investigating scm in indian construction industry
TRANSCRIPT
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INVESTIGATING SUPPLY CHAIN MANAGEMENT IN INDIAN CONSTRUCTION
INDUSTRY
By,
ABHISHEK SINGH (Student ID: 5319527)
September 2014
The work contained within this document has been submitted by the student in partial fulfilment of the requirement of their course and award.
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Declaration of Originality
This project is all my own work and has not been copied in part or in whole from any other
source except where duly acknowledged. As such, all use of previously published work (from
books, journals, magazines, internet etc.) has been acknowledged within the main report to an
item in the References or Bibliography lists.
I also agree that an electronic copy of this project may be stored and used for the purposes of
plagiarism prevention and detection.
Copyright Acknowledgement
I acknowledge that the copyright of this project report, and any product developed as part of the
project, belong to Coventry University.
Signed: Date:
Office Stamp
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ABSTRACT
One of the most important and evolving industries in the world is the construction industry
which provides huge number of employment opportunities, contributes significantly to the
economy and plays a major role in countries growth towards success. India has the second
largest construction industry in the world and is one of the main growth factors for the country.
For a faster growing economy of India there are lot of developments lined up for the future and
to utilise such opportunities it needs an efficient “Supply Chain Management”.
At present, there prevail lots of barriers in Indian constriction supply chain which needs to be
eradicated. Moreover, the construction system and the process involved holds back the true
potential of the supply chain. There is a strong need of modifying the existing methods of supply
chain and improve the practices involved.
This dissertation is based on the “Literature based review methodology”. Hence, data from
construction sectors of UK and India has been extracted and the supply chain along with its pros
and cons has been highlighted. In addition to these factors governing the supply chain has been
reviewed so as to find the areas where Indian construction supply chain needs improvement and
which of the possible methods from UK can be implemented into the industry. Moreover, the
procurement routes, construction sectors, client’s types, and most importantly different methods
like green supply chain, lean supply chain, partnering has been identified as they can potentially
benefit the Indian construction supply chain on implementation. Furthermore, on analysing both
the construction industries literature identified that the Indian system does not work on the basis
of structure reports that can successfully address the various issues involved in the industry and
supply chain involved is not efficient to support the major development taking place. Various
recommendations are provided by this research which can bring the required change and
improve the quality of supply chain management in India.
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ACKNOWLEDGEMENT
I take immense pleasure to express my sincere and deep sense of gratitude to my supervisor, Dr.
ANDREW AREWA, who has shown the attitude and the substance of a genius and has
continually been the sense of inspiration for me to work harder. Without his supervision,
guidance and constant help this dissertation would not have been possible.
Special thanks to my family, Mr. D.V Singh, Mrs. Rajeshwari Singh and Prashant Singh for all
their love and support given to me for all the endeavours that I came across during this period.
Also, I am very thankful to Harshita Pandey for the encouragement and her immense support she
gave throughout my MSc programme.
Last but not the least; I’m very grateful to Coventry University for accepting me on this course
and providing me with the essential knowledge for my MSc studies. Moreover, I would also like
to thank my module lecturers for their time and effort.
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Table of Contents
CHAPTER 1 INTRODUCTION ......................................................................................................................... 1
1.1 Background: .................................................................................................................................. 1
1.2 Issues: ............................................................................................................................................ 2
1.3 Aims and Objectives: ..................................................................................................................... 2
1.3.1 Overall aim of the research: .................................................................................................. 2
1.3.2 Objectives:............................................................................................................................. 2
1.4 Research methodology: ................................................................................................................ 3
1.5 Contents and structure of the research project: .......................................................................... 3
1.5. 1 Chapter 2: .............................................................................................................................. 3
1.5.2 Chapter 3: .............................................................................................................................. 3
1.5.3 Chapter 4: .............................................................................................................................. 3
1.5.4 Chapter 5: .............................................................................................................................. 4
1.5.5 Chapter 6: .............................................................................................................................. 4
1.5.6 Chapter 7: .............................................................................................................................. 4
CHAPTER 2 GENERAL OVERVIEW OF INDIAN CONSTRUCTION INDUSTRY ............................ 5
2.1 Introduction: .................................................................................................................................. 5
2.2 India- General Overview:.............................................................................................................. 6
2.3 Construction Sectors: .................................................................................................................... 7
2.3.1 Real estate: ............................................................................................................................ 7
2.3.2 Infrastructure: ........................................................................................................................ 8
2.3.2 Infrastructure Development: ................................................................................................. 8
2.3.1 Developing Real estate: ...................................................................................................... 12
2.4 Glance At Last Decade: .............................................................................................................. 14
2.5 The Five Year Development Plan: .............................................................................................. 15
2.6 Procurement Routes in India: ...................................................................................................... 16
2.7 Contracts Used in Construction: ................................................................................................. 17
2.7.1 Packaged based contracting: ............................................................................................... 17
2.7.2 Turnkey contract: ................................................................................................................ 18
2.8 Client Types: ............................................................................................................................... 18
2.9 Key Stake Holders and Major Market Player: ............................................................................ 18
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2.10 Market Analysis: ..................................................................................................................... 19
2.11 Risks Surrounding Construction Industry: .............................................................................. 20
2.12 Need Of Supply Chain In India:.............................................................................................. 21
2.13 SCM Operation in India: ......................................................................................................... 22
2.14 Key Drivers in Indian Construction SCM: .............................................................................. 23
2.15 Issues Faced in Indian SCM: .................................................................................................. 25
2.16 Future of Supply Chain Management: .................................................................................... 26
2.17 Summary: ................................................................................................................................ 27
CHAPTER 3 GENERAL OVERVIEW OF SUPPLY CHAIN MANAGEMENT: .................................. 28
3.1 Introduction: ................................................................................................................................ 28
3.2 Supply Chain management: ........................................................................................................ 28
3.3 Working methodology of supply chain management: ................................................................ 29
3.4 Need for SCM? ........................................................................................................................... 31
3.5 Different Functions in Supply Chain: ......................................................................................... 31
3.6 Crucial role of Suppliers: ............................................................................................................ 32
3.7 Advantages of supply chain: ....................................................................................................... 33
3.8 Risks involved in SCM: .............................................................................................................. 34
3.9 Glance at Issues in supply chain: ................................................................................................ 35
3.9.1 Barriers in supply chain: ..................................................................................................... 35
3.9.2 Evaluating some general issues:.......................................................................................... 36
3.10 Key drivers for change in supply chain: ................................................................................. 37
3.11 Improving efficiency of supply chain: .................................................................................... 38
3.12 Managing the supply chain: .................................................................................................... 39
3.13 Future of supply chain management: ...................................................................................... 40
3.14 Summary: ................................................................................................................................ 41
CHAPTER 4 REVIEWING UK CONSTRUCTION INDUSTRY ........................................................... 42
4.1 Introduction: ................................................................................................................................ 42
4.2 UK Overview: ............................................................................................................................. 42
4.3 Construction sectors and its market trend: .................................................................................. 43
4.4 Studies conducted by Latham and Egan: .................................................................................... 45
4.5 Client types: ................................................................................................................................ 46
4.6 Procurement techniques in UK: .................................................................................................. 47
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4.6.1 Procurement of materials: ....................................................................................................... 48
4.7 Material availability and labour force in UK: ............................................................................. 49
4.8 Supply chain management in UK: .............................................................................................. 50
4.8.1 Methods involved in supply chain: ..................................................................................... 52
4.8.1.1 Integrated supply chain: .................................................................................................. 52
4.8.1.2 Value management:......................................................................................................... 54
4.8.1.3 Lean construction: ........................................................................................................... 55
4.8.1.4 Partnering: ....................................................................................................................... 56
4.8.1.5 Green supply chain: ........................................................................................................... 58
4.8.1.6 Risk management: .............................................................................................................. 59
4.8.1.7 Waste management: ........................................................................................................ 61
4.9 Future of construction sector: ..................................................................................................... 62
4.9.1 Future aim: .......................................................................................................................... 62
4.9.2 Key drivers for change: ....................................................................................................... 63
4.10 Summary: ................................................................................................................................ 64
CHAPTER 5 RESEARCH METHADOLOGY ........................................................................................ 65
5.1 Introduction: ................................................................................................................................ 65
5.1.1 Quantitative approach: ........................................................................................................ 65
5.1.2 Qualitative approach: .......................................................................................................... 66
5.1.3 Mixed method: .................................................................................................................... 67
5.2 Research Purpose: ....................................................................................................................... 67
5.2.1 Adopted Approach: ............................................................................................................. 68
5.3 Defining Data reviewed: ............................................................................................................. 69
5.4 Summary: .................................................................................................................................... 70
CHAPTER 6 DATA ANALYSIS.............................................................................................................. 71
6.1 Introduction: ................................................................................................................................ 71
6.2 Analysing Economy and Construction sector market of India and UK ...................................... 71
6.3 Type of clients and their effects: ................................................................................................. 73
6.4 Incorporated Construction Reports: ............................................................................................ 74
6.5 Differentiating Procurement Routes: .......................................................................................... 76
6.6 Issues in Indian Supply chain with comparison to UK: .............................................................. 77
6.7 Implementing supply chain methods in India from UK: ............................................................ 80
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6.7.1 Integrated supply chain: ...................................................................................................... 81
6.7.2 Value management:............................................................................................................. 81
6.7.3 Lean Supply chain:.............................................................................................................. 82
6.7.4 Partnering: ........................................................................................................................... 82
6.7.5 Green supply chain: ............................................................................................................ 83
6.7.6 Waste management: ............................................................................................................ 84
6.7.7 Risk Management: .............................................................................................................. 84
6.8 Factors influencing change in Supply Chain: ............................................................................. 85
6.9 Summary: .................................................................................................................................... 86
CHAPTER 7 CONCLUSION & RECOMMENDATION ........................................................................ 87
7.1 Introduction: ................................................................................................................................ 87
7.2 Aims: ........................................................................................................................................... 87
7.2.1 To evaluate Indian construction industry and its supply chain: .......................................... 88
7.2.2 To form a critical understanding on Supply Chain Management: ...................................... 88
7.2.3 To study the supply chain management in UK construction industry: ............................... 88
7.2.4 To bring out methods and techniques involved in UK which can potentially benefit the Indian construction supply chain: ....................................................................................................... 89
7.2 Research Findings: ...................................................................................................................... 89
7.3 Recommendations: ...................................................................................................................... 90
7.4 Research limitation: .................................................................................................................... 91
7.5 Recommendation for Further Research: .................................................................................... 92
REFERENCES ....................................................................................................................................... 93
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List of Figures
2.1 Growth of India’s GDP over past years Page 6
2.2 Construction Sectors in India Page 8
2.3 Investment in Roads and highways Page 9
2.4 Investment in Railways Page 10
2.5 Investment in ports Page 11
2.6 Future Investments for Urban Development Page 11
2.7 Housing shortage in Real Estate Page 13
2.8 Procurement Strategies/Contract types Page 17
2.9 Indian Market Size and Growth Page 20
2.10 Supply chain in India Page 23
2.11 Indian supply chain Page 25
3.1 Supply chain management Page 30
3.2 Advantages of Supply chain Page 34
3.3 Issues in Supply chain Page 36
4.1 UK construction output Page 43
4.2 CBI Page 44
4.3 Import/Export Statistics Page 49
4.4 Lean construction Page 56
6.1 Economy and Construction market analysis Page 72
6.2 Analysing Client types Page 74
6.4 Construction reports Page 75
6.5 Issues in Indian supply chain Page 80
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List of Tables
2.1 Indian Road Network Page 9
2.2 Major Infrastructure Projects Page 14
2.3 Procurement Routes Page 16
2.4 Risks Surrounding construction industry Page 20
3.1 Risks in Supply Chain Management Page 35
3.2 Key Drivers for change Page 37
4.1 Client types Page 46
4.2 Procurement Routes Page 47
5.1 Data reviewed Page 69
6.1 Client types Page 73
6.2 Procurement Types Page 76
6.3 Factors influencing Supply chain Page 85
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CHAPTER 1
INTRODUCTION
1.1 Background:
Among the one of the major changes which has changed the face of the construction industry,
Supply Chain Management has played a crucial role in it. Supply chain management came into
picture around 1990’s and has had a huge impact on the construction industry since then. Lee et
al. 1995 study (cited in Decelle, 2007, p. 75) defines supply chain management as “A supply
chain is a network of facilities that procure raw materials, transform them into intermediate
goods and then final products, and deliver the products to customers through a distribution
system.” India holds the second largest construction industry in the world and as per the 12th
Five Year plans, (2011) there are lot of developments expected to take place in the coming years.
To support this development the country needs an efficient supply chain as it is the backbone for
any successful construction project. Supply chain consists of various group of member consisting
of suppliers, vendors, designers, manufacturers, architects, retailers, distributors and contractors
who work in a tem to deliver the final product to the client with optimum quality.
As per Ahmed et al. (2002) some of the benefits associated with the supply chain are:
• Helps to maintain good margin.
• Reduced transaction costs
• Easy management of the inventory
• Encourages to remove waste from the overall process
• Helps in future planning and decision making
• Helps in providing the best of the services to the client etc.
For the Indian construction supply chain to be efficient it needs to be value oriented and not cost
oriented. Various issues daunt the supply chain at present but they can be resolved by
implementing new methods of green supply chain, lean construction, value management etc.
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Implementing such techniques in the Indian construction supply chain can lead to a great level of
improvement from which the construction industry can benefit on a big scale.
1.2 Issues:
According to C2XNITIE (2014) there exist various issues which are holding back the true
potential of supply chain. Some of them are:
• Lack of coordination between supply chain partners
• Missing trust in the company
• Poor Resource planning and Management
• Lack of knowledge of supply chain
• Missing advanced methods involved in supply chain etc.
1.3 Aims and Objectives:
1.3.1 Overall aim of the research:
The aim of this study is to investigate the Supply Chain Management in Indian construction
industry and also to highlight the areas where India can benefit in this field from UK
construction industry.
1.3.2 Objectives:
To evaluate Indian construction industry and its supply chain
To form a critical understanding on supply chain management
To study the construction supply chain involved in UK
To bring out methods and techniques involved in UK which can potentially benefit the
Indian construction supply chain.
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1.4 Research methodology:
In order to accomplish the aim this research will be based on “Literature based Review
Methodology”. There is vast amount of data that already exist on this field; hence this method
will focus on utilizing this data in order to highlight the current issues in Indian construction
supply chain and also by analysing both the countries India and UK it will be able to highlight
the techniques and methods in data analysis which can potentially benefit the supply chain.
1.5 Contents and structure of the research project:
1.5. 1 Chapter 2:
This chapter provides the overview of Indian construction industry covering its market and
economy analysis, construction forecasts, type of clients, procurement routes and most
importantly it highlights the supply chain management in Indian construction sector. It also
covers the issues, key drivers, and provides the details on the available resources which are
contributing to the efficiency of the supply chain.
