factor study (Seifert, 2001) identified critical

success factors (CSF) for ECR programs, which include: (1) involvement of top

management, (2) mutual trust between collaborating partners, (3) early success,

(4) continuous measurement of performance, (5) implementation of

contemporary IT, (6) implementation of contemporary cost accounting methods,

(7) consumer orientation, (8) change in organizational structure and (9) ECR

training to staff. These will provide inputs to the development of influencing

factors and conjectures stating the impact of each factor on CPFR adoption.

Collaborative Planning

Collaborative Planning is the coordination of the Planning between two

subsequent stakeholders. Collaborative planning like its siblings Collaborative

Forecasting and Replenishment tries to achieve the same benefits albeit in the

planning arena. The planning process gets all the more streamlined once the

stakeholders come together and help each other in each other’s planning

process there by complementing each other’s planning processes. Thus

Collaborative Planning is first step towards migrating to CPFR based planning

from the traditional silo approach in planning.

Collaborative Forecasting

Collaborative forecasting makes it possible to take advantage of the expertise of

all, or at least several, supply chain members. One benefit that is suggested to

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follow from this is a reduced reliance on historical records. (Helms et al., 2000)

Time series methods that build on historical data can forecast changes that

follow continuous or recurring patterns, but cannot accurately forecast the impact

of events, such as price changes, that happen irregularly (Bowersox and Closs,

1996, p. 233; Mentzer and Schroeter, 1994).

Through collaborative forecasting, a company or department can get access to

better information on important demand drivers, such as promotions. This makes

it possible to complement time series forecasting either with regression analysis,

which examines the relationship between sales and other variables, such as

advertising, or with subjective forecasting, which relies on expert opinion (Jain,

2000; Mentzer and Schroeter, 1994). Furthermore, working based on one shared

forecast reduces the problems related to what Mentzer et al. call the "islands of

analysis" phenomenon, where different groups, departments or companies

develop their own forecasts independently of each other according to their own

specific needs, and risk ending up acting based on conflicting plans (Helms et al.,

2000; Mentzer et al., 1997).

Collaborative Replenishment

Replenishment is the last phase in CPFR. Replenishment consists of Order

Placement and distribution of Orders. In the traditional method of performing

replenishment there is always a high chance of miscommunication but in

collaborative replenishment they work together. The silo approach is done away

with. There is an increased visibility of orders by between the stakeholders. Thus

replenishment in togetherness i.e. collaborative replenishment replaces the

traditional replenishment.

Success of CPFR

In the six years since its inception, the CPFR model has demonstrated benefits

for hundreds of manufacturer and retailer companies. It has also influenced

trading relationships in the high technology, chemical and automotive industries.

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Companies have greater flexibility in selecting the focus for their efforts, as well

as the sequence of collaboration tasks. Specific CPFR scenarios give retailers

and manufacturers detailed business process guidance based on successful

projects. This is possible today due its huge number of implementations in these

industries. The success of CPFR is phenomenal more industries would embrace

in the future so that success achieved by CPFR in certain industries like Retail,

Manufacturing etc. would be replicated in other industries too.

Benefits of CPFR

The early exchange of information between trading partners provides for reliable,

longer terms future views of demand in the supply chain. The forward visibility

based upon information sharing leads to a variety of benefits within supply chain

partnerships. Because CPFR is relatively new, data to evaluate its impact

empirically are not readily available. Anecdotal evidence provided from the

results of several pilot programs highlight benefits, which are:

1. Retailer benefits:

a. Increased sales

b. Higher service levels (in-stock levels)

c. Faster order response times

d. Lower product inventories

e. Obsolescence, deterioration

2. manufacturers benefits:

a. increased sales

b. higher order fill rates

c. lower product inventories

d. faster cycle times

e. reduced capacity requirements

3. Shared supply chain benefits

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a. Direct material flow (reduced number of stocking points)

b. Improved forecast accuracy

c. Lower system expenses

The results of several pilot programs indicate potential benefits for retailers

including higher sales, higher service levels (in-stock levels) and lower

inventories.

