Another Brick in the Wall, Part 3: In the Flesh?

Posted: 08/18/2018 - 05:38
Perhaps more than any other category, the involvement of human capital in construction sourcing is paramount when it comes to outcome success or failure. The sheer volume of manpower involved in the overall process — from the acquisition to engineering to materials supply chain to hundreds of craft labor involved in the actual build — puts the management of relationships in critical focus. There is a reason that only 5 percent of construction projects meet their budget and schedule targets. Relationships are complex, they can be messy and often saturated with different perspectives. Most think it is only a three-party structure (owner, architect and general contractor), but when you expand the supply chain, the true number of principals involved can explode to several dozen if not close to 100. For organizations to succeed in such a complex environment, often-shunned sourcing disciplines such as automation, supplier sustainability and Supplier Performance Management (SPM)/Supplier Relationship Management (SRM) can no longer be ignored. After all, what does the industry have to lose?
Automation within construction can take many forms. Whether it takes the shape of AI during drawing and Bill of Materials (BOM) creation, sophisticated ERP and even blockchain to collapse supply chains, or the deployment of manufacturing-level technologies such as vision or robotics in the field, owners should be demanding a greater level of creativity from the industry. When success is measured by how fast a company can bring a new product to market, an over budget or late occupancy condition can really take the wind out of research and development. At the heart of the industry’s challenge is its complacency and lack of a disrupter. A majority of those in construction have been there for their entire career, with a significant population the product of multiple generations working in the occupation. They know what they know with technology not as forsaken as much as it is just not understood.
Aside from the cost and delivery benefits associated with incorporating new practices, an earthquake movement in automation will also solve the industry’s biggest problem, which is attracting and retaining new people to the trades. A shortage of two million craft workers has been projected for 2030 in the current environment, which leads to the next opportunity.
Supplier sustainability is a common term in procurement circles when it comes to most companies, especially for those providing critical products and services. However, it is almost nonexistent within construction sourcing at a time when the industry is faced with many challenges including workforce reduction, lagging productivity, a nine-percent annual failure rate of companies and many owners’ desire to shift as much risk toward the contractors as possible. Having a “right sized” supply base across multiple disciplines where contractors have to compete but are also provided with opportunities to grow their business is essential. This is no longer a “three bids and a buy” proposition. Given the uncertainty that exists on several fronts within the industry (labor, tariff price impacts, government-sponsored infrastructure plans, etc.), owners really have to be in tune with what is taking place within the supply base. This requires a foundation...and that foundation holds everything in place.
Aside from the additional value that can be expected (5 percent) through the deployment of robust SPM/SRM programs, assurance of supply and quality of supply is best found by committing to closer working relationships. A good SPM/SRM program within the construction category involves quantitative measures (project execution KPIs and results) along with qualitative ones. It can be incredibly hard to assess and measure intangibles, but how contractors are tackling succession planning within their organizations is important to understand, as is workforce development and safety culture. Attrition rates, community recruitment and technology adoption are all things that come into play as we dive into these critical success factors. At a minimum, these dynamic conversations should be taking place on an annual basis, but depending on how these companies land through your segmentation process, more frequent discussions on these topics may be necessary. Making these business review meetings reciprocal is also crucially important. If you want to look behind your supplier’s curtain a little bit, be prepared to share future project plans to foster a better working relationship in the long run.
Successful construction programs require a heavy focus on relationships. For that success to repeat on a consistent basis, basic and fundamental procurement principles are the key for bottom-line improvement. With capital project failure being the primary reason company CEO’s lose their jobs, you would think a significant amount of brainpower would be directed toward solving this problem. Without that clarion call for dramatic change, a withering industry is likely to continue seeing further degradation in productivity. With that commitment, however, both contractors and owners can enter into a Golden Age of success together.
Read Part 1 and Part 2 of Mathew's series.

About The Author

Mathew Daniel's picture

Mathew Daniel is the Capital Equipment, Construction, and MRO sourcing leader for Honda North America, Inc., where he has worked for 24 years. Currently, he is responsible for establishing the strategic procurement direction for these indirect spend categories across Honda’s 11 North American manufacturing operations, while leading team(s) that execute local sourcing events, establish national contracts, and manage proactive supplier performance activities. Originally from Detroit, Michigan, Matt now resides in Sidney, Ohio with his wife and 4 children.