1.5.2 Chapter 3:
In this chapter general overview of supply chain management is provided. Moreover, it covers
the pros and cons of supply chain management and the risks and issues associated with it. It also
provides an insight on the key drivers and ways to improve the efficiency of the supply chain.
1.5.3 Chapter 4:
In this chapter UK construction industry is reviewed covering its market trends, client’s types,
construction economy and major focus is laid on the supply chain methods used in UK
construction industry.
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1.5.4 Chapter 5:
This chapter is based on research methodology. It also covers the various types of method
involved in research methodology while laying the major focus on the method used for
conducting this research work. Moreover, it elaborates the type of data analysed for conducting
this research.
1.5.5 Chapter 6:
This chapter is based on data analysis and is conducted by analysing the construction industries
of India and UK. Various table and graphs are included in this chapter representing the key
factors of the data involved in this chapter. Moreover, it ends with a brief conclusion
highlighting the findings.
1.5.6 Chapter 7:
Chapter 7 is based on research and findings. The whole research is summarized in this chalet to
provide the key findings and the recommendations on the basis of data analysis. Furthermore, it
highlights the research limitations and provides the information on scope for further research.
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CHAPTER 2 GENERAL OVERVIEW OF INDIAN CONSTRUCTION
INDUSTRY
2.1 Introduction:
Since the evolution of mankind the construction industry has transformed and has been through
many changes making it more effective and modernized. The construction ideology has evolved,
techniques in construction have modified, the methods of construction have improved, the
population has increased and so has the needs. All these factors have made a huge impact on the
construction sector. In present times, the market competition has increased and companies have
to come up with different strategies to thrive in the construction sector and to deliver the best
quality with the best performance.
To achieve the competitive advantage the companies are now focusing towards improving their
supply chain, as a strong supply chain is the backbone of any organization. Since the
introduction of the concept supply chain in 1980, it has become a field of interest for many and
has evolved into a much effective concept since then. According to Cooper et al. (1997) Supply
Chain Management can be defined as "The integration of all key business processes across the
supply chain is what we are calling supply chain management”. The Supply Chain management
holds promising benefits for the companies and can help deliver the project on time, with best
quality, under required specifications and also provides an efficient resource management.
India holds a huge market for construction at present and will hold the same potential for the
coming years as per (Sheela, 2013). Hence the country is full of promising opportunities in the
field of construction which can only be utilized by organizations with a functioning supply chain.
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2.2 India- General Overview:
India, also known as republic of India is located in South Asia and is surrounded by Arabic sea
on the south west, Bay of Bengal on the south east and Indian Ocean on the south. It is the
seventh largest country in terms of area with 28 states and 7 union territories and second largest
in terms of population. The country shares its border with Pakistan, china, Nepal, Bhutan and
Bangladesh with Sri Lanka next to it on the south (Bharat Ganarajya, 2010).
Even after being a developing nation it holds the second largest construction industry accounting
for 11% national GDP and construction investments of 65% in the infrastructure sector. India is
currently 10th largest economy of the world in the world’s third largest in terms of PPP. The
Indian GDP is worth 1841.70 billion USD and accounts for 2.97% of the world’s economy. The
total market size of Indian construction industry is estimated to be 2, 48,000 crores INR (Trading
economics, 2014).
Figure 2.1 - Growth of India’s GDP over past years
Source- Trading Economics, 2014
With a stable political government at the centre including a good legal system there has been a
substantial growth in the country’s economy even after the global financial crisis. As the market
indicates, currently India holds great investment opportunities and because of the same most of
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the international companies is investing in Indian construction sector and India is considered as
the third largest investment base in the world. The key indicators for the stable economic growth
are that the companies are recruiting new people and there is lot of job opportunities available in
the construction sector and growth of major segments in manufacturing sector points out the
growth of the industry.
In terms of purchasing power parity India is currently the fourth largest economy with a
consumer market of more than 350 million. The country holds good investment option in
construction sector and also has a wide location choice along with quality import and export
system. It also holds a great number of educated and skilled labours and good material
availability making the industry grow on a faster pace (Sheela, 2013).
As per “Oxford economics” new study India holds a potential to be the world’s third largest
country by 2025 and the infrastructure sector is expected to grow at a rate of 8% and holds a
potential target of $1 trillion per year in construction market. The construction sector has raised
the GDP with 8% every year since 2008/2009. Performance of construction sector of India has
shown constant increase in the past years and the growth levels are expected to increase by 20%
by the end of year 2014. The construction material market has also shown growth and a growth
potential has been seen in the market taking it up to a range of 7% to 15% (Swarup, 2006-07).
2.3 Construction Sectors:
The Indian construction industry consists of two major segments:
2.3.1 Real estate:
This segment is related to construction projects of residential, commercial industrial and
institutional construction projects and it contributes around 24percent to construction GDP and is
worth 55.6 billion USD and is expected to touch 180 billion USD by the end of 2020.
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2.3.2 Infrastructure:
This segment mainly consists of projects related to roads, dam, bridges, airports, power plants,
telecommunication projects, sewer and drainage related projects etc. contributing 76% to the
construction GDP. Infrastructure sector is also categorized into rural and urban infrastructure
(Indian Construction Industry Overview, 2013; NSDC 2008).
Figure 2.2- Construction Sectors in India
Source- National skill Development Corporation, 2008
2.3.2 Infrastructure Development:
Transportation segment
Roads and highways:
India being the third largest country with a vast road network spreading about 4.2 million km
carrying over 87.4% of passenger traffic. According to the Twelfth year plan the total investment
to be made in road sector is estimated to be 4.9 trillion INR.
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Figure 2.3
(Source- Shyamal et al. 2010)
India has started to work on the national highways along with its vast networks of district and
rural roads and according to the planning commission of India it intends to modify the current
roads and expand the highways and expressways of the country. The NHAI (National Authority
of India) made developments in the year 2012 expanding the roads up to 4,375 km. This
development is taking place with the help of contracting and public private partnerships (PPP)
(Shyamal et al. 2010).
Table 2.1-Indian Road Network
Indian Road Network
The second largest road network of 33 Lakh km. consists of:
Length( in km)
Expressways 200
National Highways 79,243
State Highways 1,31,899
Major District Roads 4,67,763
Rural and other roads 26,50,000
Total Length 33 Lakhs kms (Approx)
(Source: NHAI, 2012)
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The NHAI aims at developing 50,000 km of national highways in seven phases by the end of
2015. This will include all the major cities like- Mumbai, Delhi, Kolkata, Pune and the rural
areas of India.
Railways:
The government intends to expand the network of rails as the railway network. It already spread
out at a span of over 64,000 km and 7500 stations making India the fourth largest country with
rail networks. As the twelfth year plan presents, an investment of 29 million INR is to be made
on rail networks with 19% of the investment from the private sector. 22 stations across India will
be expanded to world class facilities and private partnerships are being carried out at present for
a better quality of work (Shyamal et al. 2010).
Figure2.4
(Source- Shyamal et al. 2010)
Ports:
In terms of ports India has 13 major ports along with 200 non-major ports. These ports accounts
for 95% of country’s trade. The Twelfth year plan has proposed an investment of around 1050
billion INR increasing the efficiency of the ports to 50%. The traffic on ports has significantly
increased in past 6-7 years and it takes around 19 days to clear the import/export cargo and hence
these ports needs major attention in terms of expansion and remove congestion, as the country’s
major trade is carried out through them. This is one of the main challenges being faced by the
country (Shyamal et al. 2010).
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Figure 2.5
(Source- Shyamal et al. 2010)
Airport:
India consists of 454 airports out of which 16 are international airports and 90 are for
commercial use. Passenger and freight traffic is one of the major problems in this segment and
passenger traffic is expected to grow more by 320 million by the end of 2023. The government
has proposed an investment of 12 billion USD in its 112th year plan for the development to take
place with the major help of private sector (Shyamal et al. 2010).
Urban Development:
To improve the urban sector the government has made an investment of 650 billion USD in its
12th year plan in which 48% of investment is going to come from the private sources. This sector
holds investment opportunities in waste management, urban transport systems etc. (Deloittie, 2014).
Figure 2.6 -Future investments for Urban Development
Source- Deloittie, 2014
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Rural development:
There is a huge need of development required in rural sector as India is a country with more than
40,000 villages which needs development from time to time. The government has proposed
various schemes to improve the rural section of India with better connected roads, water
supplies, construction of bridges and interlinking these villages to the main cities.
Also the country is focusing on other sectors also like power, oil and gas sector, urban
infrastructure etc. This development will increase the overall infrastructure development in the
country (BHARAT NIRMAN, 2011).
2.3.1 Developing Real estate:
Residential segment:
The housing sector is expected to grow at a rate of 12 % in long term with an increasing demand
of 4.78 million houses per year. At present it contributes around 5% to the GDP and is expected
to rise to 6% by next year. Currently there is a housing shortage in the country and hence the
government is coming up with new initiatives and increasing the investment in this sector like it
teamed up with RBI (Reserve Bank of India) to improve the real estate sector and has launched
schemes for the home buyers to get loan in different categories and also by decrease in liquidity
the government has brought down the interest rates to much better levels (India Real Estate
Overview, 2010).
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Figure 1.7- Housing shortage in Real Estate
Source- India Real Estate Overview, 2010
Commercial segment:
The substantial growth of India’s economy is leading to growth in commercial segment as well.
As the IT sector of the country is booming has mainly lead to development in this sector by
creating a huge demand for office and space development. In the past recent years the cities like
Gurgaon, Hyderabad, Chennai and Pune has witnessed commercial development. And the reason
for this development is the growing economy recruiting more people for the offices which are
ultimately leading to development in construction.
Issues faced in real estate sector:
• Lack of skilled labours
• No title insurance
• Rising costs of material
• Dearth of industry status
• Complicated procedural problems
The govt. is taking initiatives to eradicate these issues and has also taken 100% FDI to overcome
the shortage of housing problem in the country. With the demand and prices falling in the
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coming year the foreign investors are looking towards India to invest in the great market
opportunity it holds (REAL ESTATE PROFILE, 2013; SARAF, 2009)
2.4 Glance At Last Decade:
In the past 10 years the construction sector has seen many good changes which has transformed
and given the country a new image. The table below gives a small picture of the developments
taken place:
Table 2.2- Major Infrastructure Projects
Source- Arabian Industry, 2014
Projects Project Details
Yamuna Expressway Built at a cost of Rs.12, 839 bn is this 165km, 6 lane expressway
connecting Delhi and Agra.
Kolkata’s airport
terminal
Built at a cost of (Rs. 23.25bn) by Italian-Thai Development Public Co-
ITD Cementation
Eastern Freeway(by
MMRDA)
Built by Mumbai Metropolitan Region Development
Authority(MMRDA) at a cost of $200mn covering a distance of
approximately 17Kms.
Indore BRTS Made at a cost of Rs. 1.3bn is spread in a distance of 11.7km providing a
connected transport service in the city.
Chenab Bridge Located in Jammu and Kashmir at a height of 1,053 feet is this 1.3 km
bridge. Due to be constructed in 2016
Banihal-qazigund
tunnel
Being one of the longest tunnels in India it is made in a stretch of 11.21
km.
Gujarat international
finance tech-
city(GIFT)
Built at a price of( Rs. 600 bn) in an area of 968 acres
Chandranka solar
park
This huge project is made in an area of 4,900 acres in Patan, Gujarat.
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2.5 The Five Year Development Plan:
The planning commission of sets the development plans after every five years known as the
“Five year plans”. This section will be highlighting the 12th Five Year Plan (2012-2017). These
plans are formulated by government of India under the control of the prime minister of India, and
are monitored by government organization known as the Planning commission of India. These
plans contain certain objectives and targets set out of the country while also focusing on the
solutions for economy, development, infrastructure, industrial, education, medical etc.
The 12th five year plan set by the government is much faster, sustainable and more inclusive
growth as compared to the previous plan. Some of the key changes to take place according to this
plan are:
There would be increase in investment in terms of infrastructure as the GDP will be
increased to 9 percent by the end of 12th plan.
All weather roads would be developed to connect all the villages.
National and state highways would be upgraded and the carry lanes would be increased
by the end of 12th plan.
Freight corridors on the eastern and western side would be completed.
All the existing expressways would be repaired and more links would be provided.
The government has taken various initiatives in the twelfth plan and has set objective for the
energy sector, unemployment ratio, infrastructure etc. The country’s GDP has been stagnant at 9
% in 2012, however there was a slight fall in 2010-2011 with GDP going to 8.5% but again it
came back at 9% in 2012(final year of 11th year plan). The infrastructure sector’s contribution to
GDP was recorded at 5.7% in the base year of 11th year plan but then it came up to 8% in the
final year of the plan. Hence, these facts prove that the country’s overall infrastructure is
growing and moving towards a better tomorrow (TWELFTH FIVE YEAR PLAN (2012-2017), 2011);
Cidic, (2012).
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2.6 Procurement Routes in India:
Table 2.3- Procurement Routes
Source: (Manoharan, n.d); (Guide to Planning and Construction issues in relation to the construction of tall buildings in India)
No. Procurement Routes How it Functions
1. Traditional contract In traditional contract the contractors is selected on the
basis of tender and completes the work for the developer
on the basis of fixed lump sum price but the developer is
responsible for the design, planning, procurement and
project development. But in this type of contract the risk
exist for the quality being compromised from the
contractor’s side.
2. Design and Build Although, this is much faster way with better cost
certainty than traditional contract as the contractor has the
main control over the project and it is also safe for the
client as it is a single point responsibility for the
contractor making him liable for any defaults or delays.
As the projects have become more sophisticated this
procurement strategy is gaining popularity. It was earlier
used in industrial sector now it is widely used in
construction projects as well.
3. Construction contract
management
In construction project management a management
contractor is appointed who then pass on the work to
various sub-contractors. The employer holds control over
the project but the contractor is not liable for the work
carried out by subcontractors till they are abiding by the
law and regulations. It is a more straightforward
employer-contractor-subcontractor building approach but
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it might lead to delays and extra costs, hence it is used in
certain projects only.
Figure 2.8- Procurement Strategies/Contract Types
2.7 Contracts Used in Construction:
There are two type of contracts used in Indian construction industry:
2.7.1 Packaged based contracting:
In this type of contract the client includes the designs. The terms and conditions included in the
contract are pre-defined but might vary overtime. There is uncertainty of time and cost in this
contractual arrangement. However the owner bears the risk in the contract.
• Traditional contract • Design and Build • Construction Contract
Management
Procurement Strategies
• Packaged based contracting
• Turnkey contract Contract
Types
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2.7.2 Turnkey contract:
In this contractual agreement the contractor does the work in a fixed period of time on the basis
of guaranteed price. The contractors work is assessed on the basis of the fixed standards. This is
the most widely used contract as it places the main responsibility of design, procurement and
construction on contactor. There are no issues with time and cost in this contract and contractor
bear all the risks involved.
