Global Logistics and Supply Chain Strategies - June 2008 - (Page 22) Lifting the Burden of Project-Centric Supply Chains BY THOMAS FOSTER As the construction industry and other project-centric businesses increasingly adopt state-of-the-art enterprise applications, they are transforming their supply chains to provide more visibility, less risk, lower total cost and stronger supplier relationships. F or most manufacturers and retailers, supply chain management has centered on minimizing costs through such strategies as offshore sourcing, production in low-cost countries, inventory optimization and cutting logistics costs. In fact, top management routinely measures operational success by how well supply chain costs are minimized on the operating statement. For project-centric industries, however, supply chain costs are among many operating factors that often are over-shadowed by the need to avoid risk, meet tight deadlines or avoid complete disaster. For example, asset-heavy industries such as oil drilling, shipbuilding and defense are focused on 100-percent uptime—not on saving a few dollars in redundant inventory. Construction operations can only function without stoppages if subcontractors and suppliers are able to precisely coordinate deadlines, so high transportation spend is often a necessary cost of doing business. Certainly cost management is important for these industries, but only in the context of the entire project, not necessarily for daily operations. The penalties of shutting down operations or not meeting deadlines for supply chain failures makes all other costs pale by comparison. Richard Cork is a veteran of the construction business in the U.K. and now serves as the construction business development manager for IFS Worldwide, the Swedish enterprise software company. According to Cork, project-centric industries such as construction, shipbuilding and offshore oil rig erection have very different business challenges from any other manufacturing or process industry. Each project is unique, so each is literally started anew from the ground up. The ranks of subcontractors and suppliers are dominated by thousands of small businesses with limited resources and high risk. But the biggest difference is the multitude of variables beyond cost that influence every decision. Cork says that five drivers describe all challenges faced by project-centric businesses: • Risk • Cost • Cash flow • Time • Resources All five of these variables must constantly be weighed against each other before a major decision is made. For example, a general contractor can reduce risk of missing a project deadline by increasing resources such as materials and labor. That decision will increase costs and reduce cash flow, perhaps jeopardizing the ability to pay key suppliers who could delay further shipments. All factors need to be weighed. “The way in which these drivers interact 22 JUNE 2008
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