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Introduction
The world of procurement and supply chain management has been evolving rapidly over the past few years. With the growing awareness of social, environmental, and economic impacts of businesses, companies are now looking for ways to align their supply chain strategies with their overall business objectives.
At the same time, the emergence of new technologies and modern methods of construction is changing the way we think about procurement and supply chain management.
This blog was inspired when we researched the IPA's Transforming Infrastructure Performance: Roadmap to 2030 and recently released Product Platform Rulebook | Construction Innovation Hub. We highly recommend downloading these resources and studying them independently to draw your own conclusions.
We will explore how changing the procurement and supply chain model, can help us achieve economies of repetition by aligning to product platforms, adopting modern methods of construction, delivering social, environmental and economic value and integrating our suppliers.
Procurement models to support product platforms
Extract : Product Platform Rulebook | Construction Innovation Hub.
One of the key ways to achieve economies of repetition in procurement and supply chain management is to align our procurement strategies with product platforms. A product platform is a collection of standard components, processes, and technologies that can be used across multiple products. Product Platforms are referenced in the Construction Playbook, encouraging their uptake in the construction industry.
Demand
A bit like when you buy your kitchen from IKEA, your procurement decisions will influenced by a standardised repeatable components and standardised repeatable processes as a "kit of parts".
By adopting a product platform approach, companies can reduce complexity in their supply chain and achieve economies of scale. Key to unlocking success in this space is improving the way we manage the demand cycle and integrate suppliers into the process early.
The 2022 Annual Report on the Government Major Projects Portfolio (GMPP) from the Infrastructure and Projects Authority (IPA) is a great high level resource, but realistically this is way too high level for most delivering projects. We need to cross this chasm and find a dynamic and digital solution that offers a decentralised opportunity for SME's and lower tiers in the supply chain to have visibility of their investment pipeline. There is evidence of this being achieved by the use of new reporting constraints within T1 contractors, but the uptake is limited.
The problem is construction projects are complex, and the current model only serves to exacerbate this complexity resulting in low levels of integration and trust. Suppliers are often forced to invest in long winded procurement rounds, only to find out they have won a place on a “zero value” framework or, worst of all, not won anything at all!
Multiply this wasteful approach across 1000’s of procurement rounds and very quickly one comes to understand the significant waste in just the tender process, before any work has started on site. It's a real race to the bottom, with a “lowest cost” mentality prevailing, and where little or no social, economic or environmental value is delivered.
Extract : Smart Procurement LinkedIn survey results - May 2022.
Develop
The construction procurement model needs a fresh, new perspective that enables economic growth and enhances opportunity for ALL.
We simply must improve / revamp the procurement experience for both buyers and suppliers. We have to invest and develop the beta versions of "expression of interest platforms" that exist in the market, which are repeatedly mandated form project to project. Watch this space, its ripe for disruption!
We have the opportunity to helping client's aggregate demand and shorten the sales cycles. It is not uncommon to see sales cycles extend from 6, 9, +12 months!
We have to integrate procurement into the design. Wait, what!?
Yes, we need to imbed procurement expertise and supplier "know how" into the "BIM world" and ensure our CDE's take due account of managing information more efficiently between the Client - Contractor - every tier in the value chain.
Deploy
Client's - we need you to adopt an "enterprise approach" as recommended by Project 13 and allow us to engage the market earlier in the programme or project design stage.
That means, paying for ECI and avoiding the temptation to continuously move the goal posts in tender period with new information. Take your time to ensure you have sufficient
clarity of the scope you are procuring, before launching your tender to the market. If you are unsure of the scope, select the an appropriate form of contract that allows for the scope to evolve. (e.g. NEC Option E, F, G etc.) Adopt BIM and new AI models to help define your scope.
Clients, an enterprise approach allows fosters collaboration between owners, partners, advisers and suppliers, working in more integrated and collaborative arrangements, underpinned by long term relationships. We believe organisations are that are incentivised, deliver better outcomes.
Modern methods of construction
Modern methods of construction (MMC) are changing the way we think about "How" we build. MMC involves using innovative techniques and materials to build structures quickly and efficiently, while also reducing waste and environmental impact. By adopting MMC, companies can achieve significant cost savings in their procurement and supply chain management. For example, prefabricated building components can be manufactured offsite, reducing the need for on-site labour and materials. This can lead to shorter construction times, reduced carbon and costs.
Recommendation
We are impressed with the collaboration between all the parties to co-create a testbed for innovation with the introduction of Sandpits. We would recommend and encourage more suppliers, particularly SME's to get involved and explore opportunities to collaborate to share new modern methods of construction that support the adoption of product platforms.
Extract : Construction Innovation Hub | mtc | bre video.
Social, environmental and economic value
Procurement and supply chain management is not just about cost savings. Legislation is changing quickly and companies now have a responsibility to deliver social, environmental, and economic value through their supply chains. This means considering the social and environmental impacts of their suppliers and ensuring that their suppliers operate ethically and sustainably. By adopting sustainable procurement practices, companies can not only reduce their environmental impact but also achieve long-term cost savings through reduced waste and increased efficiency.
Recommendation
What gets measured, gets done...right!? Wrong - for years we have asked the wrong questions and blindly continue to ask generic questions about, time, cost, quality, safety, etc.
Procurement has never been under more pressure to help get through the tough economic head winds we face globally. We have to resist the temptation to make cost based decisions and remind those who challenge us, that as value architects our role is to ensure balance and just decisions are made in support of each balanced score card / award decision.
We need to STOP and change the questions we are asking of the supply chain to be far more value adding and relentlessly pursue sustainable solutions when adopting a product platform approach.
