Global Logistics and Supply Chain Strategies - June 2008 - (Page 24) differs by the type of project and the strategies of companies involved, but they are ever present,” says Cork. The complexity of dealing with these multiple variables has made it difficult for project-centric industries to adopt supply systems and processes commonly used by manufacturing companies. In fact, the construction industry long operated using a wide variety of separate systems focused on the needs of single-function silos such as purchasing, engineering, scheduling, payroll, and so on. “If each application has a different database run by different departments, it is not surprising that information cannot be shared in a timely manner and is too inconsistent to support effective management of the project or the supply chain,” says Cork. This limitation is rapidly changing. Leading ERP vendors, including IFS Worldwide, with years of experience in project-centric industries to take very different approaches in three areas: • Visibility and control of the supply chain • Communication and trust among the partners • Risk management Visibility and Control Large construction project supply chains usually have three, four or more tiers amounting to hundreds if not thousands of suppliers and subcontractors. The visibility and control that the general contractor has over its project diminishes the farther back in the tier structure the supply chain goes. As the visibility and control are reduced, risk increases. Take, for example, a typical office building with hundreds of windows. To block the sun and glare, all of the glass is coated with a reflective material. The window one supplier will have its own tier twos, and so on. By the time the supply chain gets down to the tier threes and fours, there may be thousands of suppliers on a major project, and each adds a great deal of risk. By consolidating the number of tier one and two suppliers, the downstream supply chain is reduced considerably. “We are seeing much tighter supplier chains with fewer tier ones and closer relationships with the tier twos and threes to minimize the danger of a downstream supplier causing nasty surprises,” says Cork. Communication and Trust Whittling down the list of suppliers and subcontractors from hundreds to a few dozen regular partners not only reduces risk, but the project manager is also able to develop meaningful supply chain collaboration. By opening up portions of its IT system to trusted supply chain partners, the project leader can fully leverage the power of its systems and its IT investment. The use of portals to allow these partners into the appropriate parts of the system is now finally gaining momentum in the construction industry, says Cork. Such collaboration with suppliers in extended supply chains has been well established for several years in many global manufacturing industries, but it is relatively new to construction. “Its use is rapidly going beyond just ordering materials,” says Cork. “Contractors and subcontractors are sharing designs and signing off drawings to a point where most aspects of a project are handled electronically, so unnecessary delays are completely avoided.” In addition to the drawings and designs, keeping a project moving requires the supporting metadata such as the lists of materials and the schedules of deliveries. Electronic systems must have all of this information in a signal database, in a signal application, and in a form that is accessible to every key partner. “If there is a holdup or a question, it is easy to see who is holding up and what must be done to solve the issue,” says Cork. Collaboration-capable systems are not new. Stand-alone hosted collaboration systems were bolted onto ERP systems years ago to allow outside users to access certain information, but today’s project-centric companies need collaboration functionality built into core systems to allow maximum “The more low-tier suppliers you have, the more things can go wrong that will have a ripple effect.” — Richard Cork of IFS Worldwide manufacturing have developed integrated ERP and supply chain applications specifically for project-centric industries. IFS Applications for the construction industry, for example, is designed around the need to balance the five key variables across all functions in the firm. “The agility of its architecture allows it to fit each business rather than forcing the business to change,” says Cork, “The single biggest benefit of IFS Applications to this sector is a single application on a single database allowing all users to manage these five drivers.” This shift to integrated IT systems is happening none too soon. Project-centric industries are increasingly facing the same challenges as their manufacturing brethren such as tighter completion deadlines, offshore competition, material cost inflation, labor shortages and pricing compression. From a supply chain perspective, Cork says that these business challenges are forcing manufacturer buys custom-cut glass from a manufacturer that in turn goes to a coating supplier that in turn uses another provider that actually applies the coating and then delivers the finished windows to the site. That tier four supplier now has complete control over the water tightness of that building. If that supplier fails to deliver the windows on time, the building is not watertight. No further work that is sensitive to moisture, such as electrical connections and interior finishes, can be started. Millions of dollars of work is directly dependent on the reliability of that one small supplier. “Low-tier suppliers can have a dramatic impact on risk and the success of the entire project,” says Cork. “The more of these suppliers that you have, the more things can go wrong that will have an unfortunate ripple effect.” The solution to the problem is to reduce the number of suppliers, but the reduction process must begin at the top tier. Each tier 24 JUNE 2008
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