Supply Chain Partnerships - Collaborative Planning and Collaborative

Replenishment for the Malaysian Construction Industry

Chapter 1

1.1 Construction Industry and Supply Chain Management (SCM)

1.1.1. Background of Construction Industry and Supply Chain Management

(SCM)

The construction industry is considered to be an engine which drives a country’s

economy. It is a large, mature business and it has many important links to the
rest of the economy, e.g. private costs for housing, business investments and
infrastructure and improvements in public services (health, education and urban
renewal). Supply chain management (SCM) is conceptualized as significant tool
which is important in enhancing corporate competitiveness and profits for today
industry (Dale et.al., 1994). The origin of supply chain management initiated in
manufacturing and slowly adopted by automotive industry and was targeted to
improve efficiency and productivity as well as reducing cost (Lambert et.al.,
1998). All issues are viewed and resolved in a supply chain perspective, taking
into account the interdependency in the supply chain. SCM offers a methodology
to relieve the myopic control in the supply chain that has been reinforcing waste
and problems.

Construction supply chains are still full of waste and problems caused by myopic
control. Comparison of case studies with prior research justifies that waste and
problems in construction supply chains are extensively present and persistent
and due to interdependency largely interrelated with causes in other stages of
the supply chain (Vrihjoef & Koskela (1999). The characteristics of the
construction supply chain reinforce the problems in the construction supply chain,
and may well hinder the application of SCM to construction. Previous initiatives

1
to advance the construction supply chain have been somewhat partial. The
generic methodology offered by SCM contributes to better understanding and
resolution of basic problems in construction supply chains, and gives directions
for construction supply chain development. The practical solutions offered by
SCM, however, have to be developed in construction practice itself, taking into
account the specific characteristics and local conditions of construction supply
chains.

1.1.2 Background of Malaysian Construction Industry and Supply Chain

Management (SCM)

Generally, Malaysian construction industry is separated into two (2) areas. One
area is general construction, which comprises residential construction, non-
residential construction and civil engineering construction. The civil engineering
construction is special trade work, which comprises activities of meal works,
electrical works, plumbing, sewerage and sanitary works, refrigeration and air-
conditioning work, painting work, carpentry, tiling and flooring works and glass
works.

The construction industry is strategically important for Malaysian providing

building and infrastructure on which all sector of the economy depend. With
many million operatives directly employed in the sector, it is one of the Malaysia’s
largest industrial employer and it accounts for a major share of the of total
employment pie.

The relationship between construction activities, and the built environment on the
one hand, and sustainable development on the other, is both significant and
complex. Construction uses more raw materials than any other sector, and the
creation and operation of the built environment accounts for an important
consumption of natural resources. There is also a growing focus to address the
regeneration of many urban areas of Malaysia.

2
Even though, Malaysian construction industry has been growing significantly in
contributing towards nation’s productivity, there remain a number of critical
issues within the construction industry that need to be considered and rectified.
A long list of problems could be itemized including lack of trust and commitment,
adversarial relationships, co-ordination problems, training problems, which
considered as inefficiency of the Malaysia construction industry observed by
several study (CIDB, 2006).

1.2 Research Problem Statement

Much has been explained on the benefits of supply chain management in solving
the problems associated in the construction industry (Egan 1998). However,
very little effort has been carried to explore the concern and awareness between
vendors in the local construction industry.

Traditional silo based Planning and Replenishment processes are causing delays
leading to creation of hurdles in their operations for construction organizations
therefore it needs to be addressed by providing a suitable solution.

1.3 Research Objective

The construction industry faces various hurdles in carrying out its operations. In
this thesis an attempt was made to evaluate how collaboration would improve by
examining the key points were these hurdles occur.

Based on the current construction firms in Malaysia, this research aims at

achieving the following research objectives:

3
 - To examine the issues occurring due to their traditional silo based
approach in the Malaysian construction industry
- To relate the core issue occurring in the Malaysian Construction
Industry to a successful collaborative approach and provide a solution
based on this relationship

1.4 Research Methodology

In order to achieve the above objective, the writer has chosen to perform
questionnaire survey to obtain data from Malaysia construction firms and
Construction related firms to study the effects on issues primarily related to
delays, in the area of planning and material availability, overall business
performance and also to get data on the role of IT and its related awareness.

On the second part in the research, the writer has chosen due to mainly on
secondary data such as library research, information will be gathered from
previous study journals, book reference, the conference report and various
publications from the library and Internet.

1.5 Scope of Study

This report focuses on arranging reviews of the construction issues using supply
chain management through collaborative planning and collaborative
replenishment issues. Importance is given in identifying the awareness of
construction parties and their readiness in implementing collaborative supply
chain management through partnership arising out of collaboration throughout
the construction process. This report limits itself to the proposed solution and not
its implementation using any technology.