Manufacturers have experienced similar benefits plus faster cycle times and

reduced capacity requirements. For example, the Wegmen Foods pilot study

produced a supply chain sales increase of 356 to 50 percent through a more

efficient deployment of inventory. KPMG Consulting conducted a poll of both

retailers and manufacturers in 1998 concerning the frequency and the benefits

derived from information exchange. Manufacturers cited significant

improvements in cycle time and inventory turns.  

Construction Supply Chain and its Issues

Introduction

The construction supply chain although not as complex as a FMCG industry it

has its own set of problems. Most organizations in the construction industry

follow the traditional approach. The Construction organization forms the driver of

the supply chain.

Key Stakeholders of the Supply Chain

The Construction Organization as mentioned is the key stakeholder and in this

thesis the all suppliers and sub contractors are called as Vendors. As they all

supply materiel, resources and services to the construction organization. Below

is the diagram by Ruben Vrijhoef and Lauri Koskela which shows the flow in a

Traditional constructional supply chain for a building construction. Architects and

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Civil design firms are also vendors as the supply design services to the

construction organization.

Issues in the Construction Supply Chain

The diagram below also by Ruben Vrijhoef and Lauri Koskela shows how work

is transferred in a traditional setup from one level to another. The diagram also

high lights the various issues that are faced at each level in the traditional

construction supply chain.

In the job preparation stage the issue is In-accurate data, in the Design and

engineering stage the issue is delays in getting information and also in design

approvals, in the assembly stage the issue is related to deliveries and in Site

Installation also the issues are related to deliveries.

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Conclusion

Jarnbring (1994) found that deficient planning and deficient information on the needed amount of material are characteristic for materials purchasing in construction. In a study on the implementation of lean production in construction component manufacturing, Koskela and Leikas (1997) found that there is a tendency to place construction component orders with missing information due to incomplete design. According to Jarnbring (1994), decision making on logistical solutions is often constrained to those solutions one has experience of or insight in.Thus going by the report of Ruben Vrijhoef and Lauri Koskela the delays highlighted to be related to deliveries and information availability

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Chapter 3 Research Methodology

3.1 Introduction

This chapter presents an overview of the methodological perspective of the

research. Section 4.2 describes the research design based on the research

questions and theoretical models hypothesized in this study. Section 4.3

presents the research strategy of a questionnaire survey. Finally, Section 4.4

summarizes this chapter.

3.2 Research Method

The findings of this research are based on the questionnaires to collect the closer

views to support the research topic. By collecting the different point of view from

respondents may be able to help to search for the method reduces the delay in

planning and replenishment in construction industry.

A questionnaire developed by the researcher, a total of 40 respondents were

approached from construction background such as civil engineers, project

engineers, clerk, surveyor and etc but then only 20 respondents responded to the

researchers questionnaire. Their answers are important since their opinions

imply the delays in planning, replenishment and leverage of IT in construction

industry. By analyzing the questionnaires, the writer believes that it can provide

better views on delays in planning and replenishment percentage in construction

industry.

3.2 Research Design

The write believe a questionnaire survey was the most appropriate strategy to

answer this research questions. The questionare survey consist of 12 questions

which to be answered. The greatest advantage of a questionnaire survey is its

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lower cost compared to other methods. In this study, the questionnaire survey

was used to obtain information or issues on delays in planning and

replenishment and the use of IT in construction industry. Such data could be

used to examine the level of delays and collaboration in overall business

performance.

3.2.2 Research Sample

The research paper will be distributed to 20 respondents with construction

industry background. The location is the distribution is Klang Valley area due to

the area’s position as one of the most important industrial centers in Malaysia.

The writer has good contact with people who worked in the field of construction

through some of the close friends. It was relatively easy for the writer to obtain

sufficient information to be used for this study. The details about the sample

frame for conducting the questionnaire survey is described in Sections 4.3.

