Module 5

Supply Chain Management

(SCM)
Table of Contents

Introduction................................................................................................................ 2

Learning Outcomes ....................................................................................................... 2

Module Topics ............................................................................................................. 2

Supply Chains ........................................................................................................ 2

Competitive positions .............................................................................................. 7

Benefits of SCM ..................................................................................................... 7

Key factors in SCM .................................................................................................. 8

Barriers to SCM ...................................................................................................... 8

Relationships ........................................................................................................ 9

Efficiency of the supply chain in construction ................................................................ 9

Relational exchange............................................................................................... 10

Caution SCM is not a panacea for improvement in procurement! ........................................ 11

Learning networks ................................................................................................. 11

Required Reading ........................................................................................................ 12

Summary .................................................................................................................. 12

References ................................................................................................................ 12

Page 1 of 13
Introduction
Hello and welcome to Module 5 of Project Procurement Management.

In this module you will look at Supply Chain Management. This set of procurement notes follows the
earlier discussion concerning outsourcing and outsourcing decision making; it discusses supply chain
management. There are several papers to read associated with this topic. Exercises will assist the
student in their understanding of this procurement topic.

Learning Outcomes
In this module you will learn how:

To become familiar with the overall principal and process of supply chain management.
To determine the benefits and barriers to SCM in a project environment.

Module Topics
This module is broken into the following topics:

Supply Chains
Competitive positions
Benefits of SCM
Key factors in SCM
Barriers to SCM
Relationships
Efficiency of the supply chain in construction
Relational exchange
Caution SCM is not a panacea for improvement in procurement!
Learning networks

Lets look at each one in more detail.

Supply Chains
The supply chain is a strategic network of upstream and downstream organisations that collectively
process activity/ information flow and produces enhanced value products for the ultimate customer in
an efficient manner (Akintoye, McIntosh and Fitzgerald 2000, Vrijhoef and Koskela, 2000). Barker,
Hong-Minh & Naim (2000:180) simply refer to supply chain management (SCM) as bringing different

Page 2 of 13
parties together to develop shared goals and understanding. The actors in the supply chain are
interdependent, collaborative and largely configured regardless of functional or corporate boundaries
(Akintoye, McIntosh and Fitzgerald 2000, Vrijhoef and Koskela 2000). It follows that in this context they
form the virtual organisation that several writers use to describe the consortia that are founded on a
relationship.

Other pertinent definition of SCM may be found in various sources that include (Larson and Halldorsson,
2002):

The identification and management of specific supply chains that are critical to the purchasing
organisations operations.

a system approach to managing the entire flow of information, materials and services from raw
material supplies through factories and warehouses to the end customer.

Management of upstream and downstream relationships with suppliers and customers to deliver
superior customer value at less cost to the supply chain as a whole.

Another writer indicates that SCM is to (Wisner and Tan, 2000):

efficiently and effectively manage the movement and transformation of materials, components,
products and services along the supply chain until final delivery to the end user.

It appear that over time environmental forces have dictated that competition is no longer company to
company, but supply chain to supply chain (Elmuti, 2002:49).

Managing supply chains requires an understanding of organisational drivers (Spekman, Kamauff and
Spear, 1999). Some characteristic differences from traditional ways of managing include (Spekman,
Kamauff and Spear, 1999:109, Vrijhoef and Koskela, 2000):
Longer horizon in terms of joint planning and monitoring i.e. effectively organising
Compatibility of corporate philosophies for key relationships; actors must share essentially the
same strategic vision (Spekman, Kamauff and Spear, 1999:105)
Sharing of risks and rewards over a long term i.e. trust
Small/ rationalised supplier base to allow increased coordination and reduced transaction costs
(Spekman, Kamauff and Spear, 1999:107)
A propensity toward information sharing
A focus on total costs
A desire to leverage technology

Following this Spekman, Kamauff & Spear (1999) hypothesise high performing supply chains engage in
practices consistent with these principles. This is in contrast to a silo approach where areas of
activity are partitioned and the flow of work passes from one area in a discrete way to another
(Spekman, Kamauff and Spear 1999, Barker, Hong-Minh and Naim, 2000:188)

Page 3 of 13
All of these management characteristics can be risky as an over reliance in relationships is a constant
worry despite the contention that a limited number of strong relationships with high quality suppliers
allows fast response to market shifts and demands (Spekman, Kamauff and Spear, 1999:104). Vrijhoef
& Koskela (2000) identify four major roles of SCM in construction depending on whether the focus is on
the supply chain the construction site or both.