4
1.6 Chapter Attire

Chapter 1 will give an overview of the entire study, brief introduction on

construction industry, supply chain management in local construction industry
and the concept of collaborative of planning and replenishment. Research
objective and scope of the entire study is also highlighted.

Chapter 2 focused on literature survey, as well as past study relating supply

chain management in construction industry. Some consideration on benefits of
supply chain management is also highlighted. CPFR issues, benefits of supply
chain management will be the main theme in this chapter and supply chain
management in Malaysia is also explained in depth.

Chapter 3 will be on Research Methodology of the study. This includes

questionnaire design and structure. Data collection method as well as analysis
approach is also discussed in this chapter.

Chapter 4 on Results and Discussion reporting the findings and analysis

obtained on the impact of planning and material delays, awareness and
application of IT in the industry and usage of collaborative practices in
Malaysia‘s construction industry. Important attributes related to the chapter also
discussed and highlighted.

Chapter 5 on Conclusion and Recommendation discussed the relation between

the problem and research questions and how it is justified and solved.
Recommendation also proposed to aid future study in the field of supply chain
management in local construction industry based on the collaborative approach
dealt in this report.

5
LITERATURE REVIEW

In this section we review literature dealing with the problems in the construction
supply chain primarily with focus on the construction organization; also literature
review was also carried out for understanding the concepts related supply chain
management, supply chain collaboration and CPFR. Thereby use the information
to better understand the problem and arrive at a suitable solution.

Supply Chain Management

Definition

According to CSCM Supply Chain Management encompasses the planning and

management of all activities involved in sourcing and procurement, conversion,
and all Logistics Management activities. Importantly, it also includes coordination
and collaboration with channel partners, which can be suppliers, intermediaries,
third-party service providers, and customers. In essence, Supply Chain
Management integrates supply and demand management within and across
companies.

Origin of Supply Chain Management

SCM is a concept that has originated and flourished in the manufacturing

industry. The first signs of SCM were perceptible in the JIT delivery system as
part of the Toyota Production System (Shingo 1988). This system aimed to
regulate supplies to the Toyota motor factory just in the right - small - amount,
just on the right time. The main goal was to decrease inventory drastically, and to
regulate the supplier’s interaction with the production line more effectively. After
its emergence in the Japanese automotive industry as part of a production
system, the conceptual evolution of SCM has resulted in an autonomous status
of the concept in industrial management theory, and a distinct subject of scientific
research, as discussed in literature on SCM (e.g., Bechtel and Yayaram 1997,

6
Cooper et al. 1997). Along with original SCM approaches, other management
concepts (e.g., value chain, extended enterprise) have been influencing the
conceptual evolution towards the present understanding of SCM. In a way, the
concept of SCM represents a logical continuation of previous management
developments (Van deer Even and Robben 1997). Although largely dominated
by logistics, the contemporary concept of SCM encompasses more than just
logistics (Cooper et al. 1997). Actually, SCM is combining particular features from
concepts including Total Quality Management (TQM), Business Process
Redesign (BPR) and JIT (Van der Veen and Robben 1997).

Fundamentals of Supply Chain Management

Supply chains are a network of inter-related entities, involved in procurement,

conversion and distribution of goods and services. And it has evolved from
logistics management, which primarily focused on material movement and
storage issues to include other issues like Finance, IT, Human resources etc.

The three flows that are important in a supply chain are the Physical Flow, the
Cash Flow and the Information Flow. The Physical Flow deals with the
movement of goods, Cash Flow is the movement of money based on
transactions between the various supply chain stakeholders and Information flow
is the flow of information between the various systems managed and utilized by
the different stakeholders in the supply chain.

Supply chain management works on the basis of various concepts affecting the
various components of the supply chain. The Bull Whip Effect is a popular which
states how inventory gets accumulated at various levels. Further other concepts
like Material Requirements Planning (or MRP I) which was changed to
Manufacturing Resource Planning (MRP II) and now used as the Enterprise
Resource Planning (ERP).

7
Apart from the concepts Supply chain management is primarily driven by the
Push and Pull processes. A complete Push process is a forecast driven
approach resulting in a Responsive Supply chain whereas the complete Pull
process is a Lean Supply Chain. But supply chains cannot be in extremes like
complete push or complete pull. There has to be strategic mix of the push and
the pull which advocates that supply chains should be communicated and
managed properly.

Key Stakeholders of a Supply Chain

There different key stakeholders of a supply chain are the Supplier, the
manufacturer, the wholesaler or distributor, the retailer and the end consumer.
The supplier supplies the raw material and / or semi finished goods to the
manufacturer who in turn completes the manufacturing and assembly processes
to supplies the finished goods to the Wholesaler or Distributor. The Wholesaler or
Distributor then sends the finished goods to the retailer which would be
consumed by the end consumer.