For local projects the standard contract form are prepared by the government which are followed.
However in international projects FIDIC contracts are used (Construction and projects in India,
2012).
2.8 Client Types:
The Indian construction industry is surrounded by two types of clients- Private sector clients and
Public sector clients. In today’s economy both the sectors are equally responsible for the
development taking place in the infrastructure sector. As according to the “Twelfth Five year
plan” there is 50% of investment expected from the private sector and even the government has
also increased the investment for the development to take place on much faster pace. (Additional
information on investment is provided in Twelfth Five year plan).
2.9 Key Stake Holders and Major Market Player:
In the Indian construction industry there are three major stake holders for any projects which are
the client, the contractor and the architect or the design team. The main emphasis while forming
the contracts and procuring is laid on all these three depending on the strategy used. The risk and
responsibility is divided by the strategy selected for the project.
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As per (NDSC India, 2008), the public sector construction companies like RITES (Rail India
Transportation and Engineering Services), Engineers India Ltd., Indian railway construction
limited etc. are dominating the public sector.
In terms of infrastructure sectors companies like L&T, GMR infrastructure, HCC, Gammon are
the leading players whereas in housing companies like L&T, Omaxe group and DLF are the
major players.
2.10 Market Analysis:
The Indian construction market has shown positive growth despite of a few shortages in terms of
resources or technology or other issues. During the evaluation phase the CAGR value is recorded
at 15.10%. This was the outcome of the initiatives taken by government such as raising the FDI
(Foreign Direct Investment) to 100% making it easier for the foreign companies to invest,
government has invested more in the public infrastructure, high urbanization and country’s
growing economy (Asia Construction Outlook, 2013).
As per the report, Construction and engineering in India, (2013), the construction spending is
expected to grow at 9% by 2018. According to the 12th development plan private investment in
infrastructure is expected to increase to 50% in next 5 years. Main focus is leading on the major
cities such as Delhi, Mumbai, and Bangalore etc. For future the country is looking forward to
improve its energy sector- expanding nuclear power for better power source. Non-residential
sector is also developing at the same pace, and the spending in residential sector is expected
around 10% per year by the end of 2018 for faster development. Moreover, foreign investments
are expected to increase in the coming years. As the population of the country is increasing its
raising demand for new houses making residential sector a good investment option and the
construction activities are expected to increase in the major cities.
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Figure 2.9- Indian Market Size and Growth
Source- Asia construction outlook, (2013)
(Fig 2.9 above represents size and growth of the Indian construction market in different sectors)
2.11 Risks Surrounding Construction Industry:
Table 2.4
No Risk Factors Elaborating Risk Factors
1. Workforce shortage Currently the industry employs more than 33 million people but in
the coming years the requirement of the construction sector is 4 mn
people per year for the rapid growth that is taking place. Shortage
of manpower might become a huge risk factor in the coming years
of time.
2. Project clearance
and permissions
For developing a project, one requires various kinds of clearances
from the government. But at present the process is very
complicated which leads to huge delays and hence needs
improvement.
3. High competition
level
The construction industry of India is highly fragmented and fixed
capital requirements are low. There are many firms out of total
which are unregistered and unorganized. This raises the
competition of small scale developers to work in thrive in the
industry.
4. Shortage of There is a shortage of infrastructure supply in most of the cities in
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supplies India like- power water etc. which needs attention as it is running
well below GDP. This might affect the construction projects run
effectively in future.
5. Finance The outstanding payments and retention payments are made to the
contractor in the end of the project. Hence the project lacks
payment security for the contractor and the clients are assessed on
the basis of their financial profile. This system makes it hard for the
small organization to work with freedom. Hence finance needs to
be improved to eradicate the insecurity among the organizations.
6. Land acquisition
delays
The large scale projects like-SEZs suffer because of the delays in
procuring land which eventually delays the project and raises cost
uncertainty.
7. Fund availability The highways and high density corridors made by NHAI are well
maintained with the proper funds availability. However, the local
sections comes under the PWD (under state government) are not of
good quality and are not managed properly because of
unavailability of the funds.
8. Lack of technology The technology involved in the construction sector needs to be
developed for the future projects to take place efficiently.
Source: NDSC India, (2008)
2.12 Need Of Supply Chain In India:
The construction sector of India is one of the biggest sectors contributing highly to the national
GDP. The country’s growing economy is giving rise to growth in sectors like- real estate and
infrastructure. The market forecast is good for the coming years. But the current methods being
followed by the construction industry in terms of supply chain are not good as compared to other
developed countries like UK. A change is required in the current practices of Indian construction
industry as the small and medium scaled firm face some of the common challenges such as cost
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overruns, delays and waste management during the term time of maximum projects. The country
needs to improve on other methods being followed in the developed countries like- green
management, lean construction, integrated supply chain etc. The existing methods also need to
be upgraded for a better supply chain management and much required faster growth.
Lot of projects are planned in the 12th year plan like expansion of infrastructure including ports,
airports, railways, roads etc. in which local and foreign companies are going to work together.
Hence there is a need of better supply chain so that the foreign companies can invest with
confidence and it would also promote partnerships on a much better hence contributing hugely to
these big projects.
(Supply chain methods are discussed in Chapter 4)
2.13 SCM Operation in India:
In the Indian construction industry the basic rules for supply chain are almost same as the rest of
the world. Meaning, the supply chain process includes the team of different members who work
in integration for a single project. It consists of the suppliers, manufacturers, designers,
contractors, sub- contractors and the client. The supply chain has been properly utilized by the
companies working at a large scale, such as Gammon, L&T etc. These companies have their own
chain of suppliers and lined up manufacturers and the whole project team to deliver the project
on time under the required specifications and at highest quality. However most of the
construction firms in India are still ignorant to the use of supply chain management in Indian
construction industry and do need improvement to take the firm to greater heights.
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Figure 2.10- Supply Chain in India
Source: Ahmed et al. 2002
(The figure above describes the way the supply chain functions in Indian construction industry including all the members of the
supply chain and also presents the progressing stages of the chain).
2.14 Key Drivers in Indian Construction SCM:
Indian construction industry has already made supply chain management a key part of the
organizations. SCM has many advantages and working methods by which a firm can benefit in
numerous ways. At present various techniques of SCM are being followed by Indian
construction firms such as- risk management, resource management, material and inventory
management, waste reduction, maintaining the demand and supply needs etc.
Currently,
The Indian construction firms have to modify its supply chain with each new project to
meet the requirements of the clients and the location of the project. Also, the contracts
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used might also be different in the given project and it might reflect a needed change in
the supply chain.
The companies are using the techniques of project planning to allocate the resources,
foresee the risks and take actions against them before it is too late and affects the whole
project, the companies are looking into material handling as it is one of the major
element of a project.
Also, some of the companies are working in partnerships so as to increase the overall
profit of the organization. This also creates a sense of trust among the organization and
also results in more coordinated work.
The firms are also looking into inventory and logistics management for the proper
material handling and transportation management.
The IT sector is also one of the new techniques which have helped the firms to grow it
supply chain, as with the use of IT the flow of information has become easy and the data
could be properly stored and managed anytime, as less the paperwork less the hassle.
Moreover it has resulted in increased productivity and design management by the use of
software’s like CAD.
The companies are also looking into integrated supply chain management as this type of
management holds more benefit for the member of the supply chain and also builds up
relationship by forming long term relationship among the organizations.
Methods of lean construction are also being adopted by some organizations which help
to reduce the waste to minimum and the time required for the project, resulting in much
more profit.
As the large companies are expanding more in different sectors they are also opting for a
supply chain for that sector so that the work could be carried out at a good pace.
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Figure 2.11
2.15 Issues Faced in Indian SCM:
The Indian construction is expanding each day but most of the firms are still following the
traditional way of supply chain management. Because of this the companies are facing various
kinds of issues in its supply chain such as:
Mismanagement can be seen in the supply chain in terms of resource planning, project
planning and scheduling which ultimately leads to delays in project and also materials
wastage.
Some companies don’t hesitate to take the bigger projects but due to unavailability of the
resource and poor resource planning it leads to failure of the project.
There is a lack of risk management among the supply chain which is one of the major
issues which needs to be changed so that the supply chain could be improved. As the
issues of cost over run and delays still haunt the organization and its supply chain.
There exists lack of information flow between the organizations also sometimes members
of SC are excluded from the decision making process.
Also sometimes because of lack of trust the organizations cannot work functionally.
Modification on every project
Lean Construction
Resource and Inventory
management
Using IT Services
Sector wise supply chain
Indian Supply Chain
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There is lack of material, inventory and logistics management among the organization.
Lack of integrated supply chain in Indian construction sector
Lack of lean construction techniques
Moreover, there is lack of monitoring in the supply chain which might lead to
mismanagement, loss of money etc.
Above mentioned are some of the key challenges which the Indian construction supply chain is
going through. There is a need for knowledge in this sector for supply chain as people know very
less benefits of implementing integrated supply chain, partnering, lean construction and risk
management, which if implemented can bring a massive change in Indian construction supply
chain (Vishwanadham and Kumar, 2007).
2.16 Future of Supply Chain Management:
The supply chain management holds a promising future for the construction industry. A better
knowledge of supply chain management will help to eliminate the possible issues which are there
in supply chain at present. It would provide a better risk management and analysis for the firm
and also would help to increase the overall productivity of the firm. Implying the needed
methods would also result in long term relations, better waste management and better
coordination among the suppliers and the whole supply chain.
Moreover, it would also lead to growth of partnerships and strategy of integrated of supply chain
which will eventually lead to overall growth of the firm. For India what it needs for this kind of
growth is more knowledge and better understanding of supply chain. And with the help of supply
chain professionals it can be achieved in time.
Furthermore better supply chain management would promote the growth of the company and the
sectors on a much faster scale.
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2.17 Summary:
The Construction sector of India continues to expand with more opportunities lined up for the
future. As per the (Asia construction output report, 2013); (Twelfth Year Plan report, 2011) there
is a lot of development expected to take place in the coming years of time. But various reports
have highlighted the importance of incorporating the methods of supply chain management in
the Indian construction industry as the organizations are still not able to utilize their supply chain
to its full potential.
In this chapter several problems faced by the Indian construction sector were highlighted and the
main issues of supply chain were presented. Also the market growth and the future forecast for
construction were also highlighted. The next Chapter will give a general overview on Supply
chain management and will highlight the working methodology, benefits and barriers which exist
in the supply chain.
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CHAPTER 3 GENERAL OVERVIEW OF SUPPLY CHAIN MANAGEMENT:
3.1 Introduction:
In the previous chapter the Indian construction Industry was reviewed and certain issues were
highlighted which the sector is facing regarding supply chain. Also, focus was laid on the current
market and the future opportunities. Moreover, Potential sectors were highlighted which are to
be developed in the coming time.
This chapter will help in understanding the concept of supply chain management and will
underline the need of it in the construction sector, key drivers of supply chain, barriers and
advantages involved in supply chain and the future it holds for the construction industry.
3.2 Supply Chain management:
Supply chain management is a vital source being used by the companies in the field of
construction industry to increase the overall competitive advantage. According to Christopher
(1992) supply chain is defined as:
“The 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”
Also, Lalonde (1994) defined supply chain management as:
“The delivery of enhanced customer and economic value through synchronized management of
the flow of physical goods and associated information from sourcing to consumption.”
In simple terms it is basically the management of flow of good from the manufacturer’s end to
the consumer’s end. Supply chain management plays an important role in construction firms as it
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helps in boosting the organizations efficiency, material flows, information flow and a much
better integrated approach towards the project. The concept of supply chain management came
into picture in early 80’s and since then it has been evolving to make the chain more value
oriented. Earlier the companies just used to focus on the materials and logistics but now the
focus has changed completely and the companies are putting more focus on customer’s needs
and reducing unnecessary wastage in the supply chain process (Construction Excellence, 2004).
The supply chain consists of various bodies such as- suppliers, contractors, retailers, sub-
contractors, architects, client and many more. All these bodies work in an integrated manner
towards the given project and share the same goals which are to reduce the overall extra costs
and deliver the project as per the client’s requirements and specifications. With the involvement
of an effective supply chain in any organization leads to much better co-ordination among the
members of the chain with a better flow of information and materials. Implementing SCM in
organization brings many advantages along with it, but the successful implementation totally
depends on the choice of suppliers and the level of coordination among the chain members
(Zigiaris, 2000).
3.3 Working methodology of supply chain management:
Supply chain varies in terms of functionality from organization to organizations. In the
construction industry the supply chain may include engineers, contractors, designers, architects,
sub-contractors, and suppliers which come together to form a supply chain and work on a single
project with common goals for a specific client. As all the organizations are working on one
single project there must be proper coordination among them so that any sort of delays can be
avoided, any sort of cost overruns can be avoided, any waste materials can be avoided and also
any delays in terms of time and quality should be avoided. Hence these organizations are to be
managed in coordinated manner and the suppliers involved in the chain are selected on the basis
of their skills to keep the supply chain healthy. Moreover, to ensure any sort of delays in
materials the projects are pre-planned by taking in use the supply chain and planning the project
and its future requirements in the early stages.
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As any construction project is a multi-level project which has various stages in between the
initial stage and the final stage it involves-designing, planning, controlling/management,
maintenance, repair, materials flow, construction etc., a healthy supply chain is used in all these
stages to ensure that the project is completed as per the clients’ requirement and specifications,
yet keeping it under “Budget”.
Figure 3.1- Supply chain mechanism
Source: C2XNITIE, 2014
(The above figure 3.1 explains the working of a supply chain. It represents the key members, the flow of
materials and also the constant flow of information among the supply chain.)
As the image defines- the information is passed on from the client to the distributors, who further
pass it on to the distributors, who pass on the information to their manufacturers for the need of
materials required, and then the manufacturers pass on the information to the suppliers for the
supplies required for the requested material. The chain goes in the opposite direction for the
material supplies and the finished products.
All these organizations work together with coordinated management and information flow to
give the consumer its finished final and required product on time and in budget (C2XNITIE, 2014).
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3.4 Need for SCM?
Supply chain management in today’s date is being used in every industry, be it automobile, steel
industries, IT sector or Construction. Without the use of supply chain it is now impossible for the
organization to work with the required pace. Any project should be completed in a certain value
which it should not exceed, meaning the project should be value oriented not cost oriented. By
using supply chain in construction industry one can improvise the working techniques of
organizations on a single project. By implementing a controlled supply chain one can avoid any
cost overruns, delays to the project, material supply and its flow, management of authorities
working on the project and developing the project with continuous improvement.
Supply chain management is made up if different methods which the organizations can use
depending on their strategy for the firm. These methods are- lean construction, partnering, waste
management, integrated supply chain, green construction etc. The organization can select any
select of the methods depending on the aim whether it is to reduce the wastage or to increase the
speed of the project or to reduce carbon emission processes etc.
