Supply Chain Management and Logistics in Construction

Delivering Tomorrow's Built Environment

Greger Lundesjö

• Publisher: Kogan Page
• Year: 2015
• ISBN:
  9780749472436
• Edition: 1
• Topic: Business
• Subtopic: Operations
• Index: Business

The construction logistics manager plays an increasingly central role in the construction process. In fact, their decisions can crucially affect the success or failure of a project. Recognition of the critical role they play has spurred evermore interest in this budding field amongst both researchers and practitioners. An accessible text on construction logistics, Supply Chain Management and Logistics in Construction provides essential guidance and expert advice for construction managers, as well as researchers and students in the field. This important new title looks at arrangements with suppliers, the use of returnable packaging and off-site manufacture and assembly, IT systems used to manage the supply chain and logistics operations, such as delivery management systems, warehouse management systems and material planning and forecasting systems. It also considers aspects of the contractual relationships between client, developer, main contractor and lower-tier contractors, all of which have an impact on how the supply chain is managed.In addition to providing a range of fresh ground-breaking case studies, the book features contributions from leading experts in the field who have been involved in projects with companies such as TFL, BAA, The Red Cross, as well as big construction programmes such as the Olympics and Cross Rail.

Part one

Strategic perspectives

01

The challenge of construction logistics

MICHAEL BROWNE

Introduction

Construction logistics is a very challenging area in which to manage the range of logistics activities, including inventory control, transport, recovery of waste, recycling and so on. Some of the features of construction are unique to that industry. However, there are often useful lessons that can be found in other sectors such as manufacturing and retail. The aim of this chapter is to provide a broad introduction to logistics management as a discipline and to explain some of the main features of logistics management that have emerged since the mid-1990s. The chapter starts by defining logistics and explaining something about the interactions with other areas such as purchasing and supply chain management. The second part of the chapter focuses in more depth on transport and storage activities within logistics. Third, the chapter reviews some of the issues that have emerged in the consideration of construction logistics. Many of these themes are discussed in detail in subsequent chapters. A great deal of construction activity is associated with urban areas and this spatial context is discussed in the fourth section of the chapter. Finally, a short conclusion draws out some of the key features of the challenge of managing logistics within the construction sector.

Definitions and the importance of logistics

Logistics is now a widely used and understood term throughout the business world, and refers essentially to the management of supply chains in commerce and industry. The box below contains several definitions of logistics and shows the scope of the discipline and some of the changes over time.

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Definitions of logistics

The management of all activities which facilitate movement and the co-ordination of supply and demand in the creation of time and place utility.

(Hesket, Glaskowsky and Ivie, 1973)

The technology of control of the physical flow of materials and goods and related information that a firm sends, transfers and receives.

(Colin and Fabbe-Costes, 1994)

Logistics is an application-oriented scientific discipline. It analyses and models division-of-labour economic systems as time-based and location-based flows of objects (above all goods and people) in networks, supplying recommendations for action on the design and implementation of these networks.

(BVL, 2010)

Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements.

(CSCMP, 2013)

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The Chartered Institute of Logistics and Transport defines logistics as ‘the time-related positioning of resource’. This definition is interesting because it draws attention to the importance of time as a feature that has been significant in changing the way that managers think about planning and organizing their supply chain operations and logistics activities.

Logistics is also described as the ‘five rights’. Essentially, it is the process of ensuring that a product or a service is:

• in the right place;
• at the right time;
• in the right quantity;
• at the right quality;
• at the right price.

Precise definitions can therefore be seen to vary, but the common thread is a concern for the movement and storage of goods, together with the associated information flows, from the beginning to the end of the supply chain (the supply chain being the entire system of supply from point of growth/production through to the point of use/consumption then beyond that to the point when products are recycled or enter the waste stream). So, for a manufacturing company, logistics management could include:

• the procurement and sourcing of raw materials or components;
• inwards transport;
• materials handling and storage and the link to production processes;
• the final distribution of finished products to customers;
• after-sales services, including return and ultimate disposal.

Therefore logistics costs include storage costs, together with the financial cost of holding stock or inventory, handling costs, transport costs, packaging and administration. Increasingly, with the growth in environmental pressures and legislation and the need therefore to reuse or recycle materials, the transport and handling costs incurred in these activities can also be considered in the total logistics costs for a product.

The costs of these activities (transport, storage, handling and so on) can be considerable. It is not unusual for them to amount to some 10 per cent of the total sales value of products produced by a manufacturing company. Of course their importance as a proportion of the final price of goods varies according to the product in question. For products with a low value to mass ratio the significance of logistics costs in their final price is likely to be considerable.

However, measuring logistics costs can be difficult. Definitions vary and the significant role of outsourcing can make it hard for companies to keep track of the true costs of their logistics operations. Managers often adopt a number of key performance indicators (KPIs) in order to track and monitor costs (Braithwaite, 2014). Understanding and controlling costs and anticipating trends is argued to be an essential part of remaining competitive.

Logistics management has been referred to as ‘joined-up thinking’ and indeed it is this aspect of considering the trade-offs and interrelationships between different activities taking place in a supply chain (transport and storage, for example) that lies at the heart of logistics planning.