8
 Raw materials supplier Equipment supplier

Manufacturer

Regional Warehouse of the manufacturer

Regional Warehouse of the Supermarket

Local Supermarket

Household

Flow of
materials
Baby: The Ultimate Consumer Flow of
information

Fig 1. A Typical Supply Chain

Fig 1 shows the flow between the various key stakeholders. In some supply
chains the manufacturer directly communicates and deals with the end
consumer. A classic example to this is the Dell’s Supply Chain. Dell takes its
orders from its website, it holds a very minimal inventory and as the order is
received it the packs and delivers the product to its customers. So the key
stakeholders vary according the factors like Distribution channel, product type,
cost etc.

Importance of Supply Chain Management

There are various factors which are emphasizing the importance of Supply Chain
Management. Increasing inventory in the supply chain is adding costs and
inventory unused is cash trapped, due to the highly volatile market conditions
and due to increasing competition products are becoming obsolete faster also

9
the other side of the coin is that due to high demand in certain industries there
frequent stock outs resulting in loss of business.
Today the Time to Market has become a key metric which is because
response to demand to spontaneous and proactive else would result in loss of
business. Changing patterns of human movement and occupation like remote
places becoming a seat of economic activity has resulted in reconsideration of
the distribution network at least once every fiscal year. Today to stay in market
and if all the above factors need to be overcome it is possible only when all the
stakeholders in the supply chain have a single vision and work towards reducing
cost and increasing efficiency thereby helping the product for which they work
gain an major market share.

Managing the Supply Chain

We have seen the various aspects about a supply chain. There are various
strategies adopted in managing the supply chain. Generally managing the supply
chain means managing the key stakeholders in the supply chain.

Supply chains can be divided into Internal Supply Chain and External Supply
Chain. Managing Internal Supply Chains is usually done using IT (Information
Technology); Quality initiatives like Six Sigma, Quality Circles etc.; using
concepts like Lean Management and also through other recognized
organizational initiatives.

Although managing the Internal Supply Chain is a challenge even bigger

challenge is managing the External Supply Chain which is complex than the
Internal Supply Chain. External Supply Chain can be managed successfully
through a collaborative approach. Various industries and organizations are in
favour of the collaborative approach as it reduces ambiguity by bringing in more
clarity in each every step where it is practiced. Opposed to the collaborative
approach is the Force approach where an organizes forces the initiatives with the

10
other key stake holders. In this thesis we give more importance to the
collaborative approach as there are lot of concepts and initiatives drawn along
this approach.

Collaboration

What is Collaboration

The field of consumer behavior is broad, and vast amounts of research exists
which theoretically pinpoints triggers to and deterrents against consumer
spending. On a practical level, understanding and predicting consumer’s wants
and needs are the greatest challenge companies – especially retailers – face.
Nonetheless, some things are fundamental to trigger consumer spending.
Consumers would like to have a proper mix of products at their disposal, they
would like fresh, flexible products, they want products in stock, and so on. As
retailers become more sophisticated in their offerings, the expectations of
consumers have increased accordingly. Fig 2 shows the collaboration between a
supplier and a retailer.

What is cooperation or collaboration? Intelligence Community Collaboration

(1999) broadly defines collaboration as: “…the interaction among two or more
individuals which can encompass a variety of behaviors, including
communication, information sharing, coordination, cooperation, problem solving,
and negotiation.".

In general collaboration exists in multiple ways. How parties collaborate depends

on the division of tasks and decision-making responsibilities in the relationship.
There are three types one party decides, other party does nothing; one party
decides, other party has advising role; or two parties decide jointly.

In the first relationship, no collaboration exists at all. In the second relationship,

one party is assigned to take end-responsibility of the collaborating processes.

11
The responsible company counts on the contribution of its partner. Such a
contribution can consist of simply sharing information, sharing forecasts,
presenting own viewpoints, or communication (in case of exceptional events), or
a mix of all aforementioned. Finally in the third option, two parties decide jointly in
a collaborating strategy. In practice, however, this rarely occurs. It was revealed
both through the company interviews and VICS (Voluntary Inter-industry
Commerce Standard) that in the joint decision-making process there is always
one company that takes end-responsibility. In order to avoid friction in the
relationship, collaborating companies can act on an exception basis.

The notion of collaboration requires a change in the way decisions are made.
Consensual decision-making must dominate, and individual corporate interests
may sometimes need to be sacrificed for the greater interest of the business
community. Note the great importance of trust in collaboration. In each
collaborative relationship there is one decision-maker. However, collaboration
may and must influence the decision-making process. Provision of advice
(information, forecasts, view points, handling exceptional cases) provides
guidance to the decision process.