Moreover, the performance of suppliers in the supply chain could be measured making it easy for
the organization to make the necessary changes in the supply chain. Also it gets easy for the
organization to manage the workload so that the as the organization can easily take decisions in
advance and distribute the workload among the chain. Furthermore, the waste produced can also
be controlled with the use of supply chain as one can go with the approach of future plans for the
project. Hence, it is self-justified that how crucial is the role of supply chain management in the
construction industry.
3.5 Different Functions in Supply Chain:
The supply chain works in different ways. These ways are totally dependent on the requirements
of the clients and the market in which it operates. Hence the Supply chain management differs in
various cases and can be classifies into following options:
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• Option 1: The products manufactured for the client are distributed to the stock points
which are located nearby the consumer.
• Option 2: In some cases the products are manufactured in advance and are delivered to
the customer on request.
• Option 3: Parts of the product are kept in the stock and the final product is made and
delivered on customer’s demand.
• Option 4: On customer’s order the product is made and delivered but before that no stock
is kept and the parts and elements are ordered which fits the customer’s specifications.
All these options vary depending on the market conditions and the client’s requirement for the
project. In some markets the focus is on the supply whereas in some the focus is on the product
development phases, hence the organization can choose effectively the option to go with. These
options also ensure any cost overruns and wastage are avoided and helps in making a value
oriented chain (Vrijhoef and Koskela, 2000).
3.6 Crucial role of Suppliers:
The suppliers are a key part of the supply chain. As they are the one who supply the materials to
the manufacturers so that the product could be delivered to the end user. Hence the suppliers act
as the backbone of a supply chain. For the supply chain to function properly it is necessary to get
the suppliers with best outputs in the supply chain.
For a supply chain the suppliers are selected on the basis of certain qualities without which they
will be unable to cope up with the organization. These qualities are:
• Their skills and work quality.
• Their reputation in the market.
• Their performance in delivering the required materials on or before time.
• And are also selected on the basis of the price quoted for their services.
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These suppliers are assessed time to time to measure their performance in the organization so
that the quality of end product could be maintained while still not compromising with the cost
margins. They can be assessed on the basis of the products quality, performance in terms of time,
flexibility of supplies, flow of information, and feasibility of supplier. A constant evaluation of a
supply chain is necessary to keep the quality of the work at its best (Patil et al. 2012).
3.7 Advantages of supply chain:
By now it is evident that how efficient and beneficiary is the use of supply chain management in any sector and especially in construction industry. As in present scenario it is impossible for a company to work without a functional supply chain. The main advantages of supply chain as per Ahmed et al. (2002) are:
Scheduling and management of materials
Use of supply chain leads to low transaction costs.
Raise the competition level of the organization in the global market.
Helps in maintaining partnerships with the traders and suppliers.
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Figure 3.2- Advantages of supply chain
Maintains a consistent supply of products while maintaining the quality and demand.
Less transaction costs and time delays are avoided by the use of supply chain
management.
Leads to less paperwork and more flow of information among the organization and the
members of supply chain.
Use of supply chain management also leads to less transportation costs.
Inventories can be managed easily.
Leads to more coordination and control over the project.
3.8 Risks involved in SCM:
Supply chain management is surrounded by risk which needs to should be assessed in the
beginning of the project and measures should be taken to deal with it in future. These risks are
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sometimes uncontrollable and unpredictable which can disrupt the flow of materials eventually
disturbing the supply chain. Risks can be divided into three categories as follows:
Table 3.1- Risks in Supply chain management
Risks Reason
Supply Risks It is associated with the disruption of inflow of resources and flow of
materials.
Strategic Risks It is associated with the risk surrounding the business strategy.
Operation Risks It is associated with the risk which affects companies operational
activities related to production of goods.
There also exists other type of risk like financial, production, legal risks, fluctuation in the
market etc. to avoid all such risks, risk management should be implemented in supply chain by
which the risk could be assessed and controlled. In the risk assessment process the factors
leading to the risk are assessed and the effects which they lay on the project are considered and
then measures are taken to resolve such risk. A constant monitoring is also required, not in the
beginning but throughout the project so that any possibility of risk could be avoided. Hence risk
management is one of the critical parts of the supply chain and it should be incorporated with the
strategy in the beginning of the project which helps in making a successful supply chain (Aloini
et al. 2014).
3.9 Glance at Issues in supply chain:
3.9.1 Barriers in supply chain:
There exist few barriers in every organization which needs to be improved. Mentioned below are
some of the common problem which occurs in most of the organizations and its supply chain.
There’s a lack of knowledge for creating partnerships.
Organizations fail if there is lack of trust between them
Lack of coordination and control among the organization and its supply chain.
There still exists a resistance to the concept of supply chain.
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Lack of coordination in the internal procedures among the members of supply chain.
A higher vision and strategy is required for supply chain to be successful, a vision to
broaden supply chain not only in terms of procurement and material distribution but as a
whole.
There’s a need to keep a track of activities in the supply chain, as lack of monitoring may
result in loss of money, waste of material and mismanagement.
Figure 2.3- Issues in Supply Chain
Source: C2XNITIE, 2014
3.9.2 Evaluating some general issues:
In a supply chain there are issues which might occur at any stage of the project be it- preparation,
designing, assembling, transportation or even the site installation works. Figure 3.3 presents a
flowchart of these stages and the issues which might occur in it (C2XNITIE, 2014).
These issues vary stage by stage as mentioned below:
Site preparation: problems might rise because of unavailability of data and incorrect
information which might disrupt process of supply chain.
Design and engineering: during this phase any amendments in the design might delay the
whole process and because of any changes made the flow of information might also get
disputed.
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Assembly: This phase varies from project to project as in some projects the material is
assembled on site to reduce the time delays and speed up the project work while in other
cases the material is assembled in plants and then brought down to the site for
installation. In this process there might take any changes in the specification or order, or
the material supplied sometimes might be defective. Because of this the supply chain gets
affected.
Site installation: Sometimes onsite issues also occur because of complicated
material/product installation, damaged goods, wrong product etc. all these issue also lead
to poor supply chain management eventually leading to delay in the project.
(Viswanadham and Kumar, 2006)
3.10 Key drivers for change in supply chain:
Table 3.2- Key Drivers for change
No. Drivers Affects on Supply Chain
1. Managing finance Managing finance is very important in supply chain. The
outbound and inbound payments included in the project
should be properly managed without any delays, as delays
might affect the project as well as the relations with the
project team.
2. Pricing The pricing of the works to be carried out should be done on
realistic levels according to the client’s requirement and the
supply chain should work in the interest of the client.
3. Suppliers selection Suppliers involved in the supply chain are to be properly
assessed in terms of their performance from time to time as it
will help in building up a stronger supply chain.
4. Good on-site
communication
A good onsite communication is must for a successful supply
chain. The contractor, site manager etc. plays an important
role in this by keeping the organization up-to-date.
5. Managing Design A completed and buildable design is the backbone for any
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project as it ensures fewer changes to be done in future. It
also helps in reducing wastage and managing the materials
required from the supply chain.
3.11 Improving efficiency of supply chain:
To use the supply chain efficiently there are certain ways with which the efficiency of the chain can be increased (Eriksson, 2010). Some of the ways are as follows:
1. Customizing the sector: if the company is operating in various sector such as
infrastructure, housing etc. it can modify and group its customers in terms of
specifications, customers type, specifications and the products required etc. by the
technique of this grouping the company can modify its supply chain to all these groups
and can deliver the required services while still not compromising with the quality.
2. Detecting early warnings: any sort of market change or any other warning should be
accessed in advance so that any damage to the supply chain can be avoided as it will also
cause damage to organization operations if the supply chain is hit.
3. Managing inventory: the organization in today’s date should not fill its inventory for
future purpose thinking that the customer might need it, but it should work on order basis
meaning providing product to the client on the basis of order so that any wastage of
stocks can be avoided.
4. Managing margins: to increase the overall margin the company has to manage the
suppliers to reduce the cost for materials and services. Hence the suppliers are selected on
the basis of their price quotations and the service quality.
5. Using IT services: to maintain any supply chain IT services should be used. As by the
use of IT services one can easily manage the flow of information, keep track on records
and products etc. This will lead to an effective management system.
6. Waste reduction: the material required for construction purposes, meaning the material
supplied to the site for the client’s project should be pre-planned. As if there’s any
shortage that will occur in the material it will lead to delay in site works and if the
material are kept in inventory by supplier or manufacturer in bulk without the
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requirement it will lead to wastage of material leading to heavy losses. Hence, material
planning is required for waste management.
7. End customer focus: for the project to be completed successfully the whole team of
supply chain should work on a single goal of delivering the project to the client as per
his/her specifications and budget. Maintain this point results proves that the supply chain
working for the project is coordinated and good.
8. Customer satisfaction- a strong supply chain should always focus on finishing the
client’s project with the best quality without compromising with it.
3.12 Managing the supply chain:
The best way to make a supply chain effective is by managing the members involved in it. It is
impossible to include making every organization of the supply chain to be a member of it as it
complicates the process of management as well as decision making. Hence a main structure for
the supply chain should be followed. The parties which contribute to the supply chain should be
involved except for the second hand parties such as sub-suppliers. By doing this, it gets easy for
the organization to manage its chain and also more focus could be laid on the quality of the
product as there will be fewer parties with full control over their work. Hence only the members
who add value to the supply chain should be included.
Sometimes there are politics going on within the member of supply chains which should be
highly avoided as it not only affects the individual but also slows down the growth of the whole
chain, eventually leading to less quality of work.
The members should be properly assessed from time to time and should also be rewarded
according to the output given by them, this makes healthy supply chain. Moreover, according to
(Patil et al. 2012) keep up with the project requirement it can be feasible for the products and
materials to be modularized according to the client’s specifications.
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3.13 Future of supply chain management:
The supply chain management holds a promising future for the construction industry. A better
knowledge of supply chain management will help to eliminate the possible issues which are there
in supply chain at present. It would provide a better risk management and analysis for the firm
and also would help to increase the overall productivity of the firm. Implying the needed
techniques would also result in long term relations, better waste management and better
coordination among the suppliers and the whole supply chain.
Moreover, it would also lead to growth of partnerships and strategy of integrated of supply chain
which will eventually lead to overall growth of the firm. The field of supply chain needs more
knowledge and understanding to run successfully in the firm. In future more focus is being laid
on the IT sector as it will make a huge contribution in improving the SC and with the help of
supply chain professionals it can be achieved in time.
The competition level is rising and in future the tenders will not only be won by the lowest bid
but by incorporating value chain and innovation in the supply chain, hence eradicating the
financial and technological barriers which still exist in some of the firms.
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3.14 Summary:
The concept of supply chain management was highlighted along with the working methodology
behind it. Certain issues were presented which affect the growth of the supply chain. Supply
chain management is a concept which if utilized at full potential and sound understanding can
increase the competitive advantage of the firms. Moreover, different methods of increasing the
efficiency were underlined which if implemented can improve the overall supply chain
management for any organization.
The next chapter will focus on the UK construction industry as it is one of the front-runners in
terms of supply chain management. Being UK a developed country it would be appropriate to
study the construction sector of the country. Studying the method used in UK construction
supply chain can help in understanding the areas in which Indian construction supply chain is
lagging and how incorporating them can make the Indian construction supply chain stronger.
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CHAPTER 4 REVIEWING UK CONSTRUCTION INDUSTRY
4.1 Introduction:
In the previous chapter, concept of Supply Chain Management was reviewed and the advantages
and barriers were outlined which affect the supply chain of any organizations. Considering the
opportunities in Indian construction industry the country can gain huge profit in construction if
the supply chain is used at its full potential.
In order to understand the advanced methods involved in supply chain a developed construction
industry needs to be reviewed. UK construction industry is one of the leading industries in
Europe, using its supply chain at full efficiency. Therefore, it will be appropriate to study the
areas which have leaded the UK construction industry to such success.
In this chapter the UK construction industry will be reviewed along with its market analysis, its
supply chain and methods involved in it and other developments in the field of construction
which has helped this sector to rise. This will help in developing a critical understanding in the
areas in which the Indian construction supply chain is lagging and where it needs improvement.
4.2 UK Overview:
Being the developed country, UK holds a great construction sector contributing 10% towards its
economy. The construction sector is of worth around £65 billion per year, hence putting the UK
construction industry on world’s number 10th rank. It also creates lot of employment
opportunities and provides 1.5 million employment opportunities. The development taken place
in the past few years in housing sector is represented in Figure 4.1 below. As per Trading
Economics, (2014), the output delivered by the construction industry of UK has increased in the
past year by 3.40%. The minimum construction output was recorded in 2010 at -19.20% and the
highest achieved output was recorded at 21% in 2012.
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The housing sector has shown improvement over the past few years after receiving aid by the
government raising the construction output of the sector to 0.2% and has been growing at a
constant pace since 2010. After the Olympics being held in UK the global reputation in the
market has increased and has opened up new opportunities for the construction industry. With
including supply chain it provides job opportunities to around 3.1 million people. Also as per
Doran, (2001) the more number of employability highlights the fact that the demand and supply
in the construction sector is quiet high at present.
Figure 4.1- UK Construction Output
Source: Trading Economics, 2014
According to CBI, (2013) the factors leading to development in construction sector are:
the requirement of modern infrastructure gave a direction to the construction sector
improvements in technology
the rise in population
expansion of energy sector
change in climate
4.3 Construction sectors and its market trend:
The construction sector form’s the main part of the UK economy. It provides employment
opportunities to millions of people and is made up of many different companies and firms like of
designers, contractors, manufacturers etc. the construction sector can be further divided into
various sectors such as infrastructure, industrial development, commercial and house building
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sector. This sector holds a strong supply chain of around 125 billion GBP as last recorded in
2010. The whole construction sector got affected by the recession which took place in the
country majorly affecting the house building sector the most.
Figure 4.2 below represents the decline of the construction sector during the period of recession.
During this the private housing and repair and maintenance sector got majorly affected, although
infrastructure and public housing still rose as seen in 2012.
Figure 4.2
Source: CBI, 2013
According to the reports of CBI, (2013), for the sectors to develop the government is also taking
various initiatives by four major elements:
• Raising public investment in infrastructure sector with more than 100 million GBP by
2020.
• Renewing the policies for the privates sector’s investment in building and energy sectors.
• Increasing and extending the guarantee schemes to transform the financing in major
projects and,
• Learning form the successful approaches taken in some of the major projects in past.
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4.4 Studies conducted by Latham and Egan:
According to the reports of Latham and Egan a much better idea of constriction industry can be
formed as the reports presented by them highlight the factors affecting the construction sector
and how it transformed in the recent years. It also highlights what changes the construction
sector had to go through to make the construction industry on number 10 in the world.