Logistics and the supply chain

Logistics management is a discipline that spans boundaries within an organization – therefore it helps to ensure the coordination of activities including purchasing, production, inventory management, finance and marketing. Logistics management is also required when flows between companies are considered. Supply chain management can be seen as a broader management approach that includes a strong focus on the interaction of organizations that are working together in the supply chain. Much of this interaction will involve the management of logistics.

Logistics management is an integrating function, which coordinates and optimizes all logistics activities. Logistics management also integrates logistics activities with other functions including marketing, sales, manufacturing, finance and information technology. Mangan et al (2011) define supply chain management as ‘the management across a network of upstream and downstream organisations of material, information and resource flows that lead to the creation of value in the form of products and/or services’.

Management decisions concerned with the construction supply chain need to encompass many factors including:

• Spatial aspects of the supply chain (issues such as where to source products and materials and where to locate distribution centres to best serve the downstream construction activity).
• Transport operations within the chain (for instance the mode of transport used, whether transport is operated in-house or contracted out, consideration of different stages of transport in the supply chain etc).
• Stockholding systems used in the chain (for instance the size and degree of automation of warehouses, the amount of stock that should be held).
• Materials handling systems used in the supply chain (ie the systems used to load and unload transport vehicles and convey products within a warehouse and at a construction site. This can involve examination of the equipment used and the appropriateness of the operation itself).
• Interaction between different logistics activities in the chain (for instance consideration of trade-offs between different logistics activities such as transport and stockholding – by reducing the total number of warehouses it is possible to reduce total stockholding costs but transport costs are likely to increase; supply chain analysis can help to examine the most appropriate solution within a given set of constraints).
• The role of, and interaction between, different supply chain parties (ie consideration of how those involved in the chain could perform their tasks in a more efficient manner and how different parties could work better together through planning and information exchange).

By considering the entire supply chain associated with moving a product to the end user in an integrated manner it is possible to gain a better understanding of logistics costs arising in the supply of a product, and to consider ways in which the supply chain can be efficiently organized and managed in order to reduce these costs.

Diversity of the construction industry

A challenge for construction logistics is that while the processes described above can be argued to be generic, the application of these processes in construction is extremely varied. Construction sites vary from the small-scale building of private houses to major areas of urban regeneration with multiple activities taking place in a city location at the same time. The nature of the construction industry means that organizations of many different sizes and levels of sophistication will often be involved in a project. This means that the coordination aspect of logistics management is complicated and can be hard to achieve.

Factors that influence logistics activities

When considering the logistics costs associated with a product a number of key factors about the characteristics need to be considered. The particular characteristics of any given product will have an impact upon the distribution system for that product. Product characteristics that will influence the distribution system can be classified in three categories: volume to weight ratio, value to weight ratio and special characteristics. Given the range of materials and products used in construction it is clear that there is tremendous variety in terms of these ratios and the special characteristics and storage, handling and transport requirements. It is also important to recognize that global issues also impact on construction logistics. For example the many political, regulatory and cultural differences that need to be taken into account when shipping materials internationally.

Volume to weight ratio

Both the volume and weight characteristics of a product are likely to have a significant impact upon transport costs. Distribution systems tend to deal with products with low volume to weight ratios more efficiently than products with high ratios (examples of products with low ratios include dense products such as steel and hard woods, whilst high-ratio products include many items such as insulation materials). This is because products with a low volume to weight ratio tend to fully utilize the carrying capacity of a road freight vehicle, handling equipment and storage space. Meanwhile high-ratio products occupy more space and result in the underutilization of vehicle/handling equipment weight constraints, and therefore raise transport and storage costs.

Value to weight ratio

The higher the value of the product, the greater the potential for absorbing the logistics costs (ie the smaller the proportion of the final cost of the product accounted for by logistics). By using the value to weight ratio it is possible to consider the distribution costs associated with a product in terms of the value per unit weight of that product.

Products with low value to weight ratios (such as sand, ore, coal and gravel) tend to be associated with higher transport costs (as a proportion of total delivered cost) than products with high ratios (for example, electronic equipment and computers). However, conversely, the storage costs for products with high value to weight ratios are greater than those for products with low ratios; this is explained by the level of capital tied up in the stock and the need for expensive, secure warehousing.

Special characteristics

There are a number of other characteristics of a product that affect the selection of an appropriate transport, storage and handling system. The fragility of a product will determine the packaging requirements to safeguard the product during transportation and handling. The perishability of a product will affect the conditions under which it must be moved and stored and the speed at which it must travel through the supply chain. Certain products possess hazardous characteristics and must therefore be moved, handled and stored in isolation from other products and within stringent regulations. The nature of construction logistics means that there are many products that exhibit special characteristics, leading to complicated and challenging logistics management requirements.

Time issues

Construction logistics has many varied time issues that influence the scope for efficiency. For a large project, planning will take place over a long time period and the time before construction (or initi...

Table of contents

• Cover page
• Title page
• Imprint
• Table of contents
• Contributor biographies
• Introduction
• PART ONE Strategic perspectives
• PART TWO The impact of BIM and new data management capabilities on supply chain management in construction
• PART THREE Construction logistics and sustainability
• PART FOUR Logistics operations
• Glossary
• Index