Extract : Smart Procurement | How to buy less carbon - toolkit.
This is a great opportunity to streamline your procurement solution.
Our mission is to improve construction procurement through consultancy, technology & collaboration. We know this could be a catalyst that up to 50% uplift in productivity, and help lower carbon through the removal of as much as 30% of the waste through greater precision of factory controlled processes.
Supplier integration
Adopting a product platform approach is not a panacea to improve construction procurement. We believe the key to unlocking value is accelerating the transition from traditional transactional procurement models to horizontally integrated relationships structures are designed to facilitate the delivery of programmatic outcomes.
But wait G...what about a few questions.
Q - "By adopting a Product Platform approach, aren't we just doing transactional procurement? I thought you wanted us to be strategic...
A - No, this is about disaggregating the demand cycle and designing a strategic procurement solution to support the Product Platform approach to delivery. Disaggregation* means we will separate something into its component parts. I know this sounds counter intuitive and is different to how we currently do things ... but Procurement teams also need to think and adopt a different approach to procurement and move with the times!
So, think BIG! We will use some of our existing skills + some new ones to secure programme wide deals, not just for the project we are working on.
Statement - " It will never work! We don't value strategic procurement now, why is this any different?"
A- When procurement is a shadow budget organisation it sits in the back water it is not in control of its destiny, it does not adding value.
As budget controls become more digitised, which they will, procurement is diminished almost to the point of nonexistence. Procurement is C-suite, and can add strategic value, only part of it is transactional. The best procurement strategies recognise procurement plans need to be multi-dimensional and agile. This is just a new facet of our changing role, and we will need to adapt as it's not going to go away any time soon!
*Disaggregation takes place in a range of fields, but is typically used to allow focus by taking some larger (an operation, a building, a dataset, a supply chain) and breaking it into smaller pieces. A disaggregated plan is one which has a series of smaller, semi-independent plans.
By integrating our suppliers into your supply chain processes, we can reduce lead times, improve quality, and achieve cost savings. This can be achieved through better communication, collaboration, and information sharing between suppliers and buyers.
Recommendation
We recommend sharing demand forecasts with suppliers, so they can better plan their production schedules and reduce capacity risk.
Unstructured data
Today's procurement remains very much analogue. We are obsessed with end - end solutions, which don't support our need to be agile and adaptable....after construction is flued and all about change.
There is an argument we collect too much data and are drowning in it!
When data is un-orchestrated, it is hard to access/use. We need to strive to only collect relevant data and automate /curate / store our supplier data in our CDE's that is intuitively and securely accessed. Some woudl say, even this approach is outdated and there are movements to adopt and make data far more accessible through opensource solutions.
We have an obsession with wanting more and more supplier data to be able to report on everything from market intelligence, spend management, performance metrics, relationship status, capability, commitment and resource availability / capacity, social, environmental and economic sustainability credentials instantaneously. The only way procurement can achieve this is to build trusting relationships with suppliers where they are incentivised to share their data not just at tender stage but as they evolve through the contract life cycle.
Recommendation
This is where we need to adopt more technological assets to integrate our partners and help us measure our collective performance against programmatic baselines.
This is very much a journey, whilst today’s procurement teams have some of this data, we need to consider if our current procurement technology transformation road map is fit for purpose.
Check if your road map considers the following:
We understand what data we need and how we intend on using it.
We will simplify, standardise and automate our process to be able to integrate into product platform solutions
We can provide customers & investors confidence in our resilience through our ESG data.
We use Environmental Product Declarations to influence strategic carbon interventions early in the design process.
We are confident our ESG maturity aligns with the ISO 20400 standard.
Strategic organisation design
In addition to supplier integration, strategic organisation design is crucial in achieving economies of repetition in procurement and supply chain management. This involves designing your integrated delivery organisation, whether temporary or permanent, by co-creating a partnering ecosystem of suppliers that are horizontally integrated.
We need to ensure we adequately create space and accountability for relationship management for relationships with suppliers, and these relationships success factors need to go beyond time and cost, but reinforce the strategic value of the programme to include success factors such as innovation, ESG, resilience, value creation.
The project-centric approach in construction has traditionally driven decentralised decision-making and financial control at a project level. This has often led to a narrow focus on individual projects, with little consideration for the wider supply chain.
However, by adopting a more integrated approach to supply chain management, companies can achieve greater economies of repetition through the use of standardised activities and the ability to share best practices and better manage risk.
Check out Construction Project Organising, Simon Addyman (Editor), Hedley Smyth (Editor)
The book investigates the relationship between structure and action, and how patterns of action are created, recreated and maintained by scrutinising the myriad of organisational arrangements between clients, financiers, design teams, contractors, stakeholders and supply chains. It also discusses different concepts in the development and management of construction project organisations, including formation and maintenance issues.
Construction Project Organising highlights some of the key issues that remain underdeveloped in the modern literature.
To achieve this, companies must design their integrated delivery organisations in a way that promotes collaboration and coordination between suppliers. This involves co-creating a partnering ecosystem of suppliers that are horizontally integrated, with a shared vision and goals. By doing so, companies can achieve greater stability technically, commercially, and organisationally, leading to improved efficiency and cost savings.
Conclusion
Changing our procurement and supply chain models can help us achieve economies of repetition by aligning to product platforms, adopting modern methods of construction, delivering social, environmental and economic value, and integrating our suppliers. By doing so, companies can achieve significant cost savings while also delivering social, environmental, and economic benefits.
However, to achieve these benefits, procurement and suppliers must be willing to invest in new technologies, processes, and partnerships that will enable them to achieve their goals.
Author - Gareth Evans - CEO, Smart Procurement Solutions Ltd
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