As per the Latham reports (1994), Sir Michael Latham presented the issues related to downfall
in the construction sector after the recession of 1989/90. Latham reports presented that the
construction industry is suffering and lack innovation and skills for better working methods. The
construction industry had a boom in the early 80’s but after that the industry got affected by the
monetary policy which resulted in high interest rates, fall of the housing sector and its prices. It
also affected the material suppliers and the manufacturing industry which lead to economic crash
of the industry.
The major recommendations Latham made was:
• More focus on implementation of NEC contracts
• Encouraged partnering in industry
• Simplifying contract documentations
• Introduced compensation for slow payments and also highlighted the fact to pay the
interim payments within the period
• Awarding incentives for good work to encourage the team
During the time of Egan’s report (1998) the UK Construction industry was still in a bad shape.
Egan mainly focused on the concept of value management and value for money for the clients.
The Egan’s report focused on five key drivers to bring the necessary change:
• Use of integrated processes.
• Committed relationship
• Quality driven agenda (Value management)
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• End focus on the customer
• Commitment to people
Both Latham and Ethan report brought significant changes in the industry, although it happened
at a slow pace. But they succeeded in introducing the need of partnering, improvement in
housing sector, lean methods of construction etc (Construction Reports 1944-98, 2003).
4.5 Client types:
UK construction industry is surrounded with four types of clients Private, Commercial,
Government, and Public Limited Companies (PLC).All client types have different role in the
construction sector where the private clients are focused on house building sector and its
maintenance and repair (Structure of the Construction Industry, n.d)
Table 4.1- Client Types
No. Client Type Field of work
1. Commercial clients The commercial clients are mainly focused on the
projects which needs to be building fast and should be
maintenance free.
2. Private clients Private clients are mainly focused on the house
building sector including repair and maintenance
work.
3. Government clients The government works on different levels such as
constructing houses, bridges, schools, hospitals etc.
and for this the govt. issue works to other developing
bodies. They also look after the repair and
maintenance of various infrastructure projects.
4. PLC’s (Public Limited
Companies)
These are the clients whose project needs constant
repair and maintenance to provide the optimum
services like bank. They also need various
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construction developments to spread its branches.
4.6 Procurement techniques in UK:
The procurement strategy selected for the Project should help the organization achieve the long
term objectives. There is various procurement methods by which a project can be procured
depending on which of the factors the emphasis is laid: speed, cost, time, finance etc., Exploring
Procurement in the Construction Industry, (2010). There are four different techniques used in
UK:
Table 4.2- Procurement Routes
No. Procurement Routes How it functions
1. Traditional Contract • Used for large scale projects with detailed contract
provisions
• Employer is responsible for the design
• Beneficiary for the design team and the contractor as a
long term relationship is build.
• Overall quality of the project is maintained but hard to
get a lump sum price.
2. Design and Build • Design can be taken by employer from a separate
organization
• Contractor makes an outline design for tendering if the
design is not complete.
• Contractor runs on financial risk hence charge more
from the client.
• Provides much faster and better cost certainty as
compared to traditional contract.
• Single point responsibility on contractor making him
responsible and control over the project.
• Tendering phase is slow.
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3. Partnering • Done between two or more organization sharing the
same goal.
• Better flow of resources.
• Helps in building long term relationships.
• Partnering could be done between designers, suppliers,
contractors bonded by contract.
4. Management
Contracting
• Management contractor is appointed who lets the work
to sub-contractors.
• Contractor is not liable for the work carried out by sub-
contractors.
• Straight forward employer-contractor-sub contractor
building approach is followed.
• Might lead to extra time and costs.
• Used in certain projects only.
Procurement is also affected by the size of the projects. Small scale projects(less than 5 million) use
traditional contract and design and build are mostly used. In projects of % million to 50 million, Design
and build is mostly used with partnering the second choice. And the projects worth more than 50 million,
partnering is seen one of the effective ways of procurement followed by PPP/PFI and design and build
(PROCUREMENT ROUTE, 2014); (Powell, 2012)
4.6.1 Procurement of materials:
The procurement of the materials also affects the waste management process as the material to
be procured should be ordered in the correct amount to avoid any wastage in the first place.
Inventories should be well managed to prevent any damage to the material, and there should also
exist a return scheme in which the excess materials could be returned to avoid any wastage and
costs (Adams et al. 2011). Moreover the material to be used should be recyclable as it can be
procured again for future projects. The procurement can be design and build or traditional, and in
design and build the early appointment of contractor helps in reducing the waste as he acts in
centre with the design team and consultants and have the better idea of avoiding waste. Or the
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architects and designers in traditional procurement can help develop the plan for waste
minimization (Sweett, n.d).
In UK, under the Site Regulation Plan, (2008), the client is responsible for the waste
management plan and its working.
4.7 Material availability and labour force in UK:
UK holds a potential market for the materials and the construction materials are readily
available. However the price of material is growing and the labour price has been constant.Uk
construction industry have a good availability of skilled labour force. The construction index of
materials and labours is recorded at 199 with a percentage rise of 2.1 in the last year 2013. UK
also holds a good trade among the EU and Non EU countries for the materials (Richards,
2014).In the 2nd quarter of 2013 export value of construction material rose to 112 mn GBP
making the total export value to be 1474 GBP and also the import value has been increased by
6% making the total value of 3150 million GBP as shown in the figure below.
Figure 4.3- Import/Export Statistics
Source: LILEY, 2013
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UK construction industry employs more than 2.8 million people and contributes highly to the
UK’s economy more than any other sector. Most of the people are employed in private housing
and sectors like repair and maintenance and are also exempted from paying tax. Out of the total
strength of the workforce more than the 90 percent of people work in fulltime contributing
greatly to the sector. Migrant labours have also been working in the industry and there
percentage has risen from 2.7% to 7.7% in the past 10 years. Also in the south side of the country
there is much of self-employment and there is a percentage of 89% of contractors which are self-
employed. The migrant workforce of UK comes from Ireland, Poland and other European
countries but the govt. needs to take initiatives towards its own workforce as this so called
migrant workforce is neither permanent nor reliable on the basis of long term relationship
(LILEY, 2013).
The major exported materials included paints, electrical fittings, AC equipment’s, Lamps etc.
and the imported materials included sawn wood, boilers, AC equipment etc. UK holds the largest
export and import marking in the Europe for the construction materials.
The UK construction industry is moving towards green and sustainable development and for the
same purpose all the material which is used basis on their whole life cycle and on their quality of
less carbon emission (Construction Matter, 2008).
4.8 Supply chain management in UK:
According to Mentzer et al. (1999) Supply Chain Management is:
“the systemic, strategic coordination of the traditional business functions and the tactics across
these business functions within a particular company and across businesses within the supply
chain (that consists of multiple firms), for the purposes of improving the long-term performance
of the individual companies and the supply chain as a whole”.
Ellram and Cooper (1993) defined supply chain management as:
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"an integrating philosophy to manage the total flow of a distribution channel from supplier to
ultimate customer".
In the UK construction industry a much better coordination of supply chain is seen. There exist
various big companies in UK having there functional supply chains and there are different
methods and strategies that these organization follows like- lean construction, partnering in
supply chain, green supply chain, integrated supply chain etc. Organizations try to maintain the
long term relationship with the suppliers unlike working with different on individual projects.
Moreover, the companies look from the beginning of the project, i.e., from the inception stage
when the contract is picked to the completion stage when the project is delivered on completion
to the client. The functioning of supply chain differs in various companies and also countries.
But the purpose behind using supply chain is the same which is to improve waste management,
efficient use of resources, low transaction costs, better and consistent material supply and
decreasing unwanted oversupplies etc.
There are different role of supply chain in the UK construction industry depending on the emphasis on supply chain or on the site works (Mentzer et al. 2000). These different roles are:
If the main requirements are to speed up the onsite activities then the material flow and
the labours services should be continuous without any disruption. This could be achieved
by making a direct linkage between the suppliers and the project. As the contractor is the
lead in charge on the site so establishing this kind of relationship will lead to undisrupted
work flow.
If the main purpose is to reduce manage the inventory and materials and also to reduce
the wastage of material then in that case the material suppliers are given the
responsibility.
Also, to reduce the cost and to eradicate any delays the responsibility can be given either
to the contractor or the supplier.
In some cases to improve the overall work quality of the supply chain the main focus is
lead on the contractors, suppliers and the client so as to form an integrated functional
supply chain.
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4.8.1 Methods involved in supply chain:
During the 90’s the UK construction industry was going through recession and needed to
develop some change in there to protect the company from falling apart. They came up with the
solution of supply chain. Also the Government supported reports by Latham and Egan also
helped them and gave a direction to them. These reports presented an idea on improvement of
supply chain and also shined some light on the innovative procurement strategies to be followed
to get with the biggest client of the construction industry- the public sector. From then onwards
the revolution of supply chain took place and different methods of using supply chain came into
picture which then started to be used for increasing profit margin of the organization and these
techniques are used till now. These were the techniques of Integrated supply chain, partnering,
Lean Supply Chain and Green Supply Chain. (This method started to evolve in the recent years).
There are still being changes made to these methods for improving them, as the supply chain
management is one of the most crucial parts of the organization (Hope, 2012).
4.8.1.1 Integrated supply chain:
Integrated supply chains are totally based on the concept of long term relationships. In Integrated
supply chain (ISC) the members of supply chain follow a long term objective and have a
common goal. This is quite different from the traditional approach of supply chain management
as the members in integrated supply chain are chose on basic of their interests and there will to
work in a long term relationship. The suppliers and sub-contractors involved in this supply chain
are assessed properly prior to their involvement in the chain. They are assessed on several
grounds such as work quality, product quality, price on what they deliver and their performance
in the previous projects. For the long term performance they should share the same goals and
beliefs as this removes any possibility of dispute within the chain.
The use of integrated supply chain management leads to lots of benefits like:
• Reduced transaction costs
• Reduced transportation cost
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• Long term relationships with benefits
• On time delivery because of better information flow and management
• Also, provides higher revenues because of customized materials and products
To implement integrated supply chain any industry one should keep these key things in minds.
Such as:
• One should continuously asses the coming opportunities in supply chain by which the
organization can benefit.
• Partners involved should share common goals and objectives.
• A proper information flow should be present in the integrated supply chain to keep every
member up-to-date.
• A proper strategy should be planned in the supply chain so that the project can be made a
success and all the members skills should be utilized properly.
• Logistics sector of the chain should be properly managed
• The goal should be kept such that every member of the chain should benefit with the
project.
For the same reason integrated supply chain holds such promising benefits. It not only functions
for one member but provide mutual benefits for all the partners in the chain. It helps to increase
the competency level of the company and increase the product quality. Integrated chain not only
benefits the organization but also helps to make the best out of services of every partner involved
in it.
However integrated chain supply chain can differ because of different goals and strategies used
by the organization but the benefits of using it still exist. The supply chain can benefit more by
removing any non-value adding service to generate more profits and this can be achieved by
monitoring the supply chain at different levels and measuring the performance of the key players
in the chain, the quality of material and there on-time delivery reports and the way they
coordinate with supply chain etc. By doing this the supply chain are analysed and more profits
are generated from it. Most of the companies are now going for the integrated supply chain
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because of the benefits it provides (Implementing Integrated Supply Chain Management for
Competitive Advantage, n.d).
4.8.1.2 Value management:
As the word presents, it is a process which ensures that the client get for what he/she pays for.
Value management is very crucial for the construction industry if it wants to deliver the client
what they want. The process of value management is a team based approach in which the whole
team and the chain of suppliers work with mutual understanding to only use the material and
products which provide value to the clients, hence eliminating extra costs. By value management
risk is also reduced as this is a process which is pre-planned in the initial stages. For this process
of whole life cycle costing is used.
To achieve value management the whole organization including its different teams of design,
manufacture, supplier etc. who works in sound understanding establishing clear objectives and
goals. Use of value management helps in achieving different benefits such as:
• Makes the decision process easy for the needs of the clients on the basis of value.
• Helps in achieving mutual goals and clear objectives to achieve the best value for the
final product and for this all the stakeholders work in collaboration.
• Helps in outlining the precise specifications of the client.
• Provides value for money to the client while ensuring all the benefits along with it.
• Also, the risk of any changes arising during the project term gets reduced.
In this process every decision is monitored related to procurement phase, design or even
construction phase on the basis of its long term effects. And so, value management is a crucial
process for any project and it should be incorporated in the initial stages of the project to get the
maximum benefits out of it for both the end user and the organization (Value management in
building design and construction, 2013).
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4.8.1.3 Lean construction:
Lean construction as the word suggests is about working on a project keeping the lean principles
in minds which are to reduce waste and time and improve the overall performance of the chain,
speeds up the project and also maximize the value of the project (Lean Construction, 2004).
When the company opts for lean construction technique and lean supply chain its major purpose
is to reduce waste and increase value to the project. The main benefits of implementing lean
principles in a project are:
• Reduction in wastage as the project and the materials required are pre planned on this
type of construction
• Better inventory management- the materials are supplied to manufacturers and from
manufacturers to owners on the basis of owner’ requirement.
• Increase value to the project.
• Reduces overall time of the project by speeding up the work, using lean labor force
(people with skills for a particular job for faster task completion)
• Material is not stored in advance to save any wastage costs.
This method is only successful on the basis of certain factors like the organization should have a
complete knowledge of resources available to them and depends on the relations with the
suppliers and the type of contracts involved in the project.
The material used in for lean construction are supplied by suppliers to manufacturer and from
him to owner only on the amount required as just in time delivery is followed so the materials are
made and delivered to site on the basis of requirement. This eradicates the issue of material
wastage and non-required storage in inventory and the site work is run smoothly without any
disruption. Moreover, the members involved in the supply chain all of them individually carry
out their tasks with the goal to reduce cost and waste and helps building a lean supply chain, so
all the members involved have an active role in the supply chain (OHUNBIYI, 2013).
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Figure 3.4- Lean Construction
Source: www.mayerconstruction.com
The performance of lean supply chain can be measured by lean tools such as “Last planner
tool”. Built in 1992 this tool is widely used and it provides better management of materials,
helps in keeping the workflow in control and is used to prepare schedule. This tool gives push to
the technique of lean construction as managing the supply chain becomes easy and the works and
the materials can be assigned properly in the given timeframe.
The technique of lean supply chain is much more effective if partnering is done in the early
stages of production. For improving the lean construction “Construction lean improvement
programme” was launched in year 2003. CLIP’s main objective is to improve the practices of
lean construction and help the organization by improving its performance financially and helping
the organization to improve its product quality and material handling process (Construction Lean
Improvement Programme (CLIP), n.d)
4.8.1.4 Partnering:
Partnering in supply chain is considered one of the best ways to improve the organizations
business by doing partnering in supply chain. It is a concept where two or more organization gets
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into long term relationship with their selected partners who then act as partners equally
responsible for the supply chain. It is considered as much easier and beneficial way as in this the
tenders are not let out on every single project and the suppliers are not replaced in any of the
projects because the firm enters into a collaborative long term relationship with the suppliers
who then work for the growth of the organization and the chain as a whole instead of working for
their own individual benefits and trying to get profit out of others margins. Out of all the
suppliers in the supply chain the firm only gets into the partnership with the suppliers who share
the same goal. The organizations in partnership increase the efficacy of each other resources with
the aim of maximizing profits (Partnering, 2004).