12
 Fig 2 Collaboration between Supplier and Retailer

Collaboration in the Supply Chain

Collaboration is in the supply chain and it is not new to supply chain

management. CRM (Customer Relationship Management), ERP and SRM
(Supplier Relationship Management) these have driven the collaboration
approach. CRM is a demand focused approach, SRM is a supply focused
approach while is a combination approach based on both demand and supply.
These major approaches are supported by various collaborative initiatives.

Various concepts have come into existence due to various collaborative industry
initiatives VMI (Vendor Managed Inventory), ECR (Efficient Consumer
Response), CR (Continuous Replenishment) and CPFR (Collaborative Planning
Forecasting and Replenishment).

13
Vendor Managed inventory (VMI) was developed in the late 1980s in an effort to
reduce inventory and stock-outs at retail stores. In a VMI configuration, tasks
traditionally performed by a retailer – like stocking and ordering product – are
managed by the supplier of the product. The first highly visible VMI model was
between Wal-Mart and P&G in the diaper product category in the late 1980s.
Another example of a long ongoing VMI initiative is Frito-Lay, in which
drivers/salespersons stock the store shelves for small retail customers to keep
the shelves full, the product fresh and paperwork to a minimum.

Efficient Consumer Response (ECR) started in the early 1993 as a voluntary

group in the grocery industry to use technology and strategic alliances to reduce
costs. The ECR movement is based on the principle of just-in-time inventory
management as discussed by Drayer [49]. It aims to expand the benefits
observed form quick response initiatives – i.e. operating based on a demand
signal – by broadening the scope to include product promotions and
introductions. ECR has four key areas: (1) efficient replenishment, (2)
efficient promotion, (3) efficient introduction, and (4) efficient assortment.

Efficient replenishment was reassessed with Continuous Replenishment. Using

POS data (mostly on DC level, so orders from stores to DC) instead of variations
of inventory levels, refined forecasting. Still historically determined forecasts and
the lack of retailer expertise remained weak points in replenishment.

Collaborative Planning, Forecasting and Replenishing (CPFR) is a recent

initiative aimed at creating common language standards and standardized
processes to facilitate inter-company coordination. It was introduced in 1995 by
an industry group led by Wal-Mart, Benchmarking Partners, Warner Lambert,
SAP, and Manugistics through the Voluntary Inter-industry Commerce Standards
Association (VICS) in an attempt to standardize collaborative processes across
companies.

14
These initiatives show how various collaborative initiatives have been started and
are proving to be beneficial.

Impact of Collaboration in the Supply Chain

The various collaborative efforts mentioned have shown positive impacts. For
example from VMI the benefits achieved were reduced costs and improved
service. Thus lower costs are achieved through better demand visibility –
reducing the need for large buffer stocks –, smoothing of uneven orders, and
increase the percentage of low-cost full truckload shipments. And increased
service is through coordination of replenishment orders and deliveries across
multiple customers that allow inventory balancing across the
customer’s distribution centers.

By adopting the ECR model P&G reported 6-9% in bottom line cost savings from
the initiative, distributed as follows: 40% logistics, 40% promotion, 10%
assortment, and 10% product introductions [50]. Since the early 1990s, Proctor &
Gamble’s market share has increased, prices decreased, and margins increased
due in part to the success of ECR

Apart from these two both CR and CPFR too have shown significant results and
gains. Although the impact of collaboration is on the higher side, but then there
are certain hurdles to collaboration. Often members of collaborative initiatives
remain reluctant to share sensitive business information with partners. This lack
of trust is often the single biggest barrier to collaborative relationships. Further,
the effects of instability in supply chains due to the bullwhip effect. With high
order variability, downstream firms find their suppliers to be unreliable. On the
other hand, suppliers find their customers ordering patterns volatile and
unpredictable. This can cause trust to rapidly break down despite collaborative
initiatives in place.

15
Success of Collaboration

In another study, Clark and Hammond conclude that VMI programs have been
shown to increase inventory turns from 50 to 100% percent over those achieved
before implementation, even when the retailer and manufacturer were already
using EDI before.

These hurdles are often overcome by prospective organizations on seeing the

benefits achieved by the early adopters. So the impact of collaboration although
has some hurdles is by and large a success. The gains reported by big
organizations like P&G are big boost tot his approach. Moreover CPFR which
would be discussed as a separate chapter is making waves across industries

Concept of Collaborative Planning, Forecasting and Replenishment

Introduction

CPFR is a business practice that combines the intelligence of multiple trading

partners in the planning and fulfillment of customer demand.

