F O U N D A T I O N S O F C I V I L A N D E N V I R O N M E N T A L E N G I N E E R I N G

No. 6 2005
Publishing House of Poznan University of Technology, Poznan 2005
ISSN 1642-9303
Anna SOBOTKA, Agata CZARNIGOWSKA, Krzysztof STEFANIAK
Lublin University of Technology
Institute of Construction and Architecture
LOGISTICS OF CONSTRUCTION PROJECTS
The paper discusses selected aspects of logistics with regard to a construction
company as an organisation and as a participant in a construction project. On the basis
of a recent research in Poland, patterns of development of logistic systems and relations
between the participants of construction projects have been presented. The project
delivery systems and their connection with possible supply models have been analysed
focusing on supply logistics. Experience of construction companies and comparison of
supply systems cost simulations point out, that outsourcing of supply logistics processes
may significantly reduce total logistic costs.
Key words: logistics in construction, construction project, delivery systems in
construction, logistic centre
1. INTRODUCTION
The tendencies towards efficiency improvement and risk control in project
management indicate the significance of logistics, i.e. a branch of knowledge
applying new concepts to control material, service, information and finance
flows between suppliers and customers. In the field of construction, procurement
planning and execution (ordering, reception, transport and storage) dominates
the logistic processes [7].
Following the example of other industries, there are attempts to integrate
construction logistics into logistic chains of suppliers and customers, from the
suppliers of raw material, manufacturers, distributors, to the end-users. Logistic
processes, being crucial for successful completion of the project but in fact
auxiliary, are often entrusted to external professionals specialised in logistic
204 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak
services, such as logistic centres [1, 2, 3] and this tendency is also to be observed
in construction. Traditionally, each contractor taking part in a project was
responsible for his/her individual supply chain to provide materials and services
required within his/her scope of works. At the present time of well-developed
market for building materials and services, centralising and outsourcing the
project supply logistics is seen as a more cost-efficient solution facilitating
project control. With the development of project delivery and management
systems, and as the choice of suppliers is considered, traditional decision-makers
(designers and contractors) are replaced with new ones: project managers or
even owners select materials and suppliers.
The paper focuses on a number of aspects of logistics and its specific
features regarding a construction company as an organisation and as a
participant in a construction project. The results of a ten-year survey of changes
of construction supply systems are presented and analysed in relation to the
project delivery system as a premise for the selection of the supply system. The
enclosed simulation-based calculations of logistics expenses present the impact
of supply organisation on costs.
2. BASIC FEATURES OF CONSTRUCTION LOGISTICS
Logistics is often defined as managing the supply chains, the latter being
a network of organisations linked by material and information flows bounded
with a product (project) life cycle (from the procurement of raw materials
through processing and handling the products and the final product, distribution
and sales to the end-user and finally, to waste utilisation). All the processes and
relations concerning the above flows form a logistic system. A company, being a
member of a larger supply chain of suppliers and customers, has its own system
of internal logistics also in the form of supply chains (Fig.1)
Fig. 1. A building contractor within a supply chain of materials and participants of a project
Logistics of construction projects 205
Logistic processes are present in various fields of activity within
a company (purchase, production, sale etc.). Isolating and integrating logistic
tasks performed by all organisational units of a company results in creating
logistics departments that co-ordinate all the flows. Three basic models of
logistic systems are to be observed in building companies:
informal, where co-ordination of logistic tasks of separate departments and
fields of activity is enforced within the existing organisational structure of
the company,
semiformal, where a logistics manager takes the responsibility for the co-
ordination of logistic processes of the company, but is not in charge of the
departments, where these processes are conducted,
formal, where a separate department takes over all the logistic processes of
the company.
The particular model of logistics is selected according to the current
organisation structure of the company, its targets and management strategy. The
actual size of company is also important. 97% of all Polish contractors employ
up to 20 people and, therefore, have no logistics department in their structure.
