Why supply chains in construction industry are interesting

PROF.

ARJEN ADRIAANSE: What makes a construction supply chain and logistics unique, compared to other industries? We attempt to answer this question during this lecture. The way bridges, office buildings, and houses are manufactured differs from the production of goods like electronic equipment and cars. We will discuss three characteristics that make the production process in the construction industry distinct and therefore unique. First, unlike most goods, buildings are not made in a factory and then transported to the customer. In the construction industry, production generally takes place on a building site that then becomes the location where the building is used. The means of production, including materials, labour, and equipment, also needs to be transported to the building site. This results in many transport movements.

Research shows that at least a quarter of all transportation movements are construction related. Building on the location of use results in production being very sensitive to weather conditions. This creates uncertainties. A period of bad weather, such as frost and heavy rain, can have a large impact on the progress of the building. Despite this sensitivity to the weather, the small profit margins in construction projects demand the employment of a very tight schedule and efficient processes. This results in a need for intensive communication and good alignment between the parties involved in the construction process to deal with unexpected events. Given the small profit margins, there is pressure to work efficiently and at a rapid rate on building sites.

Second, the vast majority of construction projects have a unique character. Almost no two buildings are exactly the same. This is a consequence of the specific requirements of each client and the location-bound circumstances. So for virtually every building, you need to go through a new production process. A search of construction of buildings is a good example of project-based piece production. The unique character of a building also results in development of new production processes for each project. Often, new projects have a new client, new designers, new main contractor, new subcontractors, and new suppliers. This results in a need to reorganise a major part of the production organisation for every project. Third, there is a fragmented nature of the construction process.

And an entire process needs to be completed to, first, the specified requirements of the building. We call this the programming stage. Then, to design it according to the given specifications. And finally, to construct a building in conformity with the given design. Even after its completion, operation and maintenance still need to be addressed to assure the building will perform the functions for which it was designed and constructed. To illustrate what all this means, we will look at the Dutch project near the city of Rotterdam. A new bridge has been built, known as the Botlek Bridge.

With a length of 1,200 metres, six concrete lifting sections, it is 85 metres high, and two movable lifting parts made of steel and covering an area the size of a football pitch. This is one of the biggest lift bridges in the world. A project like this begins by specifying the requirements of the bridge. Various activities take place to result in a programme of requirements. This facet, the programming, is the responsibility of the client. Next, a consortium of parties, is responsible for the design, its actual construction, and 20 years of its operation and maintenance. This consortium undertakes the work based on the programme of requirements from the client, who contracts the group of companies.

This consortium then has to address a range of challenges. Given that the bridge was so unique, eight parties with different expertise were involved in designing the bridge. During the design phase, a huge amount of information has to be collected and shared between the various parties. This is illustrated by the fact that 13,500 design documents resulted from this stage. The next phase is the actual construction of the bridge. This gives another type of challenge, such as how can you get steel lifting parts each weighing over 5,000 tonnes into position? And how do you get 40,000 cubic metres of concrete for the foundations poured in the water? In this construction phase, over 200 different parties were involved.

The contract for this project meant that after the completion of the bridge, the parties in the consortium had to operate and maintain the bridge for a further 20 years. This involves keeping the bridge in a certain condition as agreed in the contract. If something fails, such as the bridge remaining open due to an error, the consortium gets a discount on the fee paid by the client. This discount can run into tens of thousands of euros for every 50 minutes the bridge fails to work correctly. In this project, a single consortium of parties was responsible for the design, construction, and operation maintenance of the bridge. However, frequently, this is not the case.

In so-called traditional building processes, the programming and design are well-defined before the parties that do the actual construction become involved. These parties are only invited to tender once the design phase is completed. Consequently, there is only limited interaction between the parties doing the design and the parties that realise it. This lack of interaction is traditionally seen as a bottleneck in the construction industry. The fragmentation problem will be discussed in more detail in the next session. Summarising this session, we have discussed three characteristics that make supply chains in the construction industry unique, compared to other sectors such as industry. First, the product is realised at a location where it will be used. Second, construction projects are unique.

And finally, the construction process is fragmented. These characteristics, however, also assures that the construction sector deals with specific challenges that will be addressed in more detail in the next sessions. That’s it for now. Thank you for listening.