 Links sales and marketing best practices to supply chain planning and
execution processes
 Objective is to increase availability to the customer while reducing
inventory, transportation and logistics costs

CPFR in Brief

The CPFR model presents the aspects in which industries focus. The model
provides a basic framework for the flow of information, goods, and services. In
the retail industry the “retailer typically fills the buyer role, a manufacturer fills the

16
seller role, and the consumer is the end customer.”[4] The center of the model is
represented as the consumer, followed by the middle ring of the retailer, and
finally the outside ring being the manufacturer. Each ring of the model represents
different functions within the CPFR model. The consumer drives demand for
goods and services while the retailer is the provider of goods and services. The
manufacturer supplies the retailer stores with product as demand for product is
pulled through the supply chain by the end user, being the consumer.
Some of the main processes shown in the model can be found in the second ring
that has arrows in a circular pattern. This is displayed with collaboration
arrangement, joint business plan, sales forecasting, order fulfillment etc. This
stage will be described in detail below:

“Strategy & Planning, Collaboration Arrangement is the process of setting the

business goals for the relationship, defining the scope of collaboration and
assigning roles, responsibilities, checkpoints and escalation procedures. The
Joint Business Plan then identifies the significant events that affect supply and
demand in the planning period, such as promotions, inventory policy changes,
store openings/closings, and product introductions.”[5]

“Demand & Supply Management is broken into Sales Forecasting, which projects
consumer demand at the point of sale, and Order Planning/Forecasting, which
determines future product ordering and delivery requirements based upon the
sales forecast, inventory positions, transit lead times, and other factors.”[6]

“Execution consists of Order Generation, which transitions forecasts to firm

demand, and Order Fulfillment, the process of producing, shipping, delivering,
and stocking products for consumer purchase.”[7]

“Analysis tasks include Exception Management, the active monitoring of planning

and operations for out-of-bounds conditions, and Performance Assessment, the

17
calculation of key metrics to evaluate the achievement of business goals,
uncover trends or develop alternative strategies”[9]

CPFR Process Flow Chart

Evolution of CPFR

CPFR has its origins in a concept called ECR. ECR is a comprehensive

management concept based on vertical collaboration in manufacturing and
retailing with the objective of an efficient satisfaction of consumer needs, with
supply chain management (SCM) and category management (CM) being its main

18
components (Seifert, 2003). The goal of ECR is to create a win-win situation for
manufacturers, retailers and consumers alike. ECR provides specific steps to be
taken to address both its main components i.e. SCM on the supply side and CM
on the demand side (ECR Guide, 2001).

CPFR is a logical extension of ECR on the supply side. Hence analyzing ECR
success factors provides us with deep insights into factors that could influence
CPFR adoption. The ECR success factor study (Seifert, 2001) identified critical
success factors (CSF) for ECR programs, which include: (1) involvement of top
management, (2) mutual trust between collaborating partners, (3) early success,
(4) continuous measurement of performance, (5) implementation of
contemporary IT, (6) implementation of contemporary cost accounting methods,
(7) consumer orientation, (8) change in organizational structure and (9) ECR
training to staff. These will provide inputs to the development of influencing
factors and conjectures stating the impact of each factor on CPFR adoption.

Collaborative Planning

Collaborative Planning is the coordination of the Planning between two

subsequent stakeholders. Collaborative planning like its siblings Collaborative
Forecasting and Replenishment tries to achieve the same benefits albeit in the
planning arena. The planning process gets all the more streamlined once the
stakeholders come together and help each other in each other’s planning
process there by complementing each other’s planning processes. Thus
Collaborative Planning is first step towards migrating to CPFR based planning
from the traditional silo approach in planning.

Collaborative Forecasting

Collaborative forecasting makes it possible to take advantage of the expertise of

all, or at least several, supply chain members. One benefit that is suggested to

19
follow from this is a reduced reliance on historical records. (Helms et al., 2000)
Time series methods that build on historical data can forecast changes that
follow continuous or recurring patterns, but cannot accurately forecast the impact
of events, such as price changes, that happen irregularly (Bowersox and Closs,
1996, p. 233; Mentzer and Schroeter, 1994).

Through collaborative forecasting, a company or department can get access to

better information on important demand drivers, such as promotions. This makes
it possible to complement time series forecasting either with regression analysis,
which examines the relationship between sales and other variables, such as
advertising, or with subjective forecasting, which relies on expert opinion (Jain,
2000; Mentzer and Schroeter, 1994). Furthermore, working based on one shared
forecast reduces the problems related to what Mentzer et al. call the "islands of
analysis" phenomenon, where different groups, departments or companies
develop their own forecasts independently of each other according to their own
specific needs, and risk ending up acting based on conflicting plans (Helms et al.,
2000; Mentzer et al., 1997).

Collaborative Replenishment

Replenishment is the last phase in CPFR. Replenishment consists of Order

Placement and distribution of Orders. In the traditional method of performing
replenishment there is always a high chance of miscommunication but in
collaborative replenishment they work together. The silo approach is done away
with. There is an increased visibility of orders by between the stakeholders. Thus
replenishment in togetherness i.e. collaborative replenishment replaces the
traditional replenishment.

