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Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan Vol. 20(SI) No.


Identification and Evaluation of Risk Factors

Affecting the Supply Chain Environment of
Construction Industry of Khyber Pukhtunkhwa
S.B. Khattak1*, M. Abas2, S. Maqsood1, M.Omair1, R. Nawaz1, I. Ul Haq3
Industrial Engineering Department, University of Engineering and Technology, Peshawar, Pakistan
Mechanical Engineering Department, Ghulam Ishaq Khan Institute of Engineering Sciences and Technology, Topi, Pakistan
Institute of Mechatronics Engineering, University of Engineering and Technology, Peshawar, Pakistan
Corresponding Author: sikandarbilal@uetpeshawar.edu.pk

Abstract-In today’s world supply chain management is consultants increases number of key stakeholders which
very important not only for manufacturing sector but add complexity to construction supply chain [ii].
also construction. Implementing supply chain The construction industry in general is highly
management in the construction sector is very fragmented with substantial negative impacts professing
difficult and complicated compared to manufacturing low productivity, cost and time overruns, conflicts and
due to the involvement of too many participants such disputes, resulting claims and time consuming litigation.
as contractors, subcontractors, designer, suppliers The legacy of this high level of fragmentation because
and clients. Abundant literature is available, but project delivery process is highly inefficient in
developing countries like Pakistan faces numerous comparison with other sectors [iii].
issues in construction projects. There are some basic It is a fact that implementing the SCM concept in the
guidelines proposed by supply chain management, construction industry is complex because it needs new
which can be used as benchmark to scrutinize, to innovations and the knowledge to achieve difficult goals.
coordinate, to reengineer and to improve continually Vigorous network of participants that operate to assemble
the whole construction supply chain. This research a number of opposing business objectives adds more
work addresses and highlights external factors complexity.
affecting different performance indicators (Cost, The application of SCM in Pakistan construction
Quality and Time). The Analytical Hierarchy Process industry is still in the embryonic stage. Most of the
is used to rank these external factors. At the end of practitioners and researchers focus on the business
the study some recommendations are made which will process projects and little research have been done in
help to resolve the issues related to supply chain Pakistan construction industry. Developed countries like
issues. China, United States of America, and many European
countries are using SCM application in the construction
Keywords-Supply Chain Management, Key performance industry. But still these approaches are still to be
indicators, External Factors, Analytical Hierarchy explored in developing countries. Use of traditional
Process, Construction project. methods to manage and initiate construction projects is
still in practice.
The manufacturing industry is one of the pioneer
industries, which presents the concept of Supply Chain SCM is managed by effective participation of all
Management (SCM) as a novel and a vital tool to satisfy stakeholders.Its aim is to satisfy end user. concerned in
a demand. It performs the business process in an meeting the end user specification. The most vital goal of
organized and well defined way. It saves time, boost the SCM concept is the full protection and fulfilling of
quality and realize a profit [i]. The concept of the SCM is consumer requirements, optimizing the profit for the
still in adopting phase by many construction firms company and reducing the extent of waste in terms of
worldwide. Which means it is not still fully matured due three basic principles: time, cost and the quality.
to its complication. Involving contractors, clients, Every domain has its own requirements and
subcontractors, multiple supplier, designers and management structure. SCM should be defined

Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan Vol. 20(SI) No.II(S)-2015