Summary

This chapter first presented the research strategies adopted in this study, a

questionnaire survey. Therefore, the research strategies adopted in this study

can be characterized as the quantitative strategies. Second, the detailed

processes and the method of conducting the questionnaire survey was

described. Finally, it must be admitted that the author’s friend’s influence

working in construction industry contributed a great deal to conducting this

research. If the author lacked of good personal contacts with many people

working in the construction industry, the author would not have successfully

collected data used in this research.

Punch, K.F. (2000), Developing Effective Research Proposals, SAGE

Publications,

26

London.

Patton, M.Q. (1990), Qualitative Evaluation and Research Methods, Second

edition, Sage

Publications, Newbury Park, London.

Yin, R.K. (1989), Case Study Research: Design and Methods, Revised edition,

Sage

Publications, London.

27

Findings – Data Analysis and Inference

1. Delays have been invariably accepted across organizations. They are facing

delays not due to single factor but by various factors ranging from government

regulatory approvals, logistic challenges, planning related challenges etc. So the

list is endless. So I probed to find how planning and material availability to the

overall share of its problems leading to the delays.

The intensity in the occurrence of delays although varies across organizations

but point to note is delay is definitely an occurrence in the organizations

operations.

2. The below chart shows the material related delays reported by the various

respondents. Material related delays are going up to 60% in certain scenarios as

mentioned by a few respondents. There least being a 10% delay in two

responses. But then it appears that an average of 30% of the time material

requirements are not met leading to delays related to material non availability

Material Related Delays

20

5030

2030

4060

2040

2540

10

403515

3010

556045

020406080

R 1 R 4 R 7R 1

0R 1

3R 1

6R 1

9

Respondents

In P

erce

nta

ge

Percentage ofMaterial DelaysReported

28

3. The below chart shows the Planning related delays reported by the various

respondents. Planning related delays are going up to 65% in certain scenarios as

mentioned by a few respondents. There least being a 2% delay in two

responses. But then it appears that an average of 35% of the time plans are

made properly leading to delays related improper planning

Planning Related Delays

15

4030

5

50

251520

35

65

2

60

35

10

455035

2010

25

020406080

R 1 R 3 R 5 R 7 R 9R 1

1R 1

3R 1

5R 1

7R 1

9

Respondents

In P

erce

nta

ge

4. Lack of Transparency is one of major issues accepted by most respondents. This

transparency between the construction organization and their vendors.

Respondents of total of 70% have said there is lack of transparency and the

remaining 30% have denied lack of transparency. This point doesn’t mean that

those 70% meant there is not a single instance of transparency, but what they

meant is most of time they have faced problems due lack of transparency from

both ends i.e. themselves and the vendor

29

Lack of Transparency

70%

30%

Yes

No

5. The Mode of communication shows the still lesser acceptance of email, email

here means and refers to the total dependency on email for transfer of files. The

acceptance ratio is 80% but then the respondents who have said that they are

not using have also said that they are considering the usage of email, some of

whom are in the process of putting it to use completely

100 100

80

0

20

40

60

80

100

Respondents %

Phone Fax Email

Mode of Communication

6. Communication gaps are those where the respondents have faced issues or

problems due improper communication of changed operational directions.

Although an encouraging 85% said that they have not faced any communication

gaps but then still it has 15% chance of occurrence.

30

Communication Gaps

85%

15%

Yes

No

7. When the respondents were asked whether if transparency between them and

their vendors if increased would that help them to reduce the delays for which

there was mixed response. Here also a major of them agreed that if would

definitely help them in some way or the other. This strengthens or rather

complements the earlier question on transparency

Increased Transparency Reduces Delays

85%

15%

Yes

No

8. The respondents were asked whether they are using software applications for

running their business i.e. to manage their enterprise. Again only a few said they

don’t, whereas the vast said a good yes. The various software applications used

ranged from Computer Aided Design Software to the simple Microsoft Office.

This shows that they are getting more IT savvy which is a good point to note as

far as this Thesis is concerned.