The interface between the project and the supply chain activities
The first focuses on the interface between the project and the supply chain activities. This may be
visualised as the outline box in Figure 1. The goal is to reduce costs and the duration of onsite
activities. A focus on the relationship between contractor and subcontractor/ suppliers will achieve
dependable flow of resources. These are fundamental for the continuance of benefits in the supply
chain (Green et al. 2002). If they are treated as downstream strategic alliances (DSA) they become
more of a service than a product (Proverbs and Holt 2000).

Figure 1: Focus on interface between supply chain and construction site

(Source: Davis, nd)

Required Reading

To obtain a better understanding of interfaces that occur in the supply

chain read the paper noted below that you will find in E-Reserve

Araujo, L., A. Dubois and L-E. Gadde. 1999. Managing

Interfaces with Suppliers. Industrial marketing Management.
28(5): 497-506.

Page 4 of 13
 Activity 5.1

Note several key points from the above paper and be prepared to discuss
this in the context of a project that you are currently working on. Is there
a hierarchy of interfaces? Would you expect more success from one
approach as opposed to another? How would you vary your approach to the
interfaces outlined ie can they be improved upon?

Araujo, Dubois & Gadde (1999 pp 499) list four interfaces with suppliers in this context; standardised,
specified, translation and joint learning;

1. standardised interfaces are characterised as an arms length relationship based on price with
low transaction costs,
2. specified interfaces retain a certain amount of interdependence as they are often
subcontractors or outsourced suppliers,
3. translation interfaces are typically performance based and,
4. joint learning interfaces with suppliers are interactive in their relationship. In the above
interfaces opportunities increase incrementally as does the risk involved with the relationship.

Improving the supply chain

The second major role of SCM in construction provides a focus on improving the supply chain itself.
Figure 2 depicts this where one may see the highlight box now becomes an envelope over the supply
chain itself. This approach affords cost reductions in several areas including lead-in time, logistics, and
inventory. Sequential procurement processes (silo approach) used time and again militate against
improvements (Love, Li and Mandal 1999:10)

Figure 2: Focus on supply chain

(Source: Davis, nd)

Page 5 of 13
Transfer activities from site to the supply chain
Transfer activities from site to the supply chain Figure 3 will avoid inferior conditions on site and
benefit from a wider concurrency between activities.

Figure 3: Focus on transferring activities from construction site to supply chain

(Source: Davis, nd)

Integration
Integrate the management of both the supply chain and the construction site Figure 4. In other words
site production is integrated within the SCM process. This is an holistic approach advocated by (Saad,
Jones and Jame, 2002). Whilst Spekman, Kamauff & Spear (1999:103) indicate that managing every link
in the supply chain is a prerequisite of success. Love et al (2002) base a model for supply chain
integration on Total Quality Management (TQM), learning organisations and systems thinking that is
tied to alliance based (integrative) procurement.

Figure 4 Focus on integrating supply chain and construction site

(Source: Davis, nd)

Page 6 of 13
Competitive positions
Strong competitive positions may be built up with the use of tangible (for example mineral deposits) or
intangible (for example patents) unique resources; these are easily copied sooner or later. Long term
differentiation is sourced by some firms in the way that they build specific competencies on
synergies between resources readily available to everyone in the market (Maskell 1998 pp42). In other
words resources can normally be bought if one is prepared to spend enough. Competencies like
reputation, trustworthiness, reliability cannot. These competencies augment the competitiveness of a
firm by their continuous reuse when selling on an expanding range of competencies (Maskell 1998
pp52).

Benefits of SCM
In a survey of the 100 largest (by turnover) UK construction companies Akintoye, McIntosh & Fitzgerald
(2000) found that in downstream SCM relationships better quality service, cost benefits and simplified
construction processes were cited as the top three benefits in ascending order. Whilst for upstream
SCM relationships cost benefits, simplified construction processes and simplifying the tender process,
were cited as the top three benefits in ascending order.

