This presentation was delivered by Ian Murdoch at the joint APM / RICS conference on project leadership held in February 2014.

1. 11/02/2014
RICS & APM Project
Leadership
Conference
25 February 2014
Parliament Square, London
Project Risk and Value
in
Supply Chain Management
Supply-chain engagement:
• Reducing risk
• Improving value
• Improving performance
• Relationship Management
to deliver efficiency and reduce process waste
Ian J Murdoch
2
1

2. 11/02/2014
Project Risk and Value
in
Supply Chain Management
CONTENTS:
1. SOME THEORY
2. SOME ASPIRATIONS – BEST PRACTICE
3. SOME EMPIRICAL RESEARCH (or
where we start from)
Ian J Murdoch
3
Project Risk and Value
in
Supply Chain Management
SOME THEORY!
Ian J Murdoch
4
2

3. 11/02/2014
Supply Chain Management - Processes
Lysons & Farrington, Purchasing and Supply Chain Management, 7th Edition, Pearson Education Limited 2005
Customer
relationship
management
Returns
management
Product development
& commercialisation
Customer service
management
Supply Chain Management
– Eight Processes
Supplier relationship
management
Manufacturing flow
management
Demand management
Order
fulfillment
5
Ten ways of Managing Supply Chain Risk
Lysons & Farrington, Purchasing and Supply Chain Management, 7th Edition, Pearson Education Limited 2005
1
2
Diversification
Stockpiling
3
Redundancy
4
Insurance
5
Supplier selection
6
Supplier development
7
Contractual obligation
8
Collaborative initiatives
9
Rationalisation of the product range
10
Localised sourcing
6
3

4. 11/02/2014
Ten Major Cost Drivers – Value Chains
Lysons & Farrington, Purchasing and Supply Chain Management, 7th Edition, Pearson Education Limited 2005
1
Economies or diseconomies of scale
2
Learning and spillovers
3
Capacity utilisation
4
Linkages among activities
5
Inter-relationships
6
Degree of vertical integration
7
Timing of market entry
8
Firms policy of cost or differentiation
9
Geographic location
10
Institutional factors
7
Project Risk and Value
in
Supply Chain Management
SOME ASPIRATIONS
Ian J Murdoch
8
4

5. 11/02/2014
Our joint commitments
HM Government (2013), Construction 2025,
Industrial Strategy: government and industry in partnership
• ….ensure that capability and capacity issues in construction are addressed in a
strategic manner.
• Drive procurement efficiency….led by the Government Construction Board and
the IUK Client Group.
• ….construction supply chains to thrive by addressing access to finance and
payment practices.
• ….academic and research communities to …research, (develop) and demonstrate
to the wider industry ….to remove barriers to innovation.
9
NSCC publishes guidelines
For members
http://www.nscc.org.uk/support/business.html
10
5

6. 11/02/2014
Benefits:
•Financial
•Design and Planning contribution
•Better problem solving
•Fairer share of risk
•Repeat business
•Better payment terms
11
NSCC is a member of
the Strategic Forum for Construction
http://www.strategicforum.org.uk/sfctoolkit2/home/home.html
12
6

7. 11/02/2014
13
Best Practice: Purchase and Supplier Engineering (PSE)
…London 2012 …one of the largest (£9bn) and most successful
construction projects ever undertaken in the UK…
PSE informs procurement and delivery…managed risks and
realised value…
Measuring change involving “engagement and interaction”
•
Mead, J.M. and Gruneberg, S., (2013), Programme Procurement in Construction,
Learning from London 2012, Wiley-Blackwell, Chichester.
7

8. 11/02/2014
Purchase and
Supplier Engineering
(PSE)
•
Mead, J.M. and Gruneberg, S.,
(2013), Programme Procurement in
Construction, Learning from London
2012, Wiley-Blackwell, Chichester.
Project Risk and Value
in
Supply Chain Management
SOME EMPIRICAL RESEARCH
(or where we start from)
Ian J Murdoch
16
8