The semiformal model with a single specialist is preferred. Larger enterprises
that used to have well-developed logistics departments tend to go back to the
semiformal model (reduce the number of employees) or decide to outsource their
procurement. Numerous surveys on logistic systems in construction indicate
dynamic changes in this domain [3,4,7,9].
Contractors are usually only single links of logistic chains that provide
a project with products, services, information and finance. In contrast to
manufacturing industries, which profit with long-lasting partnership with
suppliers and customers, logistic chains in construction are considerably more
difficult to manage and to optimise. This results from:
diversification of projects (various materials, methods, location of each
project means a new constellation of supply chain members each time)
technical complexity of a project,
number of participants in the project,
domination of the bidding system of contractor acquisition (random
partnership within the chain),
difficulty in adjusting each members logistic routines to the logistic system
of the project.
Therefore, the co-operation within the framework of the project supply
chain is short-term. The participants of a construction project (builders,
suppliers, employer etc.) tend to compete among one another to make the most
of the project. For the next enterprise they are going to join new partners and
form new supply chains [11]. Construction logistics may be considered in
a number of aspects [6, 11], e.g.:
206 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak
the building site as a production system and a member of many logistic
chains, where complex processes are executed within time, space and budget
constraints whole project logistics,
supply chains delivering products from external sources to the building site
(supply logistics),
co-ordination of material flows on the building site (on-site logistics),
participants of the construction project as separate entities participating in
other projects at the same time.
As the success of the project depends on the co-ordination of the on-site
and external logistics in all above aspects, a considerable managerial effort is
required to bring the efforts of all participants of the project in consonance and
to reach the synergetic effect [10]. The construction project comprises a number
of stages from its conception to commissioning. Each stage involves logistic
processes. Serra and Oliveira [6] propose a set of guidelines (table 1) for the
preparation and implementation of an integrated logistic plan of a construction
project.
Table 1. Logistics production plan guidelines [6]
Project phase Guidelines and tools
Design
Logistic guidelines for the conception
Analysis of technological alternatives
Definition of the plan of attack for on-site work
Production design, site design
As-built design
Planning
Gantt physical chart
Gantt materials consumption chart
Gantt equipment chart
Histogram of own labour
Gantt subcontractor chart
Gantt chart of implementation of work safety-related preventive
measures
Supplies
Materials specification
plans for materials delivery to the site
Gantt chart of the start-up of the purchasing process
Materials/supplies purchasing rules
Materials and services suppliers qualification
Guidelines for equipment purchasing or leasing
Use of indices of material losses and wastage
Execution
Plan for the execution of work
Documentation, implementation and maintenance of the
information system
Use of labour and equipment productivity indices
Work safety and health rules
Logistics of construction projects 207
A carefully developed logistic plan accounts for all possible relations
among the participants of the project: the project owner and management,
designers, contractors, suppliers of services and products, insurance companies,
financial institutions and regulatory bodies [6].
3. CHANGES AND PATTERNS OF SUPPLY SYSTEMS IN
CONSTRUCTION
The chapter presents results of a ten-year survey of logistic systems of
building contractors and construction projects [9]. Considering contractors, the
data were collected in years 1992 2003 and relate to: sources of supply,
delivery contract routines, criteria of suppliers selection, reasons of delivery
inaccuracies, bases of material demand forecast and distribution of responsibility
for logistic decisions.
Figure 2 presents an average share of value of purchase according to
source of supply for years 1996 2002. There is a tendency of decreasing direct
purchase from manufacturers for the benefit of wholesalers. This is related to
other trends of reducing own transport and using suppliers delivery services.
Manufacturers often concentrate on production and offer no transport services.
Fig. 2. Share of value of purchase according to the type of supplier in 1996 and 2002
In most cases, delivery contracts concern single projects and there are no
exclusive suppliers, but a long-time co-operation with a number of suppliers
occurs quite often. Such partnership allows the contractor to negotiate better
terms of contract (discounts, terms of payment). The long-time contracts usually
regard selected ranges of goods. Figure 3. shows the proportion of long and
short-term delivery contracts.