Principle objectives of SCM are (Akintoye, McIntosh and Fitzgerald, 2000):

Benefits to clients
Improved customer service
Reduced bureaucracy/ paperwork
Increased profits

In similar research of in excess of 100 respondents in the UK Saad, Jones & James (2002:178) found
SCM to be a multi-faceted process with no clear consensus of 9 equally important variables defining its
features. These are listed below:
Breaking down barriers (Spekman, Kamauff and Spear, 1999)
Long term stable relationships (Green et al. 2002)
Reduced number of subcontractors and suppliers
Open exchange of data and information
Early involvement
Strong leadership in coordinating interfaces
Clearer negotiation of common objectives
Sharing learning and innovation (Spekman, Kamauff and Spear, 1999)
Continuous improvement against clear targets

It may be seen contractors in the survey are more orientated toward clients as opposed to
subcontractors/ suppliers. This may be attributed to the fact that clients will pay their bills (Akintoye,
McIntosh and Fitzgerald 2000). Other research supports this and indicates 63% of respondents believe
that clients or their advisors are significant champions of SCM (Saad, Jones and James 2002:181).

Page 7 of 13
However the large dependence on subcontractors and suppliers should require that contractors
concentrate on downstream alliances (DSA) that are often fairly stable (at least they are in US) but
procured mainly in short term competitive bidding at arms length (Spekman, Kamauff and Spear 1999,
Dubois and Gadde 2000, Green et al. 2002).

Key factors in SCM

Importantly the key factors in SCM are (Akintoye, McIntosh and Fitzgerald, 2000:179):
Trust
Reliability of supply relationship
Top management support
Mutual interest
Free flow of information, indeed integrated communication improves the supply chain (Love, Li
and Mandal, 1999:10)

Other writers note the key factors in SCM are (Love et al. 2002:13, Saad, Jones and James 2002:178):
Built around intra and inter-organisational relationships
Requiring a strategic and long term approach
Dependent on links and support from the external environment
Necessitating continuous learning and commitment from top management

This research shows there is limited understanding of SCM, its prerequisites and success factors
generally (Saad, Jones and James 2002:183)

These factors should make the economic system function with persuasion, negotiation, coordination
and understanding whilst reducing transaction costs between the firms (Maskell 1998:49).

Barriers to SCM
Whilst barriers to SCM are (Akintoye, McIntosh and Fitzgerald, 2000):
Lack of top management commitment (Spekman, Kamauff and Spear 1999:115)
Poor understanding of the concept
Inappropriate organisation structure to support SCM (note (Love et al. 2002) show an alliance
structure that supports SCM)
Low partner commitment (Saad, Jones and James, 2002:174)

Other barriers are (Saad, Jones and James, 2002:174-175):

Lack of common purpose
Multiple and hidden goals
Power imbalance
Tensions between autonomy and accountability
Lack of openness and opportunistic behaviour (lack of trust) (Barker, Hong-Minh and Naim
2000:190)
Unwillingness to share information (Barker, Hong-Minh and Naim, 2000:190)

Page 8 of 13
Relationships
Relationships within networks may be distinguished in three ways:

Technical adaptations
TA may be represented in technical content of products to ensure a perfect fit. Logistics or material
flows are cited as examples (Dubois and Gadde, 2000).

Administrative routines
AR may be represented in business transactions concerning tenders, inquiries, invoicing etc. Integration
of information systems is cited as an example (Dubois and Gadde, 2000).

Knowledge based adaptations

Examples of KBA are sharing and amassing knowledge in relationships in well developed partnerships
bring firms closer together (Dubois and Gadde, 2000, Love et al. 2002:6). Maskell (1998) refers to this
as the codification of tacit knowledge, in as much as it may remain tacit whilst it is available only to an
individual. It is only when the information is shared with others, who have the facilities to understand
the idea and grasp its significance, that it becomes more codified. Codification is an unpremeditated
consequence of knowledge use (Maskell 1998: 46). Due to the fact that it remains embedded in the
relationship business culture it remains difficult for those outside the relationship boundary to imitate
it (Maskell 1998:50).

Other writers have distinguished the network relationships under the following categories (Dubois and
Gadde 2000, Gadde and Snehota 2000:309):
Linking/ coordination of activities - Maskell (1998) notes that over an extended period only
10% of a firms innovative activities were from in-house activities, the balance involved
between 4 and 7 independent organisations. Other surveys have shown the benefit to firms
through enhanced competencies from informal cooperation (Maskell, 1998). Inter-activeness is
a basic building block for network relationships (Maskell, 1998).
Resource ties/ adaptation of resources these are facilities and/ or knowledge that promote
joint development
Actor bonds/ interaction amongst individuals - People interaction enhance through trust and
commitment.

Efficiency of the supply chain in construction

Dubois & Gadde (2000) identify four themes that hamper the efficiency of the supply chain in
construction; low levels of customisation, specialisation and role of the actors, network interplay and
relational exchange. These are explained briefly below.