9. 11/02/2014
Industry Performance
As part of a relatively under-capitalised industry, construction firms are
highly dependent upon sustained access to trade credit in order to finance
their levels of output and turnover.
Limits on firms’ ability to access the necessary trade credit may limit their
ability to compete for projects, and force firms to decline growth
opportunities.
• Department for Business, Innovation and Skills BIS RESEARCH PAPER
NUMBER 118, TRADE CREDIT IN THE UK CONSTRUCTION
INDUSTRY: An Empirical Analysis of Construction Contractor Financial
Positioning and Performance, JULY 2013, Graham Ive and Alex Murray,
17
Supplier selection
Turnover and Contract Limit
A contract limit …‘safe’ to award to a supplier, based on a simple comparison of the
annual contract value to the annual (or average annual) turnover. …..apply a
maximum threshold of 25% (annual contract value to turnover). The concept of
contract limit could be used as a guide in terms of:
• financial strength – can the candidate cope financially with this
size of contract?
• capacity – does the candidate have the resource to carry out
the work?
• dependency issue – will the candidate become over-dependent
on this contract?
OGC, (2008) Supplier Financial Appraisal Guidance, London, Office of Government Commerce.
18
9

10. 11/02/2014
NSCC State of Trade Survey
The Report:
Go to www.nscc.org.uk/news.asp
Then
Scroll down to
Consultations and Reports
19
What is the NSCC?
The National Specialist Contractors Council (NSCC)
NSCC brings together 29 specialist trade organisations representing businesses engaged in
the planning, design, construction, refurbishment, and maintenance of the built
environment in both the commercial and domestic sectors. It is the authoritative voice of
Specialist Contractors in the UK.
Go visit www.nscc.org.uk
20
10

11. 11/02/2014
Who is the NSCC?
Members include:-
AIS Association of Interior Specialists
CFA Contract Flooring Association
CONSTRUCT Concrete Structures Group
FASET Fall Arrest Safety Equipment Training
FPS Federation of Piling Specialists
GGF Glass and Glazing Federation
INCA Insulated Render and Cladding Association
MAC Mastic Asphalt Council
NFRC The National Federation of Roofing Contractors Ltd
PDA Painting and Decorating Association
RIDBA Rural and Industrial Design and Building Association
TTA The Tile Association
21
The State of Trade Survey is carried out quarterly and
has been compiled since 1994.
Set up to provide evidence following the Latham Report
(Latham 1994) on the state of the industry
It has been used for briefings, policy development and
to assist in campaigns to promote the interests of the members.
Latest input is briefing to the Construction Minister on
•
•
•
Retentions
Fair Payment Campaign
Supply Chain Integration for Specialists
22
11

12. 11/02/2014
06 February 2014
Specialist Contractors Unite Behind NSCC on Late Payment
NSCC submitted a comprehensive response to the Government’s discussion
paper, Building a Responsible Payment Culture, with the full support of its
members.
NSCC Chief Executive Suzannah Nichol said:
“As long as late payment is socially acceptable and public sector contracts are
awarded to companies known for poor payment, then this will remain a huge
ongoing problem for the industry.
METHODOLOGY 1
•
Since 2007 the survey has been conducted on-line,
the survey currently consists of approximately 500 member firms.
•
It is not based on a random selection or a systematic stratified sample, but
distributed throughout affiliated trade associations.
•
No interviews but firms are invited to pass comments in open ended questions
•
It is not possible to eliminate bias, but as same method used each quarter,
any errors would be systemic.
•
Key factors therefore are the changes from Quarter to Quarter, Year to Year.
•
The annual response rate is currently 20% - 25%
•
The ‘balance’ indicator offering the best single measure of a trend.
•
Members insistence on simple report presentation.
24
12

13. 11/02/2014
Enquiries and Orders 2013 Q4
25
Orders 2013 Q4
26
13

14. 11/02/2014
Capacity and Business Planning 1
27
Capacity and Business Planning 2
28
14

15. 11/02/2014
Prices and Margins
29
Payment Practices
30
15

16. 11/02/2014
However, lets look at longer trends –
• Now we have 20 years of data.
31
Enquiries 1994 Q1 – 2013 Q4
NSCC STATE OF TRADE SURVEY: 1994Q1 - 2013Q4:
ENQUIRIES
80
60
53
49
40
20
41
37
23
20
20
18
16
0
0
-8
-20
16
16
9
-2
-7
-20
38
26
23
12
11
-3
%
51
43
39
36
36
17
11 9
0
56
48
39
35 33
30
29
26
18
11
16
5
-2-40 -2
-5
30
28
25
17
14
11
5
3
1
-3
0
10
0 -2 2
-11
-11
-14
-20
-24
-29
-34
17
11
24
-5
-11
-32
-40
-54
-57
-60
-80
Q1 2 3 4 Q2 3 4 Q2 3 4 Q2 3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4 1 Q3 4
Q Q Q Q1 Q Q Q1 Q Q Q1 Q Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q Q Q2 Q
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
3.BALANCE (reporting a rise)
Recovery not yet back to pre-2007/8?
32
16

