Competitive bidding continues to dictate the supply chain decisions of the construction industry. Historical performance measures are, in best case, considered secondly but often not at all, due to a lack of interest and/or a lack of data.
Construction firms failure to recognize good OR poor supplier performance, or to ensure that lessons learned (design optimization opportunities, material limitations, component/construction techniques) influence future procurement decision making, means that supplier performance information is often anecdotal which in turn is a major risk to the success of the project in an industry where companies are highly susceptible to the performance of subcontractors and materials suppliers.
Reasons for construction firms to develop an SPM program
- Huge reliance on Suppliers. External spend is approx. 70% of the cost of a construction project. How do you ensure you are getting best value for money?
- As of 2014 construction profit margins have dropped to 2.1%, their lowest for 15 years. Supplier-related cost/time over-runs or quality issues can eat away at already low margins, but how will you know where look for improvement without continuous performance management?
- Cost of waste can be as high as 4-5% of turnover. In construction, a competitive edge can pivot on good supplier performance.
- Identify and reduce hidden costs. In construction hidden costs (poor quality, delivery delays or poor documentation) can represent twice the invoice price.
- SPM provides an objective reference for future supplier selection. A Scandinavian study concluded that firms with performance-based supplier relationships seen improved performance though:
- Elimination of material stock-outs
- Increased on-time delivery
- Reduced in-transit damage
- Improved incoming product quality
- There is a renewed and increased focus on HSE and the regulatory compliance of your supply base.
- Shortages in skills, labour and materials make it more important to measure the performance of your 2nd or 3rd choice suppliers.
- Additional risk and cost associated to global projects, specifically the use of local suppliers and compliance with local regulatory HSE requirements.
To properly measure your supply chain you need to define those metrics that provide the greatest insight into your supplier’s performance. The key measurements of construction success are Time, Cost, Quality & Safety. The BiznetP6 tool enables companies to track and manage performance using the Key Performance Indicators mostly meaningful to their organizational goals and objectives.
- Reschedules & Reasons why – i.e. lead time not given for call up, materials not available and labour not available
- Job Not Ready
- Late Start – When the requested date is not met
- Over Duration
- Quality – Can be harder to assess as it is invariably subjective
- Number of reworks & severity
- Cross Charging
- Qualitative feedback – from key stakeholders via survey