31

Usage of Software for Enterpise Management

95%

5%

Yes

No

9. I decided to check if there is any form of collaboration. So the respondents were

asked that whether they are used to any form of collaboration effort.

Collaboration here refers to any kind of an agreed joint or a mutual behavior. For

which there was unanimous Yes. That is also great news for this thesis. The

respondents told that they do make some agreements with their vendors and

maintain some informal relationships to boost their business.

Practice of some form of collaboration

100%

0%

yes

No

10. So another question on collaboration as collaboration is the thumb rule of this

thesis. When the respondents were asked whether the collaborative efforts which

they mentioned was effective. For which most of them agreed that it is effective

32

in most of the situations. But some said that they didn’t benefit anything of their

collaborative effort. Generally most collaboration which many of the respondents

talked about are related business need based collaboration rather than on an

operational need based collaboration.

Present Collaborative Efforts Effective

90%

10%

Yes

No

11. This question was to check if they have any knowledge of software applications

which help collaboration. Although this is not a major question, but then this was

asked to see awareness level. Notably a few have said they heard for come

across some kind of a software application. A majority said they are not aware of

such a solution, while the remaining respondents said they are really not sure

since they believed there may be some solution which they may have not heard

or come across yet.

Availability of Collaboration Solutions in the Market

20%

65%

15%

Yes

No

Not Sure

33

12. The final question was to know what the respondents would feel if IT was used

to bridge Gap in issues related to Planning and Replenishment, and would it help

them overcome delays. Majority of them said that if they have solution which

addresses these delays then it would definitely be of great use to them. In spite

of the confidence shown by a majority of them on this question still some of them

are apprehensive about the effectiveness of an IT solution in addressing these

issues.

IT solution would bridge gaps and reduce delays

90%

10%

Yes

No

The Inference after an analysis of the answers given by the respondents there are

various views supporting the thesis. There is an acceptance that there are delays related

to Planning and Replenishment, lack of transparency and it was found that there is a

practice of collaboration, usage of IT and belief in IT.

Collaborative Planning and Replenishment for the Construction Industry

Introduction

The construction industry is a project based industry. A typical construction

organization works in tandem with many other vendor organizations that support

34

them. In today’s world of increasing dynamic nature of business there is a

pressing need to that the various stakeholders join hands and work for a

profitable relationships. Building relationships has been the unwritten rule of

business as successful businesses have prospered due strong relationships with

their vendors and partners. This unwritten rule has now come to the lime light

due to economic pressures arising out of the highly dynamic nature of business.

Forging relationships is becoming common or rather norm of the day in many

industries as varied as FMCG to Automotive. The Construction industry is no

exception to this trend. Collaborative Planning and Collaborative Replenishment

would be of great use to a construction organization which can leverage on these

concepts to strengthen the way they do business and improve it strategically and

operationally.

Need for Collaboration

Collaboration, collaboration, collaboration it is everywhere. The earlier chapter on

collaboration shows the various ways in which it has occurred like VMI, ECR,

CPFR etc. There are various factors which influence the need for collaboration

Communication Gaps – This one of major reasons why many organizations

suffer to delays and inconsistency. These gaps if gone unplugged would be

catastrophic in certain situations. These can only be plugged through a well

planned and charted collaborative approach

Control Costs – This is one reason why major organizations come closer to work

closely with their vendors. This phenomena is prevalent in various organizations

in the automotive industry which have a great focus on R&D. So such efforts to

control cost is only possible through a collaborative approach

35

Operational Delays – This is one of the challenges organizations face and cannot

bear with. There are two types of delays one is intra organizational delay and

inter organizational delay. Although intra organizational delays is mostly within

the purview of the organization, inter organizational delays is something which is

not always in the control of an organization. But this factor also has a solution

which is none other than the collaborative approach.

And the list is endless because there a various indirect gains which organizations

benefit apart from the direct gains achieved by solving the above three

influencing factors.