17. 11/02/2014
Orders 1994 Q1 – 2013 Q4
NSCC STATE OF TRADE SURVEY:1994Q1 -2013Q4:
ORDERS
80
60
40
58
55
51
58
43
42
35
38
48
44
41
26
20
%
0
12
11
20
18
14
10
9
37
36
22
21
17
27
25 24 27
21 21
11
9
20
2
0
-2
42
39
29
28
23
20
9 10
43
41
31
27
5
0
3
2
-5-4 -3 -3-6
-9
-16
2
-6
-15
-17
-20
24
17
10
12
10
2
-14
-11
-25
-26
-34
-39
-40
-46
-51
-56
-58
-60
-80
Q1 2 Q4 1 Q3 4 Q2 Q4 1 Q3 4 Q2 3 Q1 Q3 4 Q2 3 Q1 2 Q4 1 Q3 Q1 2 Q4 1 Q3 4 Q2 3 Q1 Q3 4 Q2 3 Q1 2 Q4 Q2 3 Q1 2 Q4 1 Q3 4 Q2 Q4 1 Q3 4
Q Q3 Q Q2 Q Q1 Q3 Q Q2 Q Q1 Q Q4 Q2 Q Q1 Q Q4 Q Q3 Q Q2 Q4 Q Q3 Q Q2 Q Q1 Q Q4 Q2 Q Q1 Q Q4 Q Q3 Q1 Q Q4 Q Q3 Q Q2 Q Q1 Q3 Q Q2 Q
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
3.BALANCE (reporting an increase of orders)
Recovery not yet in line with enquiries?
33
Skilled Labour Recruitment 1994 Q1 – 2013 Q4
NSCC STATE OF TRADE SURVEY: 1994Q1 - 2013 Q4:
SKILLED LABOUR RECRUITMENT
80
60
63
61
52
40
38
34
%
11
0
51
40
34 36
23
27 27
20
60
50
49
19
16 14
12
6
33
36
30
13
38
38
44
41
38
37
32 31 32 33
31
29
29
28
28
26
23
23
21
21
19
18
16 17 16
15
14 12
13
9
7
19
18
-4
-20
6
5
-7
-11
-13
-14
-16
0
-4-3-2
109
1
-23
-23
-26
-31
-34 -36
-40
-48
-60
Q1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q QQ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q QQ Q Q
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
3.BALANCE (more difficulty)
Compare post-1995 with post-2008
34
17

18. 11/02/2014
Capacity and Business Planning:
Half of all respondents expect a rise next quarter – best since 2007 Q2
NSCC STATE OF TRADE SURVEY: 1994Q1- 2013 Q4:
ANTICIPATED WORKLOAD Next Quarter
80
63
61
57 59
51
49
60
56
51
46
58
51
40
20
53
49 49
51 50
48
43
38
37
33
32
33
27
23
45
44
41
43
42
41
46
46
41 40
45
43
35
33
33
31
28
31
27
26
28
27
24
23
17
21
19
17
42
35 36
39
19
18 17
18
16
12
%
8
0
0
0
-2
-3
8
7
4
-8
-8
-3
-10
-16
-20
-21
-29
-33
-40
-47
-60
Q1 2 Q4 1 Q3 4 Q2 3 Q1 2 Q4 1 Q3 4 Q2 3 Q1 2 Q4 1 Q3 4 Q2 3 Q1 2 Q4 1 Q3 4 Q2 3 Q1 2 Q4 1 Q3 4 1 Q3 4 Q2 3 Q1 2 Q4 1 Q3 4 Q2 3 Q1 2 Q4
Q Q3 Q Q2 Q Q1 Q Q4 Q Q3 Q Q2 Q Q1 Q Q4 Q Q3 Q Q2 Q Q1 Q Q4 Q Q3 Q Q2 Q Q1 Q Q4 Q Q3 Q Q2 Q Q Q2 Q Q1 Q Q4 Q Q3 Q Q2 Q Q1 Q Q4 Q Q3
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
3.BALANCE (expecting more work)
Capacity and Business Planning:
60% of respondents expect a rise in workload in 12 months – a survey high!
NSCC STATE OF TRADE SURVEY: 2010Q1 - 2013Q4:
ANTICIPATED WORKLOAD in 12 months
60
51
50
46
45
43
40
37
32
%
31
30
24
20
17
17
16
11
10
7
8
6
2
0
Q1
Q2
Q3
2010
Q4
Q1
Q2
Q3
2011
Q4
Q1
Q2
Q3
2012
Q4
Q1
Q2
Q3
Q4
2013
3.BALANCE (expecting more work)
18