Success of CPFR

In the six years since its inception, the CPFR model has demonstrated benefits
for hundreds of manufacturer and retailer companies. It has also influenced
trading relationships in the high technology, chemical and automotive industries.

20
Companies have greater flexibility in selecting the focus for their efforts, as well
as the sequence of collaboration tasks. Specific CPFR scenarios give retailers
and manufacturers detailed business process guidance based on successful
projects. This is possible today due its huge number of implementations in these
industries. The success of CPFR is phenomenal more industries would embrace
in the future so that success achieved by CPFR in certain industries like Retail,
Manufacturing etc. would be replicated in other industries too.

Benefits of CPFR

The early exchange of information between trading partners provides for reliable,
longer terms future views of demand in the supply chain. The forward visibility
based upon information sharing leads to a variety of benefits within supply chain
partnerships. Because CPFR is relatively new, data to evaluate its impact
empirically are not readily available. Anecdotal evidence provided from the
results of several pilot programs highlight benefits, which are:

1. Retailer benefits:
a. Increased sales
b. Higher service levels (in-stock levels)
c. Faster order response times
d. Lower product inventories
e. Obsolescence, deterioration
2. manufacturers benefits:
a. increased sales
b. higher order fill rates
c. lower product inventories
d. faster cycle times
e. reduced capacity requirements
3. Shared supply chain benefits

21
 a. Direct material flow (reduced number of stocking points)
b. Improved forecast accuracy
c. Lower system expenses

The results of several pilot programs indicate potential benefits for retailers
including higher sales, higher service levels (in-stock levels) and lower
inventories.

Manufacturers have experienced similar benefits plus faster cycle times and
reduced capacity requirements. For example, the Wegmen Foods pilot study
produced a supply chain sales increase of 356 to 50 percent through a more
efficient deployment of inventory. KPMG Consulting conducted a poll of both
retailers and manufacturers in 1998 concerning the frequency and the benefits
derived from information exchange. Manufacturers cited significant
improvements in cycle time and inventory turns.

Construction Supply Chain and its Issues

Introduction

The construction supply chain although not as complex as a FMCG industry it

has its own set of problems. Most organizations in the construction industry
follow the traditional approach. The Construction organization forms the driver of
the supply chain.

Key Stakeholders of the Supply Chain

The Construction Organization as mentioned is the key stakeholder and in this

thesis the all suppliers and sub contractors are called as Vendors. As they all
supply materiel, resources and services to the construction organization. Below
is the diagram by Ruben Vrijhoef and Lauri Koskela which shows the flow in a
Traditional constructional supply chain for a building construction. Architects and

22
Civil design firms are also vendors as the supply design services to the
construction organization.

Issues in the Construction Supply Chain

The diagram below also by Ruben Vrijhoef and Lauri Koskela shows how work
is transferred in a traditional setup from one level to another. The diagram also
high lights the various issues that are faced at each level in the traditional
construction supply chain.

In the job preparation stage the issue is In-accurate data, in the Design and
engineering stage the issue is delays in getting information and also in design
approvals, in the assembly stage the issue is related to deliveries and in Site
Installation also the issues are related to deliveries.

23
Conclusion

Jarnbring (1994) found that deficient planning and deficient information on the
needed amount of material are characteristic for materials purchasing in
construction. In a study on the implementation of lean production in construction
component manufacturing, Koskela and Leikas (1997) found that there is a
tendency to place construction component orders with missing information due to
incomplete design. According to Jarnbring (1994), decision making on logistical
solutions is often constrained to those solutions one has experience of or insight
in.Thus going by the report of Ruben Vrijhoef and Lauri Koskela the delays
highlighted to be related to deliveries and information availability

24
Chapter 3 Research Methodology

3.1 Introduction

This chapter presents an overview of the methodological perspective of the

research. Section 4.2 describes the research design based on the research
questions and theoretical models hypothesized in this study. Section 4.3
presents the research strategy of a questionnaire survey. Finally, Section 4.4
summarizes this chapter.

3.2 Research Method

The findings of this research are based on the questionnaires to collect the closer
views to support the research topic. By collecting the different point of view from
respondents may be able to help to search for the method reduces the delay in
planning and replenishment in construction industry.

A questionnaire developed by the researcher, a total of 40 respondents were

approached from construction background such as civil engineers, project
engineers, clerk, surveyor and etc but then only 20 respondents responded to the
researchers questionnaire. Their answers are important since their opinions
imply the delays in planning, replenishment and leverage of IT in construction
industry. By analyzing the questionnaires, the writer believes that it can provide
better views on delays in planning and replenishment percentage in construction
industry.