Collaborative Planning for Construction Industry

Planning is an important activity in any industry. In the construction industry it is a

very important activity since it is a project based execution. This mostly a Made

To Order (MTO) process. In a typical MTO process the work starts right with

planning of each and every activity. This whole planning is a separate activity

phase by itself and various timelines are determined during this phase. The

conventional approach is most in silos where the Planning activity is carried

individual which may sometimes involve vendors. There is no compelling

objective followed by the industry as a whole although some organizations do

follow occasionally. The involvement of the stakeholder is slightly present in the

core planning phase and the involvement gradually reduces wherein the plans

are created without proper involvement of the stakeholders.

In a collaborative scenario the involvement of the stakeholders needs to be

continuous activity. And this is the strong and influential point of this approach.

By using this approach the construction industry would benefit significantly given

their heavy emphasis on planning, which is a routine activity apart from being a

separate phase.

36

Thus Collaborative Planning would be of great use to a construction organization

in improving its approach towards planning wherein it is continuously integrated

with the other stakeholders especially its vendors.

Collaborative Replenishment for Construction Industry

Apart from planning there is yet another area of focus which is equally important

as the planning activity. It is the ensuring of availability of material and equipment

for uninterrupted activity. Non availability of material and equipment are one of

important or the important reason for disturbances in project execution. In the

construction industry construction material and equipment is required as they

have stick to pre determined deadlines. Material and Equipment are generally

stocked at the construction site and consumption depends heavily on the

availability of man power, productivity of manpower and the duration of the

construction activity. Availability of the required number of equipment like

Concrete Mixer etc also affect the consumption of the inventory stocked for

construction. Therefore consumption is highly dynamic, and this may be

addressed by involving a good inventory model. But since there is high human

involvement and huge variation in consumption a collaborative approach would

be better.

Collaborative Replenishment is the simplest approach a construction industry

can adopt so that they keep their inventory levels in check and avoid out of stock

nightmarish situations. This approach suggests that the construction organization

be in constant touch with its vendors by sharing a common platform to inventory

management. Thus replenishment would be a double side driven activity than

being just a single side driven activity.

Collaborative Replenishment a time tested would best suit the inventory

management needs of the construction industry.

37

Customization of CPFR

CPFR is an approach which we had discussed heavily in the earlier chapters.

Customization is the suitable word I felt should be mentioned here because there

is implementation of only two of the three approaches suggested by CPFR.

Before going to Collaborative let us discuss the relationship of Forecasting with

the construction industry.

CPFR has been implemented in industries where they follow Made To Stock

(MTS) process. Industries like FMCG, Electronics etc forecast the demand and

then manufacture thus they stock inventory in anticipation. In case of the

construction industry where MTO is followed the scope of Forecast is limited.

This doesn’t rule out the importance of Forecasting in a construction

organization. Forecasting is used at smaller levels when compared to other

industries mentioned here.

Therefore for in this thesis Forecasting has been brought in the scope. But then

there is a strong belief that collaborative forecasting when implemented would

near similar results as collaborative planning and collaborative forecasting as

suggested in this thesis.

Conclusion

Thus Collaborative Planning and Collaborative Replenishment would suit the

construction industry. This is the stance which has been taken in this thesis. The

results of the analysis of the questionnaires answered by the respondents from

the construction industry may strengthen the point of the stance taken by this

thesis.

38

Solution Selection

In the literature review and during the course of the thesis the researcher had

gone through various collaboration strategies like VMI, ECR, CR and CPFR. The

researcher found that VMI talked about third party inventory management, ECR

talked about consumer response, CR talked about continuous replenishment and

CPFR talked about Planning, Forecasting and Replenishment. The researcher

selected CPFR as a collaboration method although with a little customization to

suit the construction industry. The researcher has analyzed in the section

Collaborative Planning and Replenishment for the Construction Industry

that how CPFR would be beneficial and would be used in the construction

industry. Thus according to the researcher CPFR would benefit the construction

organization both in Planning and Replenishment hence the reason for selecting

for CPFR. The solution would be a IT based one as the researcher believes that

in this networked world an IT based solution would be comfortable and easily

accessible for the users.