208 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak
Fig. 3. Share of long and short-term delivery contracts in Polish construction (2002)
The co-operation between contractors and suppliers tends to grow. The
suppliers offer additional services of warehousing and deliver on request in
batches. Each batch may be paid separately.
The criteria of supplier selection are presented in Figure 4. Figure 5 shows
methods of supplier acquisition.
Fig. 4. Criteria of supplier selection in Polish construction companies (2002)
Fig. 5. Methods of supplier acquisition used by Polish contractors (2002)
Logistics of construction projects 209
Delivery inaccuracies occur quite often in spite of the consumer
domination in the market. Basic grounds for them are the financial difficulties
caused by employers delay in payment and change of sequence of works on the
building site. Further reasons are errors in the design, errors in orders, difficulty
in obtaining non-typical materials. Typical supplier failures such as problems
with transport are rare. Bases of contractors forecast of material demand are: the
construction schedule (57%), the bill of quantities (14%) and experience (29%).
As for logistic decisions, there are usually a number of decision-makers
within the organisation whose scope of actions differ according to the structure
of the enterprise. With regard to the supplies, most decisions are made by
construction or site managers and purchasing departments (Fig. 6)
Fig. 6. Distribution of responsibility for logistic decisions in Polish construction
companies (2003)
The results of the survey also point at the changes in the contractors
supply system, consisting in the reduction of the scope of logistic tasks
performed by their own departments. Firstly, own transport and warehousing are
being kept to the minimum. Secondly, processes connected with information
flows, e.g. supplier selection, are being limited.
These tasks and functions are often taken over by the members of the
external logistic chains such as transport companies, wholesalers or
manufacturers. The stock stored traditionally on the building sites is often kept
by the suppliers and delivered on request in batches. The project management,
designers or even employers often select materials and suppliers. Also the
project management, hired logistics professionals or specialised wholesalers take
210 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak
over the supply planning and scheduling. Therefore, more participants are
involved in a construction project. The relations among them evolve
continuously (Fig. 7) and further specialisation is to be observed [3,4].
Fig. 7. Relations among members of a project supply chain [4]
It is clear that there is no typical or best system of project logistics. In
a longer perspective each system must be readjusted to the external conditions or
even completely redesigned. New, effective solutions have to be implemented to
reach the expected efficiency of a project. Currently, the employer dominates the
highly competitive construction markets and his decisions are binding for any
actions of designers, contractors and suppliers, which reflects in the network of
relations of project participants. The ultimate relation model depends also on the
delivery system of the project.
4. DELIVERY SYSTEMS AND LOGISTICS SYSTEMS OF
CONSTRUCTION PROJECTS
The logistic system of a construction project influences considerably the
projects time and cost. The selection of the logistic system depends, however,
on economical, physical and organisational conditions of the project e.g. scope
of the project, location and delivery system. Any arrangements concerning the
project delivery system are meant to be most economic for the owner and allow
him to be involved in any decisions he wishes to influence. The most common
delivery systems in construction are [12]:
the design-bid-build systems
the design and build or turn-key systems
the professional construction management systems
Logistics of construction projects 211
The design-bid-build system requires the owner to manage the planning
phase, to hire an architect and then to select and hire contractors or a general
contractor to execute the designed works. The three main actors of the project
(owner, designer and contractor) work separately within their scopes of
responsibility (Fig.8). The whole process is sequential: first comes the design,
then bidding and finally the construction.
Fig. 8. Schematic diagram of the relations within the design-bid-build system with
independent contractors (left) and with a general contractor (right)
In the case of the design and build or turnkey systems, the owner
employs a single contractor providing managing, design and construction
services (Fig. 9), acting as a general contractor or hiring contractors. There is
only one contractual relationship involving the owner. The contractor takes over
the whole responsibility for the completion of the project. The design and
construction processes may be conducted simultaneously (within one team or
one company) and therefore improve information flows and shorten the time of
the project delivery. Traditional conflicts between designers and contractors are
eliminated.