Page 9 of 13
Low levels of customisation
In construction typical exchanges are through standard products or a combination of standard products.
This provides low levels of customisation. Very rarely are products developed for particular
construction projects (Dubois and Gadde 2000). Modification/ specialisation seems to be undertaken on
site. This is supported by Sidwell & Budiawan (2002) who note that innovations are more likely to be
originated on site rather than in manufacture process.

Green et al. (2002) argue that construction suppliers and subcontractors tend to compete on cost
efficiency rather than a preferred option of expertise. It is clear that a focus on total costs (initial
purchase price, the relationship between cost drivers and value, quality, price, delivery) is required as
opposed to the suppliers lowest price (Spekman, Kamauff and Spear 1999).

Specialisation and role of the actors

Two characteristics of construction add to this; the propensity to organise the production into trades
and the practice of large scale subcontracting (Love, Li and Mandal 1999). In the management of the
process all parties to the construction project develop their own goals without any consideration of the
other actors (Love, Li and Mandal 1999, Dubois and Gadde 2000).

Network interplay
Whilst there is strong interdependency within particular projects in construction, the links/
relationships amongst the permanent construction networks are relatively weak (Dubois and Gadde
2000). In effect projects are a temporary network in amongst a permanent network.

Dubois & Gadde (2000:231) identify four dimensions of coordination that must be addressed to manage
the resources that are simultaneously activated in a number of projects:
Individual project coordination
Firm coordination input to associated projects (alignment of responsibilities)
Non project specific coordination associated with the firm generally
Coordination of subcontractors and supplier

Prominent coordination takes place at a project level (1) and a firm level (2, 3) (Dubois and Gadde
2000). Item four; the relationship level requires more research. It is often left to transactional
exchange based on cost as opposed to expertise (Green et al. 2002). Green also notes that in times of
recession or downturn overt competitive behaviour override collaborative SCM practices. The
construction industry remains at loggerheads with a propensity for mutual competition (Green et al.
2002).

Relational exchange
Purchasing behaviour determines technical development and innovation (Araujo, Dubois and Gadde
1999, Dubois and Gadde 2000). Arms length transactions together with a heavy reliance on traditional
tendering make it difficult for those in the industry to capitalise on previous project experiences

Page 10 of 13
(Dubois and Gadde 2000). An argument is made to shift the focus from the qualities of the transaction
to the qualities of the relationship. Proactive common learning; exchanging knowledge, working
practice and personnel development are advocated by Barker, Hong-Minh & Naim (2000:188).

Caution SCM is not a panacea for improvement in

procurement!
In comparative research Green et al. (2002) conclude that construction actors perceive SCM as a means
of improving project performance rather than a shift in the way they do business. Providing regular
work flow can be achieved, (prime) contractors may be able to form collaborative relationships with
key subcontractors and suppliers as is more usual in the Aerospace industry (Green et al. 2002). It is
important to have a balanced and diverse portfolio of supplier relationships as each one requires a
different amount of resources to manage them (Araujo, Dubois and Gadde, 1999). For example,
depending on; volume of business, continuity of relationship, sourcing policy there may be either high
or low involvement. Any company can only be highly involved with a limited number of suppliers and
needs a variety of relationships (Gadde and Snehota, 2000:305). Investment costs with the supplier/
contractor will increase to match the level of involvement (Araujo, Dubois and Gadde 1999). Resource
intensive relationships can only be justified when the costs of the extended involvement are exceeded
by the relationship benefits (Gadde and Snehota 2000:305)

Learning networks
Effective supply chains are learning networks (Spekman, Kamauff and Spear 1999 pp110). In a study of
alliance/ partnering networks Love et al (2002:4) describes alliances as a tool that facilitates learning
in supply chains. Relationship based procurement leads to mutual benefit in construction business to
business dealings and provides benefits over traditional supply chains. These variables collaboration
and cooperation have the ability to enhance the value chain associated with construction procurement.

Required Reading

Strategic management and supply chain management have overlapping

interests, yet [in an academic sense] there has been little exchange
between them (Ketchen and Giunipero, 2004).

Read the paper that the above quotation is captured from; you will find
the paper in E-Reserve

Ketchen, D. J. and L. C. Giunipero. 2004. The intersection of

strategic management and supply chain management. Industrial
marketing Management. 33(1): 51-56.

Page 11 of 13
 Activity 5.2

Summarise your understanding of the article and prepare a short section of

notes that will enable class / on-line discussion. The class discussion may
be in the context of the article and its impact on your current professional
practice. Think of the content in the context of an organisation that you
have recently worked with, or are currently working with ad identify 3
points of change in your current organisation that will add value to your
product or service.