3.2 Research Design

The write believe a questionnaire survey was the most appropriate strategy to
answer this research questions. The questionare survey consist of 12 questions
which to be answered. The greatest advantage of a questionnaire survey is its

25
lower cost compared to other methods. In this study, the questionnaire survey
was used to obtain information or issues on delays in planning and
replenishment and the use of IT in construction industry. Such data could be
used to examine the level of delays and collaboration in overall business
performance.

3.2.2 Research Sample

The research paper will be distributed to 20 respondents with construction

industry background. The location is the distribution is Klang Valley area due to
the area’s position as one of the most important industrial centers in Malaysia.
The writer has good contact with people who worked in the field of construction
through some of the close friends. It was relatively easy for the writer to obtain
sufficient information to be used for this study. The details about the sample
frame for conducting the questionnaire survey is described in Sections 4.3.

Summary

This chapter first presented the research strategies adopted in this study, a
questionnaire survey. Therefore, the research strategies adopted in this study
can be characterized as the quantitative strategies. Second, the detailed
processes and the method of conducting the questionnaire survey was
described. Finally, it must be admitted that the author’s friend’s influence
working in construction industry contributed a great deal to conducting this
research. If the author lacked of good personal contacts with many people
working in the construction industry, the author would not have successfully
collected data used in this research.

Punch, K.F. (2000), Developing Effective Research Proposals, SAGE

Publications,

26
London.
Patton, M.Q. (1990), Qualitative Evaluation and Research Methods, Second
edition, Sage
Publications, Newbury Park, London.
Yin, R.K. (1989), Case Study Research: Design and Methods, Revised edition,
Sage
Publications, London.

27
 Findings – Data Analysis and Inference

1. Delays have been invariably accepted across organizations. They are facing
delays not due to single factor but by various factors ranging from government
regulatory approvals, logistic challenges, planning related challenges etc. So the
list is endless. So I probed to find how planning and material availability to the
overall share of its problems leading to the delays.

The intensity in the occurrence of delays although varies across organizations

but point to note is delay is definitely an occurrence in the organizations
operations.

2. The below chart shows the material related delays reported by the various
respondents. Material related delays are going up to 60% in certain scenarios as
mentioned by a few respondents. There least being a 10% delay in two
responses. But then it appears that an average of 30% of the time material
requirements are not met leading to delays related to material non availability

Material Related Delays

80 60 5560
In Percentage

60 50 40 40 40 4035 45 Percentage of
30
40 20 2030 25 30 Material Delays
20
20 10 15 10 Reported
0
1

7
10

13

16

19
R

R
R

Respondents

28
3. The below chart shows the Planning related delays reported by the various
respondents. Planning related delays are going up to 65% in certain scenarios as
mentioned by a few respondents. There least being a 2% delay in two
responses. But then it appears that an average of 35% of the time plans are
made properly leading to delays related improper planning

Planning Related Delays

80 65 60
In Percentage

60 50 45 50
40 35 35 35
30 25 20
40
15 15 20 25
20 5 10 10
2
0
1

9
3

11

13

15

17

19
R

R
R

R
Respondents

4. Lack of Transparency is one of major issues accepted by most respondents. This

transparency between the construction organization and their vendors.
Respondents of total of 70% have said there is lack of transparency and the
remaining 30% have denied lack of transparency. This point doesn’t mean that
those 70% meant there is not a single instance of transparency, but what they
meant is most of time they have faced problems due lack of transparency from
both ends i.e. themselves and the vendor

29
 Lack of Transparency

30%
Yes
No
70%

5. The Mode of communication shows the still lesser acceptance of email, email
here means and refers to the total dependency on email for transfer of files. The
acceptance ratio is 80% but then the respondents who have said that they are
not using have also said that they are considering the usage of email, some of
whom are in the process of putting it to use completely

Mode of Communication

100 100
100 80
80
Respondents 60
% 40
20
0
Phone Fax Email

6. Communication gaps are those where the respondents have faced issues or
problems due improper communication of changed operational directions.
Although an encouraging 85% said that they have not faced any communication
gaps but then still it has 15% chance of occurrence.

30
 Communication Gaps

15%

Yes
No

85%

7. When the respondents were asked whether if transparency between them and
their vendors if increased would that help them to reduce the delays for which
there was mixed response. Here also a major of them agreed that if would
definitely help them in some way or the other. This strengthens or rather
complements the earlier question on transparency

Increased Transparency Reduces

Delays

15%

Yes
No

85%

8. The respondents were asked whether they are using software applications for
running their business i.e. to manage their enterprise. Again only a few said they
don’t, whereas the vast said a good yes. The various software applications used
ranged from Computer Aided Design Software to the simple Microsoft Office.
This shows that they are getting more IT savvy which is a good point to note as
far as this Thesis is concerned.