Fig. 9. Schematic diagram of the relations within the design-build system with and
without a general contractor
Professional construction management systems introduce another party to
the traditional triangle of the owner, designer and builder - a professional whose
task is to represent the owners interests, integrate and manage all the processes
212 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak
and to co-operate with the designers and the contractors. The manager offers his
expertise to support any decisions from the conceptual phase to the
commissioning of the project and to co-ordinate planning, design and execution
activities to reach the synergetic effect and to shorten the projects completion
time. The manager may enter the project as a consultant with or without being at
risk (i.e. entering contractual relationship with contractors or not Fig. 10).
Fig. 10. Schematic diagram of the relations within the construction management (left)
and management contracting systems (right)
Regarding the project logistics, four basic models of supply systems are
possible:
independent supply chains for individual contractors, where selection of
suppliers, supply planning and scheduling is the duty of each contractor,
centralised supply system managed by general contractor or other party
managing the whole project, by means of their own logistics departments,
centralised supply system managed by an external logistics company,
combination of the above.
Supply systems based on independent chains or services of an external
logistics company are possible in any type of project delivery systems. In the
case of delivery systems with a general contractor or other party that disposes of
necessary logistic resources, it is reasonable to use them to create and manage
the whole project supply system. Such party benefits directly from any
improvement of logistics. Integrated logistics for the whole project means the
possibility of optimising supply chains and co-ordinating deliveries, which is
significant for sizeable construction projects that involve many contractors
working in confined space. Shifting responsibility for supplies to many
subcontractors may result in the building site congestions, excessive expenses
and delays.
Business organisations offering service in the field of logistics may exist
in the form of independent companies or be created specially for the needs of a
construction project. According to their scope of activities they may take over all
the logistic processes within the projects life cycle or focus on some functions,
e.g. supply control, transport and warehousing. The complete logistic service of
a construction project may comprise [2]:
Logistics of construction projects 213
1. Developing logistic concepts for designing and planning:
feasibility study of logistic alternatives,
plans of logistic processes and information flows,
economic efficiency study,
environmental impact assessment.
2. Developing strategic guidelines for bidders:
preparing bidding requirements,
assisting bidders and supervision over their logistic solutions,
evaluating bids, participating in contractors selection.
3. Assisting bidders (potential suppliers, forwarders and contractors) in bid
preparation:
developing specific logistic solution to improve the quality of service,
developing logistic standards for bid preparation.
4. Developing plans of the building site logistic and supervising their
execution, integrating purchase, transport and execution of construction
works:
creating operational logistic centres servicing a complex of projects,
implementing IT systems,
constructing IT networks to improve information flows and to optimise
them,
implementing ideas of the supply chain management on the building
site.
5. Controlling
developing and implementing systems of quality assessment for logistic
processes,
recording feedback information on the effects of implementing
integrated logistic systems.
6. Optimising supply and purchasing process
within the scopes of manufacturers, general contractors and
subcontractors,
benchmarking logistic systems of other industries.
The scope of the above logistic services partly complements and partly
overlaps the constituents of the logistic plan for the whole construction project
life cycle as presented by Serra and Oliveira [6].
Centralisation of logistics is meant to lower total cost of the project,
improve quality of works and reduce the project completion time. As the Polish
construction companies keep no account of material cost (and buying cost)
according to the source of their origin, it is not possible to specify the cost of
supply logistics directly on the basis of the account. If a material is delivered by
a number of suppliers and also by means of the contractors own delivery
services, it is only possible to estimate buying costs.
214 Anna Sobotka, Agata Czarnigowska, Krzysztof Stefaniak
A simulation of acquisition costs of a single building material (bricks) [9]
has been based on two supply models:
1. three contractors use the service of a logistic centre,
2. the contractors supply themselves individually.