39

Recommendations and Summary

Introduction

This solution to be proposed consists of usage of IT infrastructure. This solution

talks about how a website developed for this specific need could be used by the

construction organization and the vendors for solving issues related to planning

and replenishment. The earlier chapter 6 talked about how Collaborative

Planning and Collaborative Replenishment of CPFR can be used for the

Construction Industry. This solution works based on the concept of collaborative

planning and collaborative replenishment. This model is a pure conceptual IT

model which can be executed on a custom basis for an organization. As most

organizations specific processes apart from generic processes, for example the

process of procurement may be same by the steps followed in any two

organizations may not be identical. So this proposed IT model would benefit any

construction organization who would use this model to develop his or her solution

to implement collaborative planning and collaborative forecasting

The proposed solution helps in implementing the Collaborative Planning and

Collaborative Replenishment. This solution works based on a Web Based

collaboration Website. The Website serves as a Front End for the application.

This would help in integrating as many partners as needed into the application.

Role of IT

Information Technology (IT) does play a crucial role in today’s economy. As

shown in the findings that most organizations are using IT in their work and are

becoming more Tech Savvy. IT has a certain traits, if u see an ERP application

like SAP which has brought a sea change in the most organizations manage their

40

operations. IT helps in bringing transparency and reduces the cost of

communication. For a collaborative effort where a Vendor and the Construction

organization may be distributed across diverse locations, IT is the preferred

platform to come together and nurture a fruitful relationship.

Thus this very role of IT has been a very compelling reason in adopting an IT

based solution for proposing this Web Based IT Collaboration Model for the

application Collaborative Planning and Collaborative Replenishment

Proposed Solution

The proposed solution consists of the displayed IT infrastructure. The concept is

visualized with help of a website and an IT infrastructure which uses two servers

one in which the application rests and another is to manage the Database. The

software which would be core to this proposed model would be in a application

server i.e. a place where it is stored and it would be supported by a database

server which would help manage the data for this software. The users can

access this application 24x7 and the users are primarily the construction

organization and the vendors who support the construction organization.

41

The whole set up works as a series of requests, views and actions. The partners

who are into this setup need to feed their data into the website. Every partner has

his login. Here we assume that this application would be owned by the Builder

and that he would integrate his vendors into this application setup.

The Vendor(s) and the Builder periodically fill in all the Plans, Orders, Inventory

and other Agreed Upon Information. Both the Builder and the Vendor(s) place

Data Base Server

Application Server

Builder System Vendor or Partner System V1, V2…Vn

Internet

Collaboration Website

A Web Based Collaboration Model for Collaborative Planning and Collaborative Replenishment

42

requests to view each others information to facilitate their decisions. In addition

all other information like Orders and Inventory are also shared among the

stakeholders.

This Web based application also facilitates the decision making process where

the Vendor(s) can submit his or her plans or other information for approval and

comments from the Builder.

Key Processes Involved

Some of the key processes which can be performed using this Web Based

Solution are detailed below.

1. Information Updation Process:

This is to be carried out periodic levels. Information is to be updated by all

the stakeholders concern. These periodic levels depends on the nature

and agreements between the Builder and the Vendor(s)

The Vendor(s) logs into the website and submits his information related to

planning, inventory availability, orders information etc. This information is

then stored by the application. Similarly the Builder logs into the website

and submits his information related to planning, inventory information etc..

2. Information Retrieval Process:

The Vendor logs into the application and submits a request for viewing the

information related to the Builder by selecting a set of criteria. The

information which can be viewed by the Vendor can be controlled by the

Builder through the login process i.e. no two Vendors may or may not

have access to any particular information.

