Construction Supply Chain Management: An Introduction

A supply chain is a total system that produces and delivers a product or service, from the very beginning stage of sourcing the raw materials to the final delivery of the product or service to the end-users.
Construction Supply Chain Management, Introduction, L&T EduTech Blog

Construction Supply Chain Management: An Introduction

A supply chain is a total system that produces and delivers a product or service, from the very beginning stage of sourcing the raw materials to the final delivery of the product or service to the end-users. It includes the flow of materials, products, information, and money associated, making it one of the most complex areas of the construction value chain. The term itself originated in the manufacturing industry but its roots go back to long before data was available at the palm of our hands. 

Construction Supply Chain Management, Introduction, L&T EduTech Blog
Understanding Construction Supply Chain Management

Construction supply chain management refers to the processes, systems, and practices used to manage the flow of materials in the construction industry and includes managing the relationships between various parties within the supply chain—including manufacturers, suppliers, contractors, owners, and more.

The supply chain covers all aspects of a production process, including the activities involved at each stage of a project, information that is being communicated to all parties involved, natural resources that are transformed into useful materials, human resources, and other components that go into the finished project.

As it is known, the construction industry´s value chain is composed of so many players and it is so fragmented, that supply chain management becomes one of the key components to ensure that a project is running smoothly on time (and on budget), and that every stakeholder involved is fully aware of interdependencies and how their area is progressing towards goals.

A typical supply chain for a construction project comprises engineers, architects, prime contractors, material suppliers, and speciality subcontractors who come together to work on a single project. The complex chain often consists of short-term relationships and non-standard procedures, as every construction project is unique. 

Importance and Challenges of Supply Chain Management
Supply Chain Management (SCM) in the construction industry plays a vital role in improving the coordination and communication between every stakeholder in the construction value chain while ensuring the quality and profitability of the construction project. With many players along the supply chain in construction that can either add value through efficiencies or lose value through increased expenses, proper SCM can increase revenues, decrease costs, and impact a company’s bottom line.
As fragmentation continues to be an ongoing issue in the construction industry, many challenges in the construction supply chains are still very present, mainly due to the interdependency of areas, the lack of a proven or standardised SCM model for the industry and, of course, the lack of integration and collaboration between all parties involved.
Design changes, inaccurate calculations, and sometimes the lack of trust among the stakeholders can be a hurdle in the effective implementation of SCM. Inadequate quality of materials and equipment, inadequate training of subcontractors and workers, and the constant variability of the workforce from one project to another are some of the other challenges. Furthermore, there are no tools to efficiently measure the performance of all the parties involved in the project.
Configurations in Construction Supply Chains

Construction Supply Chains (CSCs) widely vary based on the nature of the project and the geographic location. CSCs are usually characterised by temporary initiatives, fragmentation, instability, and high inefficiency. However, the construction industry faces different concerns than the manufacturing industry when it comes to increasing productivity. Often, construction projects are characterised by a high number of participating companies with interrelated processes occurring at various stages and in distinct locations. Construction projects are usually unique, time-bound and require high customisation, especially in individual construction where ETO (Engineer-to-Order) products are common and a major component. Therefore, SCM concepts developed and applied in other industries, like the manufacturing industry, cannot be directly applied to the construction industry.

The primary objective of CSC (Construction Supply Chains) management is to plan and direct specific quantities of materials to the site where the final assembly takes place. According to the type of material assembled, different supply chain configurations can be considered:

1) Make-to-Stock (MTS) for consumables like bolts and other construction consumables.

2) Assemble-to-Order (ATO) for components such as doors and windows.

3) Make-to-Order (MTO) for cast-in-place concrete or prefabricated panels.

4) Build-to-Order (BTO) or Production-on-Demand (POD) for cables and conductors.

5) Configure-to-Order (CTO) for HVAC (Heating, Ventilation and Air Conditioning) and fire protection systems.

6) Engineer-to-Order (ETO) for highly customised parts like boilers, transformers and design facades.

CSCs are bound to adhere to the lead time as determined by project schedules. The lead time is defined as the identification of a requirement to fulfilment of that requirement. A major composition of construction project supplies involves 45 to 65% of ETO supplies based on the nature of the project. While MTS is off-the-shelf items, ATO, MTO and BTO take moderate lead times and CTO takes a higher lead time as it involves engineering and procurement of a variety of materials from various sub-suppliers as configured during the engineering stage, assembled and installed at the project site.

Exploring sustainable practices in Construction Supply Chains, particularly focusing on Engineer-to-Order (ETO) items, for an environmentally conscious and efficient construction industry is essential. You can learn more about strategies for sustainable Construction Supply Chain here: Engineer-to-Order (ETO) Items in Construction Supply Chain Management.

Chaparala Ajaya Babu


Author Bio

Ajaya Babu is a seasoned Supply Chain Management Professional with an extensive 38-year career, notably contributing 30 years to Larsen & Toubro. In his role as Joint General Manager in Supply Chain Management at Larsen & Toubro Construction, Power Transmission & Distribution IC, he specialises in strategic sourcing, procurement transformation, and supplier management. With a proven track record of driving procurement efficiencies, cost savings, and vendor optimisation, Ajay brings a wealth of expertise to the field. Beyond his corporate endeavours, he is a dedicated coach, passionately committed to empowering individuals to unlock their full personal and professional potential. He focuses on fostering mental well-being by working on thoughts, feelings, and behaviours, contributing to holistic development. His strong negotiation and communication skills, combined with a profound understanding of supply chain principles and digital procurement tools, make him a standout professional in the industry.

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