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Collaborating for competitive advantage: SMEs and the Supply Chain

Achieving better SME involvement in Partnering

Collaborating for competitive advantage: SMEs and the Supply Chain

Achieving better SME involvement in Partnering

Michael Thompson

The TEAM FOCUS Group

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Integration of Project Teams and Supply Chains

Integration of Project Teams and Supply Chains

Client

Designer

Project Manager

Contractor

Suppliers

Specialist Contractors

Traditional

Nom. Sub-contractors

Framework Suppliers

Updated Traditional

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Integration of Project Teams and Supply Chains

Integration of Project Teams and Supply Chains

Client

Designer

Project Manager

Contractor

Suppliers

Specialist Contractors

Designer

Design & Build

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Integration of Project Teams and Supply Chains

Integration of Project Teams and Supply Chains

Client

Designer

Project Manager

Contractor

Suppliers

Specialist Contractors

Designer

Fully IntegratedEarly Contractor Involvement for better results!

Sometimes supply chains in their own right

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Accelerating ChangeAccelerating Change

• Targets:– By the end of 2004, 20% of construction

projects by value should be undertaken by integrated teams and supply chains

– By the end of 2007, these figures should rise to 50%

• We are nowhere near achieving these

Sir John EganStrategic Forum for Construction

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Personal Intro to PartneringPersonal Intro to Partnering

• First experience of Partnering was in 1995 as Project Manager for 1st water industry Partnering Scheme in the UK, at Pennington in Hampshire

– This was a year after Sir Michael Latham’s report on “Constructing the Team”.

• Pennington had a fully Integrated Project Team

– There were no “boundaries” between Client, Project Manager, Designer and Contractor

• All worked towards the same goals as part of the same team. It was very successful, but ….

• Pennington did not include within the partnership, any suppliers or specialist contractors – these were all appointed through traditional bidding methods, although all appointments were ratified by the team as a whole

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Early SME involvementEarly SME involvement

• In 1997, helped a major UK contractor to run a series of workshops introducing Partnering to SMEs– 50 SMEs in the North East– 48 SMEs in the South West

• All attended to find out what it was about – But money seemed to be high on their agendas

• When will we get paid?

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Typical Protocol Contractor / SME in 1997

Typical Protocol Contractor / SME in 1997

• Sales & Marketing– Share sales leads– Develop client relationships as a

team– Sell the ‘Partnering’ ethos

• Stage 1 Bid– Review tender documents– Consult with Specialists– Identify and agree strategy– Specialist innovative ideas

confidential (one to one)• Stage 2 Bid

– Select Specialists as early as possible

– Meet to discuss strategy, alternatives / innovations, risk, opportunities, programme and duplications

– Produce method statements– Check market and review

unsolicited quotes

• Bid Submission– Agree price– Commit to selected Specialists

• Follow up– Commitment to advise of

developments– Early warning of success or failure

• Contract Award– Early strategy meeting (team

selection / team building)– Agreement of programming– Placing of orders– Agree site protocol– PAY SPECIALISTS AS AGREED!

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What happened in PracticeWhat happened in Practice

• The involvement of so many specialists in workshops to introduce them to Partnering was probably a mistake, although it developed an awareness of Partnering:– Expectations were raised of special

relationships with the contractor for all– These could not all be realised, and

relationships were damaged for some

This highlights the care that needs to be taken in selecting SME partners

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What happened in PracticeWhat happened in Practice

• Specialist contractors who were asked to bid with the Contractor did not really believe that they would be treated differently to the old ways:– They tended to assume that any quote made would be

beaten down by the Contractor, rather than put in a competitive but benchmarked quote

– The Contractor took them on trust, did not beat prices down, but bids were not competitive enough to win the work

• A review was necessary

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Nominated Sub-contractorsNominated Sub-contractors• Many clients specify nominated sub-contractors in

their documents so as to obtain the plant / equipment of their choice (for consistency of kit, or to meet preferences), or to achieve tight deadlines

• This is not compatible with the Integrated Supply Chain approach and can prevent partnering until, possibly, after the sub-contractor has been taken on by the contractor

Contractors taking on Nominated Subcontractors are not necessarily taking on Subcontractors of their choice

– trust between them may not prevail

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Early Contractor InvolvementEarly Contractor Involvement

• Early Contractor Involvement (including Suppliers and Sub-contractors) would reduce the need for Nominated Sub-contractors and would make a fully Integrated Approach easier to achieve

But what do we do about Framework Suppliers?

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Framework SuppliersFramework Suppliers

• Client assessments to create Frameworks are often based on the most competitive “Whole Life Cost” with little consideration to expertise or ability of competing organisations to provide cost effective solutions

• Whereas Framework Suppliers provide a relationship with the Client, they may not always sit comfortably with Main Contractors

• Some suppliers are finding that they have to sign the same full Sub-contract agreements for equipment as little as £4000 in value, that they would sign for equipment worth £250,000 or more!

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Where are we now?Where are we now?

• Some national Contractors do have Integrated Supply Chains– Some call them their “Premier League”, with trust

strengthening between them as they repeat and build on good experiences

– This is happening between Contractors and SMEs such as:• Designers and architects• Suppliers (concrete, hardtop, building materials etc.)• Specialist contractors (earthworks etc.)

– It is not perfect but is getting better with time– It is achieving better relationships as a result of working

together and knowing each other better

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Where are we now?Where are we now?

• There are initiatives such as:– The “System Provider” approach which is a

name given to any organisation that is licensed to assemble and market a construction solution under the COMPASSure Risk Management Scheme (starts in September 2004)

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Where are we now?Where are we now?

• But, the reality is:– It is believed that only about 30% of the

Construction Industry is practising Partnering in some shape or form.

– Instances of full Integrated Project Teams are probably far less than this – possibly less than 10%

– It is believed that Integrated Supply Chains exist in less than 5 or 6% of all Construction Industry Projects

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Where do we go from here?Where do we go from here?

One approach is use of the One approach is use of the Strategic Forum for Strategic Forum for

Construction’s Integration Construction’s Integration ToolkitToolkit

In line with Sir John Egan’s Accelerating Change (2002) recommendations

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Where do we go from here?Where do we go from here?

• Small and Medium-sized Enterprises make up the bulk of the construction industry

• But with the advent of framework contracts, there is a growing fear amongst small players that business opportunities for SMEs will diminish rapidly

• In fact SMEs do have advantages such as being better equipped to work in a collaborative way, because of their potential faster uptake, greater commitment and more innovative approach.

Source: Strategic Forum for Construction – SME Integration

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What are the rewards?What are the rewards?

• There are benefits from being part of an Integrated Supply Chain:– Improved profitability (less risk)– Greater continuity of work– More stable operating environment

• Working in partnerships:– Earlier involvement– Motivational and continuous improvement benefits

Source: Strategic Forum for Construction – SME Integration

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Commitment to PartneringCommitment to Partnering

• It requires a fundamental change to attitude• ‘Them and us’ attitudes need to be eliminated and

replaced with an atmosphere of mutual trust and common purpose.

• It requires commitment to working in a way that is well proven, if done with enthusiasm, in the knowledge of the benefits that will be received as a result.

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Integrating Supply ChainsIntegrating Supply Chains

So if we are not already doing so, let

us give it a go!