Partnering can be of two types:
• Operational partnering: Also known as short term partnering, it is done on individual
projects after which the organizations part there ways and profit. It is also done to
improve the efficiency of the firm on a particular project and for short term and the
partners don’t share any long term objective, however, it does increase the speed of the
project and provides better performance to the client.
• Strategic partnering: Or, partnering can be a long term arrangement among
organizations sharing the mutual objective and working to maximize the profit.
And there are millions benefits of getting the organization into partnering with suppliers which
are:
Better understanding among the partners as they share the same belief
Profit margins of the organization remain safe.
Reduced transaction costs
Better information flow among the partners
Faster improvement can be seen as the innovation on materials can take place easily
Constant flow of materials can be managed as the partners know the whole specification
of the project from the beginning
Inventory could be managed easily.
Better transportation system and managed delivery times.
Much better end product for client in terms of quality and value.
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Above mentioned are few of the many benefits of partnering among organizations. “Partnering”
is a very effective approach if the organization can follow it as it leads to mutual growth of the
organization (Mentzer et al. 2000).
4.8.1.5 Green supply chain:
In the recent years UK construction industry has made some initiatives towards making its
supply chain a “Green Supply Chain” (XIAO XIAO, 2006). The main purpose behind it is to
reduce the emission of carbon and change or improve any other material or process which might
cause any impact to environment at present or even in future. This can be mainly achieved by
improving the supply chain and implementing the ideas of green development since the
beginning so that the materials supplied by the suppliers to manufacturers are of optimum
quality. Making the supply chain greener can increase the efficiency of the firm, can increase the
revenue and raise more savings both in short term and in long term.
For making the green supply chain a part of the organization and implement the needed changes
one has to focus on the initial steps of procurement of raw material to the final stage of delivery
of final product to the client. For this the organization has to focus on the basics of business
involving the logistics, material, suppliers, type of material to be procured, information flow
among the chain a green supply chain is made by the use of green materials and some unseen
steps like- material packaging, transportation, storage, efficiency, lifecycle also effects the cycle.
The use of greener supply chain will lead to less wastage of natural resources and would benefit
the natural environment and moreover it will lead to an eco-environment.
Narsimha and Carter, 1998 defined Green Supply Chain as:
”environment supply chain management consists of the purchasing function’s involvement in
activities that include reduction, recycling, reuse and the substitution of materials”.
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For implementing the greener supply chain the organization will need to focus on the material
which is used in the process. As the material plays a crucial role in the organization, the
organization will have to purchase the greener material which can be recycled, reused, have less
carbon emission and holds no potential threat to the environment (XIAO XIAO, 2006).
Moreover the supplier who is part of this green supply chain are constantly audited leaving no
room for doubt about the quality of the material and the suppliers should also attain the ISO
certificate for stating that they possess the knowledge and the skills for the green supply chain.
This certificate is known as the “ISO 14000” for Environmental management (ISO 14000,
2014).
4.8.1.6 Risk management:
Construction industry is one of the highly risky businesses as it can be affected by lot of factors
such as- climate, delays, stuck payments, faulty materials and products and most of all the
company has to look upon the risk levels related to supply chain. These risks can occur at various
stages of project from the inception stage to the final stage. Risk can occur because of lack of
knowledge and planning, contract confusions, and lack of management (10 Minutes on Supply
Chain Risk Management, 2009). Below is some of the type of risks which might occur in a
supply chain:
• Material delays- this is one of the major threats in supply chain and to overcome this
organization has to move with planning during a project and should also look upon the
inventory to manage a good flow of materials.
• Information flow and security- in the supply chain a constant network of information
flow should be maintained upstream and downstream so that there is no confusion
between the specifications and the crucial information related to the project. Also one of
the many risks is information security, which should be taken care by the suppliers and
other members of the supply chain. The crucial information related to the organization
and the supply chain should be properly secured and should not be leaked in any case as
this may cause a lot of damage to the organization.
• Transportation- this is one of the vital part of the supply chain which can lead to extra
costs if not planned properly in advance. The prices can get high if the material to be
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delivered on site is far from the base, hence strategies are to be built in advance so that
any extra costs or disruptions to the project is avoided.
• Internal and external risks- risk can both occur within the organization or outside of It.,
but the organization should be well prepared in advance to handle these risks and avoid
any losses. These risks can be related to inflation, market changes, economy,
governmental, environmental calamity, production failure, product quality and
management of low tier suppliers etc. all these type of risk might affect the supply chain
and lead to project or quality failure, hence they should be dealt with on time.
• Resource and material management: this holds a potential risk to the project so any lack
of labours or resources should be avoided as both things can delay the project.
• Financial risk- it is one of the factors which can easily lead to failure of supply chain
hence any solutions to avoid any such disaster should be planned in advance.
To avoid these issues companies must look upon their risk management in supply chain so that
flow of materials is constant with no disruptions and any sort of financial, distribution or
production risk is taken care of.
Risk management can also be monitored by the use of software’s, as for managing information
flow “Information security system” is available. Software’s like “E2Open” can be brought in use
for the management of business (Durbin, 2014).
According to Construction news, “In the UK cross rail project the suppliers are assessed daily in
terms of finance so that the project does not get affected by any kind of late payments. All the
sub-contractors with the whole supply chain are also being assessed in the early stages so that
any future threat can be eliminated. Cross rails are following a skilled risk management
programmed which is one of its kinds. “
In the construction industry risk management is one of the essential parts to make the supply
chain a success. All the construction firms follow the risk management but the issue lies in the
knowledge and skills of the firms to deal with the risks. As a good planning can lead to profit and
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success but improper planning can lead to rapid failure (Supply Chain Risk Management: A
Compilation of Best Practices, 2010).
4.8.1.7 Waste management:
Waste management is one of the methods which not only helps in reducing the cost but also
helps in environmental protection and eventually leads to less CO2 release. It is followed in the
whole construction sector of UK. It is something which should be planned from the initial stage
of the project. Not all wastage can be avoided like demolition works, Excavation works etc. but
wastage of materials, replacements, fittings and there transportation and disposal costs could be
avoided if the planning is done in advance.
The wastage cost is not only of waste material but it also includes the cost of disposal and
transportation, hence affecting majorly to the budget. Some of the key benefits of waste
management are as follow:
• Reduced CO2 emission
• Satisfying the planning specifications
• Reduced wastage costs, contributing to huge savings in the overall budget.
• Gives more competitive advantage to the firm
• Will help to reduce the transportation services
• Will lead to successful sustainable goals
These are some of the methods which are used in UK construction industry and these are the
methods which changed the construction sector of this country and lead to development. The
country has been able to emerge out of recession and the housing sector has also been developing
in the recent years which were majorly affected by the market crash. All these construction
methods and supply chain techniques will help the country to achieve the desired target and
become a more sustainable and developed country.
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4.9 Future of construction sector:
According to the CBI’s report, by the year 2025 it is expected that the small companies will
invest with the international companies and the export relations are also expected to increase.
The sector is also expected to modernize in the coming years with the adaption of BIM. Housing
sector is expected to rise alongside with more focus on sustainable development with an
expected rate of 1.7-2.5 billion houses to be made by 2025. Moreover, Transport sector is
expected to increase with investment of up to 9 billion in train and of 22 billion in roads and
highways.
As per CBI Report, (2013), in the energy sector new power houses are to be made in coming
years to eradicate the issue of CO2 emission and an investment of 110 billion GBP is expected in
this sector. Also investments of 65 billion in water sector are expected and due to increase in
business opportunities and expansion of the country the commercial sector is forecasted to have
huge developments in future.
4.9.1 Future aim:
According to CBI report, (2013), for the development to take place in future the construction
industry is now focused on:
• Eradicating the carbon emission during the construction process to minimum with the
reduction of 50% by 2025 and move towards the sustainable development, and both these
processes have started to take place.
• As the sector lacked innovation it is now more focused on incorporating new
technologies for construction such as BIM. Also the procurement techniques are being
redefined and relooked to develop the sector.
• Changes are being made in supply chain and the industry is now moving towards
integrated supply chain and concept of partnering as mentioned by “Latham and Egan”.
This would be the key driver for the expected change to take place.
• Increase in the overseas trade has risen and is expected to rise more and it requires an
yearly assessment for the betterment of the sector.
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• Concept of value for money to be considered.
4.9.2 Key drivers for change:
Below are mentioned some of the key drivers which can help in bringing change in the
construction sector (Rethinking Construction, 1988):
• The management should have the quality of committed leadership. They should be
willing to make these changes in the sector by working towards the goal whilst making
the required changes in operational and cultural activities of the organization.
• The focus of the organization should be oriented towards the need of the customer and
the organization should work since the beginning of the project for customer
satisfaction.
• The organizations need to work on the concept of value management. They should work
on the basis of customer’s requirement and provide value for money. This would help in
eliminating waste.
• The organizations need to focus on the long term relationships with the suppliers and
should work incorporate the ideas of integrated supply chain and partnering.
• Concepts of lean construction are to be taken for better flow of materials and less
wastage.
• Quality work should be carried out in the interest of the client. This approach would lead
to significant development in construction sector.
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4.10 Summary:
This chapter presented an overview on UK’s economy and its construction industry. The
construction industry of UK has evolved on the structure of reports designed by Latham, (1994)
and Egan, (1998). It also highlighted the procurement routes, market and resource availability in
construction industry and other crucial information related to the construction industry. Most
importantly UK’s developed Supply Chain methods were highlighted which surrounds the whole
construction sector. The construction industry of UK is more value oriented and is working its
way towards a bigger and brighter future. The next chapter is aimed to highlight the research
methodology adopted for this research.
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CHAPTER 5 RESEARCH METHADOLOGY
5.1 Introduction:
According to (Degu and Yigzaw, 2006), research methodology is a scientific inquiry aimed at
learning new facts, testing ideas, etc. It is the systematic collection, analysis and interpretation of
data to generate new knowledge and answer a certain question or solve a problem. Myers,
(2009), said that research’s reliability and quality depends on applied methodologies and
techniques used for data collection. Research can be based on two types of data- primary and
secondary. Primary data could be collected by sending out questionnaires, taking interviews or
by conducting experiments whereas data collected from journals, articles other researches is
known as a secondary data. There exist two main types of method to conduct research
methodologies: Quantitative approach and Qualitative approach.
5.1.1 Quantitative approach:
Quantitative approach is a data oriented approach which consists of various statistical and
numerical quantities. It is an objective based approach and the finding is measurable. It can be
done by conducting experiments and sending out questionnaires. The data gathered can be
calculated and represented statistically in the research. Questionnaires used in this approach
consist of “closed end” questions for which the respondent can either choose yes or a no or they
can consist of various options to choose from. In some cases it might also consist of open end
questions making it a mixed (Qualitative and Quantitative) approach, as the respondents can fill
in their view on the space provided.
Advantages:
It gives a more biased review as the participants are unknown to the researcher.
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More information can be gathered as the detailed questionnaire/ survey can be sent out to
unlimited people.
Gives more precise information on the topic and the information can be backed by
statistical calculations making it an advantage for the researcher.
Helps in doing a broad research and increase the simplification of the results produced.
Disadvantages:
× Sometimes data gathered might be superficial.
× Questionnaires at times might contain the questions based on the perception of the
researcher and not of the participant.
× Options given by the researcher in the questionnaire might not relate to the views and
feeling of the participant about the topic.
× At times the responds are not as expected in this method.
5.1.2 Qualitative approach:
Qualitative approach is based on the views and thoughts of people. Unlike Quantitative approach
it does not include any questionnaires but is simply based on interviews conducted with different
people. This approach consists of various methods such as taking unstructured interviews,
studying case studies, literature based review, open ended questionnaires. This method is more
inclined towards the views of the people and does not give any statistical data or numerical
calculations. According to Creswell , (2003) “this approach is considered as inductive, in the
sense that a researcher may construct theories or hypotheses, explanations and
conceptualizations from details provided by the participants.”
Advantages:
Helps in getting an in depth analysis of the problem.
Close interaction in the interview helps in developing a clear knowledge about the topic.
Helps in knowing the views of the respondents instead of getting the statistical
information.
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Helps in understanding the relationships, cause and ideas behind the topic.
Disadvantages:
× Not a broad research as few respondents take part in the interviews.
× Due to less population it is hard to generalize the results.
× Makes it hard to compare the results in case the respondents share different views and
opinions.
× Taking interview and fetching the result out of it can vary on skills of researchers.
5.1.3 Mixed method:
This method consists of both quantitative research method and qualitative research method. The
data can be gathered by sending out questionnaires, doing case studies and taking interviews.
The data gathered in this case is very reliable and helps in building an in-depth knowledge about
the topic. As interviews can help in understanding views of different people while the
questionnaire helps in getting the numerical and statistical data. This method can provide robust
information but the only trouble researcher’s face in using this method is that it is very time
consuming.
5.2 Research Purpose:
The aim of this research is to “Investigate the Supply Chain Management in Indian construction
industry” and to highlight the areas where Indian construction industry can benefit in this field
from UK construction industry.
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5.2.1 Adopted Approach:
For this dissertation research “Literature based review” research method has been opted. In this
method no questionnaires would be sent out and no interviews would be taken, but this method
will help in drawing the conclusion by using the rich literature review data and other sources
like- emerald journals, reports based on supply chain management in Indian and UK construction
industry, books etc. As there already exists a vast supply of data in the field of supply chain and
several researches have already been conducted in this field, by studying them it makes it very
easy to identify the current problems and issues which are being faced in supply chain and doing
a comparative analysis between them to identify the areas where the Indian construction supply
chain can benefit from UK construction supply chain.
Reason for selecting Literature review method:
Time constraint: There is a less time left in submission and method of
questionnaire/interviews can take up-to one month for analysing and finalizing the work.
Cost Factor: In this short period of time budget is also one of the major reasons to switch
to literature based method. As sending out the questionnaires or taking interviews in India
will be expensive considering the flight tickets and other expenses involved in postal
services, commuting etc.
Existing Data: There exist a vast supply of data on internet journals, books, reports and
other research works done in the same field. Hence the data can be studied and extracted
from there. This pre-existing data will help in understanding the existing issues in this
field and identify the areas where the Indian construction supply chain can improve and
benefit from the UK construction supply chain.
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5.3 Defining Data reviewed:
For utilizing the literature based review methodology properly, this research since the beginning
was focused on various data sources for gathering information. Hence the author aimed at using
the rich data that already existed on Supply Chain Management for Indian and UK Construction
Industry. Various journals, books and articles were referred to get the secondary data which has
helped broadening the knowledge of the author and helped formulating a key understanding of
the topic. The table below represents the type of information gathered through various sources.