19. 11/02/2014
Capacity and Business Planning:
Capacity utilisation (esp. >90%) 1994 Q1 – 2013 Q3.
NSCC STATE OF TRADE SURVEY: 1994Q1 - 2013Q4:
CAPACITY LEVELS (working at > 90%)
90
80
76
75
70
70
69 69
66
53
53
49
45 46 46
43
40
%
40
39 39 40
37
34
30
27
27
56
52
67
64
61 60
59
59 60 60
57 58 56
57
56
55
55
54 53
51
49
48
47
44
40
64
61
59 58
60
59
50
68
64
60
51
51
40
35
34
29
27
45
40
38
29
26
28
21 22
20
16
20
35
34
34 34
30 30
28
27
20
10
0
Q1 2 Q4 1 Q3 4 Q2 Q4 1 Q3 4 Q2 3 Q1 2 Q4 Q2 3 Q1 2 Q4 1 Q3 Q1 2 Q4 1 Q3 4 Q2 3 Q1 Q3 4 Q2 3 Q1 2 Q4 1 Q3 Q1 2 Q4 1 Q3 4 Q2 3 Q1 Q3 4
Q Q3 Q Q2 Q Q1 Q3 Q Q2 Q Q1 Q Q4 Q Q3 Q1 Q Q4 Q Q3 Q Q2 Q4 Q Q3 Q Q2 Q Q1 Q Q4 Q2 Q Q1 Q Q4 Q Q3 Q Q2 Q4 Q Q3 Q Q2 Q Q1 Q Q4 Q2 Q
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1. >90%
37
Tender Prices: 1994 Q1 – 2013 Q3
NSCC STATE OF TRADE SURVEY: 1994 Q1 - 2013 Q3:
TENDER PRICES
60
40
5
-5
%
-6
-9
-10
26
22
18
16 18 16
16
8
4
-6
-7
-12
-17
16
15
10
9
5
0
-15 -17
33
30
25
26
19
17
14
0
-20
39
38
28
26
20
14 16 16
13
9
5
20
-5 -5
2
13
5
16
0
-5
-9
-15
-11
-20
-24
-26 -26
-32 -31
-31
-33
-36 -37
-37 -36
-39
-40
-26
-29
-45
-54
-58
-60
-64
-67
-69
-71
-74
-75
-80
-100
Q1 Q3 Q1 Q3 Q1 2 3 4 1 2 3 Q1 Q3 Q1 Q3 4 1 2 3 4 1 2 Q4 Q2 Q4 Q2 3 4 1 2 3 4 Q2 Q4 Q2 Q4 1 2 3 4 1 2 3 Q1 Q3 Q1 Q3 4 1 2 3 4 1 2 Q4 Q2
Q2 Q4 Q2 Q4 Q Q Q Q Q Q Q4 Q2 Q4 Q2 Q Q Q Q Q Q Q Q3 Q1 Q3 Q1 Q Q Q Q Q Q Q1 Q3 Q1 Q3 Q Q Q Q Q Q Q Q4 Q2 Q4 Q2 Q Q Q Q Q Q Q Q3 Q1 Q3
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008 20090092010
2
2011
2012 2013
3.BALANCE (reporting an increase)
38
19