The prices, discount rates for bulk purchase, storage, transport and
unloading costs and charges assumed for the simulation base on real market
conditions in the Lublin region in the last quarter of 2002, the material
consumption is a random variable for the period of simulation. The results of the
simulation (Table 2.) show that using the common supplier for this particular
material allows the customer to save 6% of acquisition costs. The logistic centre
is able to negotiate better discounts and offers lower buying costs, but its
average stocks are heavier and the cost of frozen capital grows. There are also
costs of internal transport (from the logistic centre to its customers).
Table 2. Results of supply cost simulation [9]
Individual supply cost [zl]
Cost
type
Centralised
supply cost
[zl]
Contractor
1
Contractor
2
Contractor
3
Total
Advantage
of logistic
centre
services
[zl]
1 2 3 4 5 3+4+5 (3+4+5)-2
Material
value
540 960,00 193 660,00 38 640,00 308 660,00 540 960,00 0
Buying
cost
3 627,45 2 469,87 1 478,40 2 952,40 6 900,67 3 273,20
Price
discount
-51 744,75 -5 809,80 0,00 -15 433,00 -21 242,80 30 501,90
Cost of
shipping
26 460,00 12 630,00 2 520,00 20 130,00 35 280,00 8 820,00
Int.
transpor
t
1 563,72 0,00 0,00 0,00 0,00 -1 563,70
Frozen
capital
(stocks)
13 176,28 2 117,09 648,46 2 843,90 5 609,45 -7 566,80
Total 534 042,70 205 067,16 43 286,86 319 153,29 567 507,32 33 464,62
The advantages of logistic centres are not limited to cost reduction. The
quality of service is also higher due to specialisation of logistic organisations.
Logistic centres are able to co-ordinate and optimise their transport and therefore
diminish the traffic loads (important in cities) and reduce air pollution.
Logistics of construction projects 215
5. SUMMARY
Construction logistics deals with many technical, organisational and
environmental issues affecting the cost of a project, time and quality of
execution. Traditionally, each contractor uses and manages his own supply
chains. In the case of larger projects involving a number of contractors,
incompatibility of logistics concepts and lack of co-ordination results in serious
disturbances in material and information flows. According to modern ideas of
management, centralisation of logistic functions and management allow many
actors of a construction project to reach the synergetic effect of their efforts.
Implementation of integrated logistic systems such as these offered by logistic
centres may be particularly effective in larger construction projects located in
city centres (confined space, limited transport possibilities), where massive
flows of material have to be managed (e.g. extensive earthworks requiring
transport of excavated material). The main task of an integrated logistic system
is to provide just-in-time deliveries, eliminating most of material handling and
storage on site, to shorten the time of project completion by eliminating reasons
of work stoppage, to minimise disturbances in local traffic and air pollution due
to exhaust gases emission. Shifting most of the logistic processes on logistic
professionals allows construction companies to reduce their fixed costs and to
concentrate on the development of their core competencies.
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A. Sobotka, A. Czarnigowska, K. Stefaniak
LOGISTYKA PRZEDSIJWZIJC BUDOWLANYCH
St r e s z c z e ni e
Artykul zawiera omwienie wybranych aspektw logistyki i jej specyfiki
w odniesieniu do przedsibiorstwa i z punktu widzenia przedsibiorstwa budowlanego
jako uczestnika przedsiwzicia, a takze zachodzace zmiany w logistyce na podstawie
badan. Zwrcono uwag na zaleznosc modelu obslugi logistycznej od systemu realizacji
przedsiwzicia. Dokonano analizy systemw zarzadzania przedsiwziciem w aspekcie
wyboru modelu obslugi logistycznej. Zalaczony przyklad obliczeniowy przedstawia
wplyw modelu obslugi logistycznej na koszty logistyczne przedsiwzicia.
Received, 02.06.2004.