43

The Vendor then views the information based on the selected criteria. The

vendor can only view the information and he or she can updated only if he

has the rights and also depends on whether the information is information

is editable or not. This display of the information depends on the number

of criterion

The Builder also views the information related to one or more Vendors by

selecting a set of criterion. The display of information for the Builder would

have different views single vendor single criteria, single vendor multiple

criteria and multiple vendor multiple criteria. The Builder can modify all the

editable information.

3. Collaborative Planning Process

The Builder initiates the process by preparing submitting a plan related to

any activity. This plan can be viewed only by the affected Vendors. The

respective vendor logs in and views the plan. The vendor first submits the

comments about the plan which can be viewed by the Builder. The Builder

makes the necessary changes and submits the Plan for the vendor to view

along with his comments. The Vendor then views and again posts his or

her comments.

Also a Vendor can submit a plan based on activity against a Builder’s Plan

or as a normal plan for Acceptance. This plan is then viewed by the

Builder. The Builder or Vendor may Accept, Accept with Modification or

Doesn’t Accept the plan and along with this the Builder or Vendor posts

his or her comments for the Builder or Vendor to view. This cycle would go

through few or more series of iterations before both the Vendor and the

Builder agree to some final situation.

44

Every Collaborative Planning Process would get a unique id and all history

related to the transactions would be stored with respect to this id. The

status of the Process would be either Active, Completed and On Hold.

Active means that the series of iterations are going on, Completed means

both the Vendor and the Builder have agreed upon a common plan and

On Hold means the Builder and the Vendor have put this process on hold

for a agreed period of time which may be due to shift in operational

priorities.

4. Collaborative Replenishment Process

Here to the Builder initiates the process by preparing and submitting a

Replenishment Order. Here the Builder would can a unique id for each

replenishment process. Also this process would support multi vendor

replenishment i.e. inventory received for replenishment from multiple

vendors.

The respective vendor when login views all the replenishment orders sent

by the Builder. Against this replenishment order the Vendor creates a

Delivery Schedule whereby the Vendor tells date, time, product type,

product quantity, transportation type etc. that would be dispatched to the

site. The Vendor can send his or her Order Execution Acceptance only

after the Builder accepts his or her Delivery Schedule. Here to the Builder

or Vendor can Accept may Accept, Accept with Modification or Doesn’t

Accept the plan and along with this the Builder or Vendor posts his or her

comments for the Builder or Vendor to view. This cycle would go through

few or more series of iterations before both the Vendor and the Builder

agree to some final situation.

45

Finally after the Delivery Schedule is accepted by the vendor and builder

and after that the Builder receives the inventory and sends a Physical

Acceptance upon which this process is closed. all history related to the

transactions would be stored with respect to this id. The status of the

Process would be either Active, Completed and On Hold. Active means

that the series of iterations are going on, Completed means both the

Vendor and the Builder have agreed upon a common plan and On Hold

means the Builder and the Vendor have put this process on hold for a

agreed period of time which may be due to shift in operational priorities.

Suggestions

The solution proposed would help a construction organization by

1. Improve Workflow - By streamlining the process of planning and

replenishment. A track of communications is kept which would help

to check the flow of the communication at any given point of time

2. Reduce communication costs – The costs are reduced as all

communication happens in the website with strict deviation.

3. Lesser Confusion – There would be no confusion as all information

is available. Confusion generally results in false assumptions and

improper communication

4. Increased Clarity in communication – There is no ambiguity as the

planning and replenishment process as information is shared and

communicated duly.

5. Improve Information Sharing – Since all the planning and inventory

information is shared the decision making process would be stream

lined thereby minimal or no delays

6. Improved Productivity in Planning – Planning is made know to both

the parties the construction organization and the vendor to plan

every time right the first time.

46

7. Improved Inventory Availability – Due to higher information

availability and collaborative replenishment the availability of

inventory at the construction would definitely see a significant rise

leading to greater stock availability

Thus this thesis suggests a construction organization to implement this Web

Based IT Collaboration Model for implementing Collaborative Planning and

Collaborative Replenishment and gain significantly.

47