If you are doing this course on line catalogue your thoughts using the above
paragraph as a framework. Raise the subject with your peers in your
workplace and attempt to convince them on 3 points of change in your
current organisation that will add value to your product or service.

Required Reading
For this module, you need to read the following articles which are available in E-Reserve:

Araujo, L., A. Dubois and L-E. Gadde. 1999. Managing Interfaces with Suppliers. Industrial
marketing Management. 28(5): 497-506.
Ketchen, D. J. and L. C. Giunipero. 2004. The intersection of strategic management and
supply chain management. Industrial marketing Management. 33(1): 51-56.

Summary
This weeks module focused on a number of key topics in regards to Supply Chain Management:

The benefits of SCM

Key Factors
Barriers to SCM in a project environment.

References
Akintoye, A, McIntosh, G and Fitzgerald, E (2000) A survey of supply chain collaboration and
management in the UK construction industry. European Journal of Purchasing & Supply
Management, 6(3-4), 159-68.
Araujo, L, Dubois, A and Gadde, L-E (1999) Managing Interfaces with Suppliers. Industrial marketing
Management, 28(5), 497-506.

Page 12 of 13
Barker, R, Hong-Minh, S and Naim, M M (2000) The terrain scanning methodology, Assessing and
improving construction supply chains. European Journal of Purchasing & Supply Management,
6(3-4), 179-93.
Dubois, A and Gadde, L-E (2000) Supply strategy and network effects -- purchasing behaviour in the
construction industry. European Journal of Purchasing & Supply Management, 6(3-4), 207-15.
Elmuti, D (2002) The perceived impact of supply chain management on organizational effectiveness.
Journal of Supply Chain Management, 38(3), 49.
Gadde, L-E and Snehota, I (2000) Making the Most of Supplier Relationships. Industrial marketing
Management, 29(4), 305-16.
Green, S, Newcombe, R, Williams, M, Fernie, S and Weller, S (2002) Supply Chain Management: A
Contextual Analysis of Aerospace and Construction. In: Lewis, T M (Ed.), Procurement systems
& technology transfer : CIBW92 Procurement Systems Symposium, pp. xiii, 779. St. Augustine,
Trinidad and Tobago: Dept. of Civil Engineering University of the West Indies.
Ketchen, D J and Giunipero, L C (2004) The intersection of strategic management and supply chain
management. Industrial marketing Management, 33(1), 51.
Larson, P D and Halldorsson, A (2002) What is SCM? And, where is it? Journal of Supply Chain
Management, 38(4), 36.
Love, P E D, Li, H and Mandal, P (1999) Rework: a symptom of a dysfunctional supply-chain. European
Journal of Purchasing & Supply Management, 5(1), 1-11.
Love, P E D, Irani, Z, Cheng, E and Li, H (2002) A model for supporting inter-organizational relations in
the supply chain. Engineering Construction and Architectural Management, 9(1), 2-15.
Maskell, P (1998) Globalisation and Industrial Competitiveness: The Process and Consequences of
Ubiquitification. In: Malecki, E J and Oinas, P (Eds.), Making connections : technological
learning and regional economic change, pp. 35-59. Aldershot, Hants, England ; Brookfield, VT:
Ashgate.
Proverbs, D G and Holt, G D (2000) Reducing construction costs: European best practice supply chain
implications. European Journal of Purchasing & Supply Management, 6(3-4), 149-58.
Saad, M, Jones, M and James, P (2002) A review of the progress towards the adoption of supply chain
management (SCM) relationships in construction. European Journal of Purchasing & Supply
Management, 8(3), 173-83.
Sidwell, T and Budiawan, D (2002) The impact of the tendering contract on the opportunities for
contractor innovation. In: Lewis, T M (Ed.), Procurement systems & technology transfer :
CIBW92 Procurement Systems Symposium. St. Augustine, Trinidad and Tobago: Dept. of Civil
Engineering University of the West Indies.
Spekman, R E, Kamauff, J and Spear, J (1999) Towards more effective sourcing and supplier
management. European Journal of Purchasing & Supply Management, 5(2), 103-16.
Vrijhoef, R and Koskela, L (2000) The four roles of supply chain management in construction. European
Journal of Purchasing & Supply Management, 6(3-4), 169-78.
Wisner, J D and Tan, K C (2000) Supply Chain Management and its impact on purchasing. Journal of
Supply Chain Management, 36(4), 33.

Page 13 of 13