differently in different domains. The SCM particularly in extra expenses to construction companies and decreases
the building and construction industry deals with the profitability. Late payment is one of the risky factors
management of materials and also has the relation that have an adversarial and disastrous effect on the
between contractors, suppliers, manufacturers and construction projects. Not only budget is affected, but
distributors [iv]. Generally there are three types of also adds delays and quality problems [xvii]. Shortage of
Construction Supply Chain (CSC) : the first one is the material, communication gap between the various parties
primary supply chain which delivers material, second one of construction projects, problem with subcontractors,
is the support supply chain which provides equipment, and lack of funding and poor site management causes
and the third one is a human resource supply chain which cash flow and quality problems [xviii] .
is concerned with the supply of labor [v]. CSC can be The Government changes policies rapidly which
divided into two main groups: materials chain and the affects the projects. The government enforces their own
construction chain. This division helps to isolate the selling prices and rates [xix]. Lack of effective project
procurement and management operations. These two management in Pakistani construction industry have
chains are interconnected through SCM database and damaged its image in international market [xii]. The
help to guarantee the smooth flow of information within Pakistan construction sector is facing the problem of
the different chain and results in increased cooperation shortage of material because of low production. This
within the supply chain partners [vi]. Wangu [vii] have results in higher material prices. For successful SCM the
developed a framework for integrated CSC and grouped buyer and supplier relation is very important because of a
it into five domains and a supporting system as supplier is totally dependent on buyer revenue while buyer
performance measurement, risk management, selections, focuses on low cost and good quality and on time delivery
conflict management, innovations, information [xx]. The issues which need to be addressed in supply chain
technology and communication system. are communication, information flow, long term
Numerous researches have been carried out to relationship and quality [xxi]. SCM is a way of managing
identify the factors that affect the supply chain the information flow or better communication. It is
environment [viii-xi]. Some factors could be controlled important for problem solution and exchange of knowledge.
by project team known as internal factors whereas the For this purpose computer integrated contraction has been
external factors are defined as the factors that are not in developed to improve communication and coordination
direct control of a project team. Prime consideration is through the entire supply chain [xxii].
required to control these external factors, as it affects the Literature review concludes that factors significance
performance measures such as cost, quality and time of varies from project to project and region to region. The
the construction projects. The Significance of these construction practitioner’s should be aware of these
factors varies depending on the type of construction significant factors and its impact on performance
project. Some associated with Pakistan construction parameters. This research is intended to highlight the risk
sector are: fluctuations in prices, inflation, delayed factors affecting the supply chain environment of
payments, and incorrect method of cost estimation are construction projects which are directly responsible for
risk association [xii]. Sometimes the low bid is not the cost overrun, time delays, and bad quality. Literature
most economical solution because it affects the review indicated that a construction project is futile if
construction project in terms of over budgeting and time delays, cost escalation and quality deficiencies
excessive delays. Now a day’s Pakistani construction occur. The project performance parameters selected in
sector is facing the problem of financial capability of consultation with experts (Academic and Field) are the
contractor and supplier, due to which many construction cost of the project, time taken by project and quality of
projects face delays and cost overrun [xiii]. The three the project.
most important external factors that affect construction III. METHODOLOGY
projects include: bad weather condition, low labor
productivity and low quality of material [xiv]. For on Both internal and external factors were identified
time material supplies the financial stability and primarily through a comprehensive literature review,
capability of supplier is very important. The supplier which were then shared with academic experts in a group,
needs to deliver material when promised. Beside financial discussed and were finalized after consulting the
stability, bad weather and natural disasters may disrupt construction practitioners. External Factors selected for
supplies. They significantly affect the time and cost this research are shown in Table I.
performance of construction projects [xv]. The most A questionnaire was designed based on the internal
common external factors of delay are natural disaster in and external factors in relation to the project performance
Pakistan like flood and earthquake. The study also parameters. The aim of the questionnaire is to take
acknowledged others which are: financial and payment feedback from construction practitioners about the
problems, poor management, shortage of materials and problem caused by these factors within and outside the
equipment [xvi]. Cash flow is the most important power scope of a construction project and their impact on the
of running construction companies. Lack of cash brings project performance parameters.

Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan Vol. 20(SI) No.II(S)-2015

TABLE I 18 ISO Certification Certified as a standard

S/ External Factors Description
No 19 Law and Order Strict control of crime and
Situation repression of violence
1 PC-1 Initial cost preparation
The questionnaire is divided into four portions. First
2 Funding Providing resources for portion is related to respondent qualifications (e.g. Work
the project experience, position in the company) where as company
information (e.g. Type of construction work performed,
3 Procurement Unit Inventory placing number of years in business, number of projects
of Contractors capability completed annually, total number of employees) is
included in the second portion. The third portion consists
4 Financial capability Contractor's ability to of a series of questions related to internal and external
of Contractor finance a contract factors with individual weights on a scale of 1-9. While
the last portion of the questionnaire relates the internal
5 Management team Members which make and external factors related to the project performance
of Contractor integral units parameters.
Then the questionnaires were shared with the
6 Communication Physical and construction practitioners, consultants, government
Infrastructure organizational structures officials and project managers. To make the research
needed for operation, use more reliable and useful a few group discussions were
of mail, telephone and cell also carried out by contractors and site engineers.
A. Response Profile
7 Escalation of Increase in price of the In Pakistan the top four categories of contractors as
Material Prices material classified by Pakistan Engineering Council (PEC) are
Class A (CA), Class B (CB), Class1 (C1) and Class (C2).
8 Technical Person Person in the team with The questionnaire was shared with One hundred and fifty
Availability technical Knowledge (50) CA, CB, C1, and C2 category contractors.
Government officials, private organization and academic
9 Cash Flow Inflow and outflow of experts opinion was also included. The survey is
cash for the project conducted through emails, mails and personal interview.
However, oe hundred and ten (110) questionnaire was
10 Shortage of Non Availability of
received out of which nine (9) were rejected due to
Material/ material and equipment
insufficient information. Table II shows the respondents
Equipment from market demography which highlights that most of the
respondents have more than 10 years experience.
11 Low Bid Maximum limits on cost TABLE II
12 Weather Condition Instability in weather S.NO Position Organization Experience
13 Bureaucracy and Structure and regulations 1 Executive Peshawar 20-23 years
Political Influence in place to control activity
and General Development
14 Terrorism Violent acts which are Director Authority
intended to create fear (PDA)