Table 5.1- Data Reviewed
No. Type of Source Type of information
1. Reports Information regarding economy, Latham and Egan reports, market
analysis, construction industries of India and UK, supply chain
management and market forecast for construction etc.
2. Books Related to supply chain, methods involved in it, origins of supply
chain, applicability in the industry, procurement routes and contract
types etc.
3. Researches Based on supply chain management, methods involved in supply chain,
barriers and issues, advantages, future of supply chain management etc.
4. News reports Regarding the construction industry, related to supply chain in
construction industry.
5. Planning and
commission
reports
To gather information of development plans in India and UK
construction industry’s future.
6. Journals To gather published papers highlighting the various aspects of the
supply chain through emerald journals.
7. Websites To gather information regarding client types in construction industry,
various leading construction industries, supply chain, research
methodology etc.
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5.4 Summary:
This chapter highlighted different aspects of research methodology which helps in collection of
critical data for the dissertation. Types of research methods were also outlined along with their
pros and cons for the research. Most importantly it presents the Literature review method
adopted for conducting this research. And also it presents a description of the data which is to be
analysed by the adopted research method. This method will help in developing the key
understanding of the topic and will help in analysing the vast literature data.
In next chapter data analysis will be carried out by using “Literature review research
methodology” which will help in understanding the supply chain management of Indian
Construction Industry.
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CHAPTER 6
DATA ANALYSIS
6.1 Introduction:
The previous chapter focused on various research methodologies used for dissertation. And most
importantly it explained the method adopted for this dissertation along with the structure for data
collection. Now, this chapter will help in analysing data of construction industries from both the
countries; India and UK, so that a concrete analysis could be drawn on supply chain management
of Indian construction industry.
6.2 Analysing Economy and Construction sector market of India and UK
The literature identified that being a developed country UK construction industry contributes
10% to the GDP whereas the Indian construction industry contributes 11% to the GDP as
indicated by Trading Economics, (2014). In terms of land size obviously India is a bigger
country than UK, however in terms of development UK has got the upper hand and is ranked as
number 10th in the world (CBI report, 2013). On the contrary, Indian construction industry is
ranked as the second largest in the world but still the true potential in terms of development and
supply chain has yet not been unleashed.
As per CBI report, (2013), the construction sectors in UK are recovering from the recession
which hugely affected the industry and the infrastructure and housing segment are heading
towards profit and rise of infrastructure and public housing was recorded in 2012. The UK
construction industry provides employment opportunities to million which is equivalent to 3.1
million people. Although, India is also facing few challenges like a shortage of skilled labours,
corruption, lack of education, lack of technology etc. but, from the literature it appears the
country is moving towards success and the growth rate is expected to increase by 20% by the end
of 2014 (Swarup, 2006-07).
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Moreover to improve the supply chain in Indian construction industry the government is also
taking few initiatives. As recorded in literature, India’s CAGR value is recorded at 15.10%
despite the lack of technology and resources (Asia Construction Outlook, 2013). The government
has also increased investment in public infrastructure and has raised the FDI to 100%
contributing hugely to the construction sector. Also, for increasing the benefit the Indian
construction industry also needs to increase the guarantee schemes to transform the financing in
major projects as the UK government have done.
Figure 6.1- Economy and Construction market analysis
(Figure 6.1 represents some of the vital points based on the literature reviewed that have a direct effect on the
economy and construction growth of both the countries. “0” represents the lowest scale while “5” being the highest.)
0 1 2 3 4 5 6
Contribution to GDP
Development
Industry size
Issue of corruption
Technology
Skilled labour shortage
Govt. aided Finance
UK
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5
Contribution to GDPDevelopmentIndustry size
Issue of corruptionTechnology
Skilled labour shortageGovt. aided Finance
India
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6.3 Type of clients and their effects:
The table below presents the client types in both the countries:
Table 6.1- Client Types
No. India UK
1. Private clients Private clients
2. Public clients Government clients
3. - Commercial clients
4. - PLC’s (Public Limited
Companies)
Both the countries consist of private and government sector clients; however in UK the
categorization is much more diverse. This leads to a better understanding of the client types as
they are divided according to their requirements and project needs unlike in Indian industry
where every projects type are grouped under two clients. Due to the diversification of the clients
the supply chain involved in UK construction industry is much more effective as it specializes in
different types of clients whereas in India it seems that grouping all the projects under two
categories might hold back the performance and quality of the supply chain.
As the literature identified, India still suffers from the problems of corruption and favouritism
and this is one of the major issues which is ruining the Public sector. The money involved in this
sector is wasted in supply chain and the suppliers involved in it appear to be selected on the basis
of favouritism in most of the cases. Hence it is one of the major reasons for time, cost and
quality. Moreover, literature highlighted that in terms of PLC works in India less attention is paid
to the project after completion and there should be protocol of repair and maintenance which
should exist to remove this problem. Perhaps, Indian construction clients should be categorized
more diversely so that the work can be properly categorized and more specialized supply chain
could be involved.
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Figure 6.2- Analysing Client Types
(Fig. 6.2 represents different type of client factors based on literature involved in client types of both the countries.
“0” represents very poor while “5” stands for excellent.)
6.4 Incorporated Construction Reports:
The major difference which is highlighted based on the literature is that the UK construction
industry has always worked on the basis of the reports compiled in the Construction reports,
(1944-98) whereas in India various reports exist as per the Planning Commission of India but
these reports are not encouraged by the government and are not implemented in the Indian
construction industry. These reports fails to address the issue of construction industry and nor
they provide any solutions as the UK report does. Hence the construction reports appear to be
negligible in the construction industry of India.
0
1
2
3
4
5
Client types Diversificationof Client types
SectorwiseSupply Chain
PLC works
Analayzing Client types
UK India
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Figure 6.3- Construction Reports
(Fig. 6.3 represents number of active construction reports in the country. “0” stands for negligible.)
Currently the UK construction system follows two major reports prepared by Latham, (1994) and
Egan, (1998). With the help of these reports the construction industry was able to come out of
the housing crisis of 1980’s and was able to improve and incorporate the methods of partnering,
lean construction etc. These reports gave a direction to the construction industry as it focused on
the challenges that existed in the construction industry. These reports made an emphasis on:
• Use of NEC contracts
• Encouraged partnering
• Simplifying contract documentation
• Long term relationships
• Value oriented approach
• Commitment to people, etc.
It might prove to be beneficiary if such reports are implemented into the Indian Construction
sector. Following structure reports and guidelines might help the Indian sector to work in an
order while also enable the organizations to overcome the issues that hold back the potential of
construction industry.
India UKConstruction
Reports 0 2
0
0.5
1
1.5
2
2.5
Construction Reports
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These reports may also address the ongoing issues involved in supply chain, concept of
partnering, long term relationships etc. and can help give a new direction to the construction
sector.
6.5 Differentiating Procurement Routes:
The various procurement routes followed in both the countries are mentioned in the table below.
Table 6.2- Procurement Routes
No. PROCUREMENT ROUTES
INDIA UK
1. Traditional Contract Traditional Contract
2. Design and Build Design and Build
3. Construction contract management Partnering
4. - Management Contracting
NEW PROCUREMENT METHODS
5. - Cost led procurement
6. - Integrated Project Insurance
7. - Two Stage Open Book
Though the new procurement methods were not covered in Chapter 3 but it is deliberately
included in the analysis for a better understanding of the procurement routes.
Currently, both the countries follow almost same type of procurement strategies, however,
partnering is not considered as a form of procurement in India as per (Manoharan, n.d). Recently
a new procurement method is introduced in UK as per New model of Construction procurement,
(2014). This new procurement method has been developed to deal with the ideas of early
supplier engagement, promote long term partnerships among clients and suppliers, eliminating
risk of cost overruns and time delays and promote integrated supply chain. It also focus on the
selection of the suppliers and there assessment on the basis of their performance. This innovative
procurement system aims to improve the current procurement routes of UK whereas Indian
construction sector seems to use the old procurement routes. These new procurement methods
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ensure that there exist no blame-game in terms of any disputes while promotes single point
responsibility, unlike, India.
Also, the UK procurement system is governed by laws and works on the basis of structured
reports which contributes to its success whereas Indian construction sector seems to lack such
structure which might be one of the main reason for poor procurement routes in India. From the
literature reviewed it appears that the Indian procurement system is surrounded by the issues of
favouritism and corruption and during the procurement stage the contract is awarded to the
lowest bidder and crucial factors like- past experience, quality of work, performance data, and
customer satisfaction are neglected (Jain, n.d). The Indian procurement system needs to be more
transparent only then the procurement will improve.
Furthermore, based on the literature it appears that concepts of partnering and long term
relationships still lack importance in the Indian sector. It seems that issues like these are holding
back the procurement methods which are eventually affecting the supply chain involved in India.
Hence, it might prove to be beneficiary for India to incorporate the methods of procurement
routes followed in UK as it would help in solving the problems at present like- partnering, long
terms relationships, integrated supply chain and problems associated to cost overruns and time
delays. Perhaps, introduction of new structured procurement policy in India might help give a
new direction and help in improving the supply chain of construction industry.
6.6 Issues in Indian Supply chain with comparison to UK:
Below are some of the key issues identified by the literature which exist in Indian construction
supply chain as compared to UK. They are as follow:
1. Mismanagement of resources: Indian construction industries seems to suffer from poor
inventory and logistics management and it sometimes becomes the main cause for delays
in materials or cost overruns resulting from poor planning (Vishwanadham and Kumar,
2007). Whereas, it appears that the UK construction industry pays much attention to the
inventory and logistics planning so as to control any delays or overruns.
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2. Site preparation: Indian firms as it appears face problem at times regarding site
preparation because of lack of data and other site related information. This at times
disrupts the supply chain process. Whereas in UK, site preparation is taken very seriously
and all the crucial information and data is reviewed before starting the site works.
3. Lack of information flow: Indian construction industry seems to suffer from lack of
information flow among the supply chain which becomes the main reason for delays, cost
over runs, low quality and wastage because of miscommunication. Whereas UK
construction industry has a good information flow among the supply chain.
4. Lack of monitoring: In UK supply chain suppliers are constantly reviewed on the basis of
their performance and are assessed from time to time. But this seems to be one of the
major drawbacks for the supply chain as the suppliers are not selected on the basis of
their performance and are not even evaluated time to time. Hence lack of monitoring
becomes one of the major drawbacks for the industry.
5. Advanced supply chain: As per the literature reviewed the Indian supply chain still lack
knowledge of the other methods involved in the supply chain like lean supply chain,
integrated supply chain etc. Perhaps absence of such methods in the industry is holding
back the construction sector.
6. Long term relationships: The literature identified that the Indian construction industry
does not fully rely on the long term relationships and mostly works on projects with
individual supply chain. And this makes it hard for the organization as they have to
change the supply chain on every project based on the budget and requirements.
7. Value for money- Value for money is followed by the construction industry of UK to
provide the client with the best possible outcome. But this seem to lack in Indian firms as
the contractor and other people involved in the project does not seems to follow their
responsibility and instead works for their own profit. Also, issue of corruption in India
affects the development taking place in the public sector.
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8. Selection of suppliers- As the literature highlighted, in Indian construction sector the
suppliers are selected on the basis of the lowest bids but perhaps this should be done on
the basis of their performance and there quality so that the supply chain can be efficient.
As in UK’s construction sector the suppliers are selected on the basis of their
performance and work quality.
9. Wastage of materials: As the literature identified, there happens a lot of site wastage in
terms of materials as the materials are not pre-planned and sometimes delivered in bulk
on the site. However, in UK construction system the materials are made and delivered on
site depending on the requirements and sometimes are also assembled at site reducing the
transportation cost and also to avoid delays. Incorporating such things in Indian
construction supply chain can prove to be beneficiary.
Figure 6.5(a)
8%
13%
9%
13%
13%
9%
13%
13%
9%
India
Mismanagement of Resources
Site Preperation
Lack of Information Flow
Lack of monitoring
Advanced Supply Chain
Long term Relationships
Value for money
Selection of Suppliers
Wastage of materials
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Figure 6.5(b)
(The figures above present the graphical representation of issues that exist in supply chain in India and UK (Based on literature review findings)
6.7 Implementing supply chain methods in India from UK:
After coming into picture in early 80’s supply chain has played a crucial role in changing the
face of the construction industry. It has evolved ever since and new methods have been
developed which made sure of the advantages along with them (Hope, 2012). For the UK
construction industry during the time of housing crisis supply chain methods like partnering,
integrated supply chain etc. along with government issued reports by Latham and Egan
(Construction Reports 1944-98) helped the industry in coming out it. Then only it proved how
beneficiary the use of supply chain can be. Where the supply chain has been embraced in UK
construction industry successfully and is being utilized at its full potential, there exists Indian
construction sector which has still not understood the true potential of the supply chain
(Vishwanadham and Kumar, 2007). And as it appears from the literature reviewed there still
exists lack of knowledge on the methods involved in the Indian construction supply chain. Below
are the various methods that are part of the UK and Indian supply chain and which can be
utilized according to the different goals of the firm. They are as follows:
11%
13%
10%
10%
13%
10%
13%
10%
10%
UK
Mismanagement of Resources
Site Preperation
Lack of Information Flow
Lack of monitoring
Advanced Supply Chain
Long term Relationships
Value for money
Selection of Suppliers
Wastage of materials
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6.7.1 Integrated supply chain:
As the literature identified this is one of the most common methods being used in the supply
chain and it works on the concepts of long terms relationships and mutual goals. The members of
the supply chain are constantly assessed from time to time and before making them a part of
supply chain they are thoroughly reviewed to make sure that they share the same goals and
objectives. Doing this eradicates any possibility of disputes in the supply chain and it also
ensures that every member’s performance is utilized to its limit (Implementing Integrated Supply
Chain Management for Competitive Advantage, n.d).
This kind of arrangement is active in UK but in India it seems to be active only in large firms
carrying good knowledge of supply chain. This is one of the methods which can improve the
overall efficiency of the supply chain and can help increase the competency level of the firm.
Because of lack of knowledge in small and medium scaled firm, it appears that they are still
blind to the advantages of such method. Perhaps, implementing this method in Indian
construction sector can help bring the required change.
The benefits of using integrated supply chain are discussed in Chapter 4 Section- 4.9.1.1.
6.7.2 Value management:
Value management is one of the crucial methods been utilized by almost every construction
industry. But the problem lies in the fact that it is not utilized to its full potential in India because
of certain reasons like-
• Lack of knowledge
• Absence of common goal
• Corruption
• More profit oriented instead of providing value for money etc.
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If value management is incorporated in the initial stages of supply chain any cost overruns can be
minimized by using whole lifecycle costing, wastage can be reduced and risk for any changes
during the project cycle can be removed as everything is pre-planned in initial stages of value
management.