20. 11/02/2014
Payment Practices: 1994 Q1 – 2013 Q4
A return to ‘normal’ behaviour patterns for 60-90 days?
NSCC STATE OF TRADE SURVEY: 1994Q1 - 2013 Q4:
INTERIM PAYMENTS PERIOD
100
90
80
88
86
83 83
81
80 81
79
79 79
79
78
77 76 75 76 78
75
75 74
75 76
74
73
73
72 71
71
71
69
68
64
63
63
59
57
76 74
72
73
70
70
70
68
66
65
63
62
60
60
57
57
55
53
50
48
70
60
50
%
72
71
65
57
52
51
42
40
82
82
81 81
79
79
79
77 77 77 78 76
75
73
73 74 72
71
72
42
37
35
33
33
30
30
25
24 25
23 24 21
22 22
21
20
29
25
23
21
20 19
18
24
23
23
22
21 23
21 20 22
21
20 21
20 19
19 19
19
19
19
18
18
18
17
17
16
16
16
16
16 16 17
15 17
15
15
15 16
15 14
15 14
14
13 14
13
13
12
12 14 12
12 11
11 10
11 11
11
11
11
10
10
9
9
88
889
8
8
7
7
7 5 7
6 6667 75574 6
6 575 56
66 4
648 47 58
554 44 45 444
5
4 4
4
4
3242
324 22
3
2
2
2 33333
224
2
2 22323 32 2 3 22
2112 213313333 31133
0
0000 1
0
00000000
000000000
001
0
0
0
0
00
0
Q1 2 3 Q1 2 Q4 Q2 3 Q1 2 Q4 Q2 3 Q1 Q3 4 Q2 3 Q1 Q3 4 Q2 3 Q1 Q3 4 Q2 3 Q1 Q3 4 Q2 3 Q1 Q3 4 Q2 3 Q1 Q3 4 Q2 3 Q1 Q3 4 Q2 Q4 1 Q3 4
Q Q Q4 Q Q3 Q1 Q Q4 Q Q3 Q1 Q Q4 Q2 Q Q1 Q Q4 Q2 Q Q1 Q Q4 Q2 Q Q1 Q Q4 Q2 Q Q1 Q Q4 Q2 Q Q1 Q Q4 Q2 Q Q1 Q Q4 Q2 Q Q1 Q3 Q Q2 Q
20
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
AVERAGE TIME FOR PAYMENT
1. <30 DAYS
2. 30-60 DAYS
3. 60-90 DAYS
4. >90DAYS
39
Procurement
•
Specialist Contractors report 78% of contracts were obtained by tender - an
increasing percentage of contracts being procured by methods other than tender.
Retentions
•
45% of Specialist Contractors report recovering all retentions. Of the remaining
respondents, an average of 17% of outstanding retentions are written off as bad
debts.
•
61% of public sector contracts secured Nil retention.
•
61% of public sector contracts secured payment in 30 days.
40
20

21. 11/02/2014
Project Risk and Value
in
Supply Chain Management
CONCLUSION
SO HOW DO WE GET FROM HERE TO THERE?
(or where we start from)
Ian J Murdoch
41
Project Risk and Value
in
Supply Chain Management
•
•
•
•
•
•
•
•
Market intelligence
Purchaser/early supplier engagement/interaction
Supplier relationship management
Contracting strategy
Bidder tracking
Supply chain mapping
Building a responsible payment culture
Performance measurement
Ian J Murdoch
42
21

22. 11/02/2014
Project Risk and Value in Supply Chain Management
References:
•
Lysons, K & Farrington, B., (2005),Purchasing and Supply Chain Management,
7th Edition, Pearson Education Limited.
•
Mead, J.M. and Gruneberg, S., (2013), Programme Procurement in Construction,
Learning from London 2012, Wiley-Blackwell, Chichester.
•
Great Britain, OGC, (2008) Supplier Financial Appraisal Guidance, London,
Office of Government Commerce.
•
Great Britain, HM Government (2013), Construction 2025, Industrial Strategy:
government and industry in partnership.
•
Great Britain, Department for Business, Innovation and Skills (2013),
BIS Research Paper Number 118, Trade Credit In The UK Construction
Industry: An Empirical Analysis of Construction Contractor Financial Positioning and
Performance.
•
National Specialist Contractors Council (2013), State of Trade Survey Report (on-line):
Available at http://www.nscc.org.uk/documents/Q4Report.pdf
43
22