15 Regulatory Consulting firms to assure 2 General Contractor of 18-20 years

Authorities the work Director Class A and B

16 Government Laws and Procedures 3 Civil Irrigation 13-17 years

Policies from government Engineers Department
17 Inflation Decrease in the value of

Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan Vol. 20(SI) No.II(S)-2015

4 Quantity PDA and 16 years TABLE V

Surveyors Contractors of
S.No Categories Correlation
Class A and B Coefficient
1 CA-CB 0.451
5 Professors UET Peshawar 10-15 years
2 C1-C2 0.249
3 CA-C2 0.262
4 CB-C1 0.679
5 CB- Government 0.152
B. Validation of collected data
Required data were extracted from the 6 Government officials- 0.374
questionnaires. Its reliability was checked with the help Private organization
of Statistical Package for Social Sciences (SPSS) 7 CA- Academic Expert 0.271
software using Cronbach’s alpha test. Table III shows the
summarized results of validity of collecting data, which is
100% valid. IV. DATA ANALYSIS

TABLE III Analytical Hierarchy Process (AHP) is used for

CASE PROCESSING SUMMARY analysis. For analysis the mean of the individual external
N % factors was calculated, which was used as input value for
Cases Valid 101 100.0 pairwise comparison matrix for the analytical hierarchy
Excludeda 00 000.0 process (AHP). Then the data was analyzed with the help
Total 101 100.0 of analytical hierarchy process developed by Saaty [23].
a. List wise deletion based on all variables in the The general AHP tree research is shown in Fig. 1.

The Table IV shows the cronbach’s alpha value. The

data are reliable when alpha value is greater than 0.70,
while less reliable when greater than 0.50 and less than
0.70. While not reliable when alpha is less than 0.50. The
data was highly reliable with a value of 0.850.

Cronbach’s Cronbach’s Alpha Based N of
Alpha on Standardized items items
.850 .855 19
C. Correlation test

The questionnaires received were from different

organization and from different respondents. So it is
important to check the level of agreement among
different parties and accuracy in data. For this reason Fig. 1 AHP Tree for External Factors
Spearman’s rank correlation coefficient is used. It is non
parametric and distribution free test. Randomly, two Microsoft EXCEL (Ms Excel), one of the most
questionnaires were selected for each category for commonly used software for data analyses and data
crunching is used. The responses from the questionnaire
performing correlation test. The table V shows the
were imported to MS Excel. AHP template was
results. developed in EXCEL. The general steps for AHP are
The value of correlation coefficient varies between discussed below:
+1 and -1. Positive value near to 1 shows positive
agreement, while negative shows disagreement. As all the 1. Construct a set of pairwise comparison matrix of
values of correlation coefficient are positive and near to criteria.Pairwise matrix refers to weightage matrix of
+1. So we conclude that all the parties agree on rating of individual factor. The pairwise weightage is similar
factors and collected data is quite accurate. to From-To chart and is calculated by dividing the

Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan Vol. 20(SI) No.II(S)-2015

weights of respective factors. Put the values in Table IX

Difference of two Iterations
matrix like from-to chart as shown in Table VI.
First Iteration Second Iteration Difference
TABLE VI Priority Vector Priority Vector
0.25 0.25 0
Cost Quality Time 0.45 0.45 0
0.30 0.30 0
Cost 1.00 \0.56 0.83 Similarly following step 1-4 , the alternatives
1.80 1.00 1.50 (external factors) are compared with respect to each
criterion (cost, quality and time). So the resultant matrix
Time 1.20 0.67 1.00 obtained as a result of pairwise comparison is of the order
(12 X 3) as shown in Table X.