Implementing value management in Indian construction industry can help in providing value for
money to the consumers. As per the literature reviewed it appears that a vague picture of value
management exists in Indian construction sector and there is a need for better understanding of
this method in the organizations. Using value management might also help in increasing the
quality and reducing the cost overruns in Indian construction sector.
The benefits of using Value management are discussed in Chapter 4 Section- 4.9.1.2.
6.7.3 Lean Supply chain:
Lean Supply Chain is basically used for minimizing the waste and increasing the overall
performance of the supply chain as the organization follows the concept of lean principles (Lean
Construction, 2004). This is only achieved when the organizations have the complete knowledge
of their resources and the material required in the construction phase are ordered and
manufactured on the basis of requirement instead of ordering in bulk, hence reducing wastage
and saving money. All the members involved in the supply chain work on their part to make an
effective lean supply chain. It seems in Indian construction industry more wastage of materials is
done during the construction projects, so the methods of lean supply chain may potentially
benefit the construction sector so that the wastage can be reduced and more profit could be made.
Advantages of lean supply chain are specified in Chapter 4 Section 4.9.1.3.
6.7.4 Partnering:
Partnering is one of the oldest methods of supply chain on which a lot of emphasis has been laid
in any country. Its importance can be felt through the reports prepared by Latham and Egan
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(Construction Reports, 1944-98). The Indian construction sector seems to have a good
knowledge about partnering. Both type of partnering- strategic and operation could be seen in the
Indian firms. However operational partnering is generally followed in small scale firms to
increase the speed of the projects whereas strategic partnering could be seen in medium and large
scale firms. The methods of partnering have proven to be one of the best methods to increase the
efficiency of the supply chain (Mentzer et al. 2000).
Benefits and type of partnering are discussed in Chapter 4 Section 4.9.1.4
6.7.5 Green supply chain:
The use of green supply chain has been seen in the developed countries like UK but it has still
not fully entered in the Indian construction sector. The main application of using green supply
chain is to reduce carbon emission and to eradicate or minimize the use of any such material
which can damage the environment in present or in future (XIAO XIAO, 2006). This helps in
increasing the efficiency of the firm and also promotes the long term and short term benefits. It is
achieved by implementing the required changes in the supply chain in its initial stages and the
work is assessed till the final completion of the project.
It appears from the literature reviewed that in India less focus is laid on the type of construction
material used, as material plays an important role in making the supply chain greener. The
materials are not chosen based on the ISO 14000 standards (ISO 14000, 2014). Perhaps to
promote green supply chain the Indian construction industry should focus more on the material
which can be recycled, reused and have less carbon emission.
Much detailed description on the use and the benefits of green supply chain has been presented
in Chapter 4 Section 4.9.1.5.
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6.7.6 Waste management:
Waste management helps in not only reducing the cost but also helps in environment protection.
This is being followed in all the construction sectors of UK and has helped in saving huge
amount of money and material. As per the literature identified, in India the methods of waste
management is only utilized by the large companies and is less seen in medium and small scale
firms. There is a lot of wastage that occurs in the small and medium scaled projects. This may be
the result of poor planning on waste management. With the help of this method the amount of
wastage and carbon emission can be controlled and extra costs on disposal and transportation can
be avoided. Perhaps, Indian construction firm can work on the planning in inception stage of the
project to avoid waste disposal costs, transportation costs and any wastage during excavation or
demolition works, etc.
Advantages and detailed description is provided in Chapter 4 Section 4.9.1.7.
6.7.7 Risk Management:
Construction industry is one of the highly risky business in the world which can be effected by
various reasons like- material delays, transportation associated risk, risk related to economy,
market changes, resources related risk, financial risk etc. (Durbin, 2014). These risks can cause
great problems to the organizations hence, this is one of the effective methods which are used in
all the developed organizations so as to protect and plan accordingly for their supply chain (10
Minutes on Supply Chain Risk Management, 2009).
Detailed description on Risk management is provided in Chapter 4 Section 4.9.1.6.
(As per the literature reviewed the UK construction supply chain is much better and advanced
than the Indian supply chain. There are various methods discussed above but out of them
methods of Integrated supply chain, Green supply chain, Waste Management, Value
management and Lean supply chain can give the Indian construction supply chain a new
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direction. And the methods discussed above can help, if utilized and implemented properly in the
Indian construction supply chain can highly benefit the construction industry.)
6.8 Factors influencing change in Supply Chain:
Below highlighted are the key factors that can bring the required change and help in resolving
the issues in the Indian construction supply chain. They are as follows:
Table 6.3- Factors influencing Supply Chain
No. Factors Affects on Supply Chain
1. Finance All the outbound and inbound payments need to be managed properly
as any delays of payments can cause delay in works to be carried out.
2. Suppliers
selection
All the suppliers involved in the supply chain should be assessed on the
basis of their performance in the chain so that any non-performer could
be eliminated.
3. Flow of
information
To avoid any cost overruns or delays there should be a good flow of
information among the supply chain.
4. Inventory
management
The material should be made on the basis of the requirement to avoid
any unwanted wastage.
5. IT services Use of IT services should be promoted as it makes the data readily
available and it can also be protected and managed at any time. And
also by the use of software’s like CAD can help in increasing the
productivity.
6. End customer
focus
From the inception stage the supply chain should work with a common
goal to deliver the according to specifications, on time and with high
quality.
7. Long term
relationships
Working in long term relationships is one of the effective chains to
make the supply chain better, as this helps in achieving a way better
coordination among the organization and the supply chain which
ultimately increases the efficiency and communication among the
supply chain.
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8. Use of project
planning
Tools of project planning like Primavera could be used to enhance the
planning and monitoring of the project.
9. Sector wise
supply chain
If the organization is working in different sectors it can modify its
supply chain according to all the different sectors to deliver the
required services while still not compromising the quality.
6.9 Summary:
This chapter highlighted the various advanced methods used in the UK construction industry
which if implemented in Indian construction industry and its supply chain can benefit the sector
and take it to greater heights. It highlighted the difference in Indian and UK construction clients
as the client division is complicated in Indian system. It also highlighted the procurement routes
where in Indian supply chain much attention was paid to traditional approach but the sector
seems to be now improving.
Moreover, the Indian Construction sector does not seems to follow any government produced
reports which can address the issues in construction industry whereas the UK system works on
the basis of Latham and Egan reports (Construction reports 1944-98).It also presented the issues
as per the literature which are affecting the Indian supply chain and highlighted the key factors
which can help in bringing the required change. But most importantly it helped in understanding
the supply chain methods of both the countries and highlighted the methods which can be
implemented to modify the Indian supply chain. The Indian construction sector lacks the wide
knowledge on supply chain methods and there is lot of issues regarding the waste produced,
procurement routes, corruption, responsibilities, work culture etc. which affects the supply chain.
These methods will not only assist in promoting long term relationships among the organization
but will also help in eradicating the issue of waste management, value for money etc.
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CHAPTER 7
CONCLUSION & RECOMMENDATION
7.1 Introduction:
Supply chain management is one of the crucial parts of organizations in construction industry, as
the quality of the supply chain can have a huge impact on the organization. Indian construction
industry is one of the largest industries in the world with many opportunities line up for the
future. At present there is a knowledge gap for supply chain management which needs to be
filled so that the construction industry can benefit from future opportunities. The previous
chapter focused entirely on data analysis by using “Literature review research methodology”
which was done by analysing the secondary data gathered in the chapters before. The data
gathered from the construction industries of India and UK had been reviewed which helped in
analysing the areas of Indian supply chain which needs improvement. Now, this chapter will
throw light at the conclusion drawn from the research findings and will provide
recommendations. Moreover, it will also highlight the limitations faced in the dissertation.
7.2 Aims:
The aim of this research is to “Investigate the Supply Chain Management in Indian construction
industry” and also to highlight the areas where India can benefit in this field from the UK
construction industry. For achieving this, Indian and UK construction industry were discussed in
chapter 2 and 4 covering all the aspects of the industry like market analysis, development plans,
major problems faced, construction sectors, government supported construction reports and
most importantly the process of supply chain management in both the industries. Furthermore,
all the data gathered had been reviewed in Chapter 6 to understand the areas which affect the
supply chain of India and where improvements need to be made.
Hence, this research was set out to achieve the following:
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7.2.1 To evaluate Indian construction industry and its supply chain:
Firstly, based on the literature Chapter 2 highlighted the construction sector of India including its
various sectors, client types, procurement routes and market analysis. Most importantly focus
had been laid on supply chain management in India. Various issues had been discovered which
surrounds the Indian construction industry like- workforce shortage, lack of supply chain
methods, corruption, lack of technology etc. The rise in economy because of construction sectors
developments shows the growth taking place and there are more opportunities lined up for the
future as identified by the literature. Hence, it can be concluded that to support such growth in
future current practices of supply chain needs to be modified and there is a need to improve on
methods like waste management, green supply chain and also to promote integrated supply
chain.
7.2.2 To form a critical understanding on Supply Chain Management:
Secondly, in chapter 3, a general overview of supply chain management has been highlighted
covering all the aspects of supply chain from various methods involved, working methodology,
pros and cons associated with supply chain, and various key drivers involved. Also, different
methods for increasing the efficiency of the supply chain were outlined which can benefit the
organization, if utilized properly.
7.2.3 To study the supply chain management in UK construction industry:
Thirdly, several secondary data had been reviewed in Chapter 4 in order to formulate and gather
the information related to construction industry of UK. This chapter covered the structure of UK
construction industry, government issued reports Latham, (1994) and Egan, (1998) and other
information regarding the procurement routes and resource availability. Most prominently, it
presented the various methods involved in construction supply chain of UK. Being a developed
nation and major player in terms of supply chain in Europe the importance and role of each and
every method has been highlighted. Moreover, it also outlines the fact that how supply chain
89 | P a g e
methods like partnering, integrated supply chain benefited the construction industry of UK and
played a major role in bringing it out from the housing crisis.
7.2.4 To bring out methods and techniques involved in UK which can potentially benefit
the Indian construction supply chain:
Finally, all the crucial data gathered from the secondary sources in Chapter 2, 3 and 4 has been
analysed in Chapter 6 to come up with the factors which can bring out the required change in the
Indian construction supply chain. Factors like government issued construction reports, client
types, and procurement routes and most notably the methods of supply chain were highlighted
which can potentially benefit the Indian construction supply chain. Hence, it can be concluded
from this chapter that methods of lean construction, green supply chain, and integrated supply
chain are prominent to Indian sector and needs to be implemented to increase the overall quality
of the supply chain. While this chapter also focused on the need of diversification of client types
and the issue of corruption and favouritism which are holding back the true potential of Indian
construction sector and its supply chain.
7.2 Research Findings:
The basis of the research findings is entirely based on the analysis conducted in Chapter 6. As
this dissertation followed a literature based research methodology, a critical analysis was
conducted on the secondary data gathered in literature review by comparing both the
construction industries of India and UK to understand the areas where Indian supply chain can
benefit from UK construction industry.
Supply chain management serves as one of the major key parts of any organization as its
successful implementation can lead the organization to a great success and vice versa. As per the
findings from Chapter 6 the supply chain management has been in use since a long time now.
But as per the findings it is not as efficient and functional as of UK. Below are the findings
consisting of the advantages, drawbacks of the construction industry and the factors surrounding
Indian construction supply chain:
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• India holds a great number of opportunities lined up for the future but the supply chain
involved at present still lacks the true potential. Issues like corruption, lack of education
and technology, skilled labour shortage still persists in the industry.
• The Client types in the industry are not diversified and are crammed up into two
categories, making it hard for the existence of a specialized supply chain for different
type of clients and projects.
• The Indian construction system does not work on the basis of structure reports, unlike
UK which works on the basis of Latham, (1994) and Egan, (1998) reports. Absence of
such reports makes it hard for the Indian construction industry to address the issues
encircling it.
• India still follows the procurement systems and has still not adapted to new and
innovative procurement systems, unlike UK. Tenders let out during procurement phase
are let out more on the basis of lowest bid and favouritism but not on the basis of skills,
hence, affecting the supply chain involved.
• Lastly, Indian supply chain is still not able to use integrated supply chain, value
management, lean supply chain, green supply chain and waste management at its full
potential. However, analysis shows a good use of partnering and risk management in
Indian industry.
7.3 Recommendations:
As per the research findings from analysing the data the following can be recommended to
improve the supply chain management in Indian construction industry:
• The type of clients involved in the industry needs to be categorized more diversely. This
will promote the use of specialized supply chains depending on the type of clients and the
projects. Also, eradicating the issue of corruption from public sector will save the
wastage of time, cost and quality.
• Construction reports needs to be implemented in the industry which can highlight the
issues which are dominating the industry as well as provide valid solutions for
91 | P a g e
overcoming them. These reports should also successfully address the ongoing issues with
the supply chain and concepts of value for money and long term relationships needs to be
encouraged.
• New procurement systems (like of UK as defined in Chapter 6) should be introduced in
the Indian industry which focuses on the current conditions of the construction sector.
These procurement routes should be able to address the need of early supplier
engagement, eliminating cost overruns, promoting long term partnerships, and also time
delays.
• More focus needs to be laid on resource planning and management because at present lot
of wastage occurs during the project resulting in cost overruns and also time delays.
• Suppliers should be selected solely on the basis of their skills and performance and not on
the basis of favouritism as it would increase the overall performance of the supply chain.
Also, during the tendering stage tender should not be let out to the lowest bidder but
should be awarded after considering the skills, performance and past achievements.
• Projects taken by PLC’s after completion needs to be given attention even after
completion as it would help in maintain the quality and most importantly will promote
the long term relationships with the client.
• Concepts of integrated supply chain, value management, waste management, lean supply
chain and green supply chain needs to be implemented even in small and medium scaled
firms as this would help in building the long term relationships, promote value for
money, reduce wastage and carbon emission and would also increase the performance of
the supply chain.
7.4 Research limitation:
The following were few limitations of the research:
• Due to the time and cost constraint conducting interviews and questionnaires could not be
done.
• The research would have been more effective if there would have availability of supply
chain reports from different industries.
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• Due to unavailability of questionnaires, wide information and ongoing practices could not
be generated.
• In depth logical reasoning like why, how and reasons behind the survey could not be
extracted as the survey was conducted by Literature research review methodology.
7.5 Recommendation for Further Research:
This research was carried out by using literature based research methodology; however it would
have been more effective by using the methods of questionnaires and interviews. Hence, number
of recommendations could be made for further research as discussed below:
• Various face to face interviews could be conducted in order to generate more clear
answers. As this gives a chance to author to ask variety of questions.
• Sending out questionnaires to various industries in various countries would help in
widening the knowledge.
• Various companies nationally and internationally could be reviewed for their supply
chain reports if possible. This will lead in better understanding on the working practices
of the supply chain.
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