2. Perform the first iteration to normalize the matrix by
squaring the matrix, take row sum and divide each External Factors Cost Quality Time
row sum by its total sum, to get a first priority vector. PC-1 Preparation 0.0516 0.0466 0.0438
As shown in Table VII.
Funding 0.0534 0.0581 0.0600
Procurement Unit 0.0519 0.0553 0.0517
TABLE VII of Contractor
From- Cost Quality Time Row Priority Financial 0.0594 0.0575 0.0531
To Sum Vector Capability of
Chart Contractor
Management Team 0.0540 0.0559 0.0560
Cost 3 1.67 2.50 7.17 0.25 of Contractor
Quality 5.4 3 4.50 12.90 0.45 Communication 0.0478 0.0503 0.0555
Time 3.60 2 3 8.60 0.30
Escalation of 0.0629 0.0625 0.0555
Sum 28.67 Material prices
Technical Person 0.0545 0.0611 0.0539
3. Again square the previous matrix to perform a Cash Flow 0.0591 0.0597 0.0574
second iteration, take it row sum and divide each row
sum by the total row sum to obtain second priority Shortage of
0.0555 0.0572 0.0597
vector as shown in Table VIII. Material/Equipment

Low Bid 0.0563 0.0555 0.0535
SECOND ITERATION Bad Weather 0.0524 0.0505 0.0563
From- Cost Quality Time Row Priority
To Sum Vector Bureaucracy and
0.0498 0.0493 0.0534
Chart Political Influence
Cost 27 15 22.50 64.50 0.25 Terrorism 0.0601 0.0563 0.0586
Quality 48.60 27 40.50 116.10 0.45
Time 32.40 18 27 77.40 0.30 Regulatory 0.0421 0.0475 0.0453
Sum 258 Authority
Govt Policies 0.0488 0.0477 0.0530

4. Then take the difference of first priority and second ISO certification 0.0285 0.0348 0.0253
priority vector, shown in Table IX if the difference is Inflation 0.0617 0.0510 0.0542
negative, zero or near to zero, we said that the matrix
is normalized and consistent, the priority vector in Law and Order
second iteration is a result of AHP. Situation 0.0501 0.0431 0.0536

Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan Vol. 20(SI) No.II(S)-2015

Multiply the Table X with priority vector in Table The inflation results an increase in the prices of fuels,
VIII, to get AHP results. Th table XII shows the AHP equipments, and labor costs. On other hand taxation have
results in descending order. The highest impact factor the same impact in 2013-2014, and 2014-2015 budgets.
with AHP value of 0.0605 is escalation of prices while Government has increased taxes on both manufacturing
the lowest rating factor is ISO certification with AHP and service industries including both cement and
value of 0.0304. construction firms. As a result cement industry have to
increase their prices from 3 to 4%. Contractors not only
TABLE XI pay taxes on their business only but also on the material.
To avoid such problems the contractor needs to buy
Ranking External Factors AHP material as early as possible. Buy it in bulk quantity to
Values take advantage of discounts. The contractor needs to
1 Escalation of Material 0.0605 make escalation clause in the contract applicable and
prices include those materials that are critical to escalation.
2 Cash Flow 0.0589 Developing trust with key supplier to get early
3 Terrorism 0.0580 information on material prices increasing may also
4 Shortage of 0.0575 benefit the team members.
Material/Equipment Second significant factor with an AHP value of
5 Funding 0.0575 0.0589 is cash flow. According to most of the
respondents the cash flow problem occurs because of
6 Technical Person 0.0573 ineffective utilization of funds, lack of proper process
Availability implementation, inflation and bureaucracy. In order to
7 Financial Capability of 0.0566 avoid such problems one need to discuss problems with
Contractor clients to address the problems in a timely manner.
8 Management Team of 0.0554 Financial stability of the client should be assessed prior to
Contractor signing agreement. Communicate openly and make a
9 Low Bid 0.0551 penalty clause in the contract if the client fails to fund the
10 Inflation 0.0546 project on time.
11 Procurement Unit of 0.0534
Contractor 0.061
12 Bad Weather 0.0527 0.061
13 Communication 0.0512 0.060
Infrastructure 0.060
14 Bureaucracy and Political 0.0507 0.059
Influence 0.059
15 Government Policies 0.0496 0.058
16 Law and Order Situation 0.0480 0.058
17 PC-1 Preparation 0.0470
18 Regulatory Authority 0.0455 0.056
19 ISO certification 0.0304 0.056


Five most significant external factors are shown in

Figure 2. The most significant factor identified through
AHP analysis is escalation of material prices. The AHP
value of escalation of material prices is 0.0605.
Escalation of material prices simply means an increase in
prices of material that affect the performance of the
project. Most of the respondents have mentioned that the Fig. 2. Significant Factors
common cause of escalation in Pakistan is economic Terrorism with AHP value of 0.0580 is third
instability or inflation and too much taxes. Inflation rate significant factor. Terrorism in Pakistan has hampered the
ranges from 3% to 27% in Pakistan, with an average of business environment especially in KPK. According to
8.8%. According to analysts this average rate is very the respondents, terrorism has greatly affected cost and
much high and hampers the growth and development. time of construction projects due to supplier dropout.

Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan Vol. 20(SI) No.II(S)-2015

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