31
 Usage of Software for Enterpise
Management

5%

Yes
No

95%

9. I decided to check if there is any form of collaboration. So the respondents were

asked that whether they are used to any form of collaboration effort.
Collaboration here refers to any kind of an agreed joint or a mutual behavior. For
which there was unanimous Yes. That is also great news for this thesis. The
respondents told that they do make some agreements with their vendors and
maintain some informal relationships to boost their business.

Practice of some form of collaboration

0%

yes
No

100%

10. So another question on collaboration as collaboration is the thumb rule of this

thesis. When the respondents were asked whether the collaborative efforts which
they mentioned was effective. For which most of them agreed that it is effective

32
 in most of the situations. But some said that they didn’t benefit anything of their
collaborative effort. Generally most collaboration which many of the respondents
talked about are related business need based collaboration rather than on an
operational need based collaboration.

Present Collaborative Efforts Effective

10%

Yes
No

90%

11. This question was to check if they have any knowledge of software applications
which help collaboration. Although this is not a major question, but then this was
asked to see awareness level. Notably a few have said they heard for come
across some kind of a software application. A majority said they are not aware of
such a solution, while the remaining respondents said they are really not sure
since they believed there may be some solution which they may have not heard
or come across yet.

Availability of Collaboration Solutions

in the Market

15% 20%
Yes
No
Not Sure
65%

33
 12. The final question was to know what the respondents would feel if IT was used
to bridge Gap in issues related to Planning and Replenishment, and would it help
them overcome delays. Majority of them said that if they have solution which
addresses these delays then it would definitely be of great use to them. In spite
of the confidence shown by a majority of them on this question still some of them
are apprehensive about the effectiveness of an IT solution in addressing these
issues.

IT solution would bridge gaps and

reduce delays

10%

Yes
No

90%

The Inference after an analysis of the answers given by the respondents there are
various views supporting the thesis. There is an acceptance that there are delays related
to Planning and Replenishment, lack of transparency and it was found that there is a
practice of collaboration, usage of IT and belief in IT.

Collaborative Planning and Replenishment for the Construction

Industry

Introduction

The construction industry is a project based industry. A typical construction

organization works in tandem with many other vendor organizations that support

34
them. In today’s world of increasing dynamic nature of business there is a
pressing need to that the various stakeholders join hands and work for a
profitable relationships. Building relationships has been the unwritten rule of
business as successful businesses have prospered due strong relationships with
their vendors and partners. This unwritten rule has now come to the lime light
due to economic pressures arising out of the highly dynamic nature of business.

Forging relationships is becoming common or rather norm of the day in many

industries as varied as FMCG to Automotive. The Construction industry is no
exception to this trend. Collaborative Planning and Collaborative Replenishment
would be of great use to a construction organization which can leverage on these
concepts to strengthen the way they do business and improve it strategically and
operationally.

Need for Collaboration

Collaboration, collaboration, collaboration it is everywhere. The earlier chapter on

collaboration shows the various ways in which it has occurred like VMI, ECR,
CPFR etc. There are various factors which influence the need for collaboration

Communication Gaps – This one of major reasons why many organizations

suffer to delays and inconsistency. These gaps if gone unplugged would be
catastrophic in certain situations. These can only be plugged through a well
planned and charted collaborative approach

Control Costs – This is one reason why major organizations come closer to work
closely with their vendors. This phenomena is prevalent in various organizations
in the automotive industry which have a great focus on R&D. So such efforts to
control cost is only possible through a collaborative approach

35
Operational Delays – This is one of the challenges organizations face and cannot
bear with. There are two types of delays one is intra organizational delay and
inter organizational delay. Although intra organizational delays is mostly within
the purview of the organization, inter organizational delays is something which is
not always in the control of an organization. But this factor also has a solution
which is none other than the collaborative approach.

And the list is endless because there a various indirect gains which organizations
benefit apart from the direct gains achieved by solving the above three
influencing factors.

Collaborative Planning for Construction Industry

Planning is an important activity in any industry. In the construction industry it is a

very important activity since it is a project based execution. This mostly a Made
To Order (MTO) process. In a typical MTO process the work starts right with
planning of each and every activity. This whole planning is a separate activity
phase by itself and various timelines are determined during this phase. The
conventional approach is most in silos where the Planning activity is carried
individual which may sometimes involve vendors. There is no compelling
objective followed by the industry as a whole although some organizations do
follow occasionally. The involvement of the stakeholder is slightly present in the
core planning phase and the involvement gradually reduces wherein the plans
are created without proper involvement of the stakeholders.

In a collaborative scenario the involvement of the stakeholders needs to be

continuous activity. And this is the strong and influential point of this approach.
By using this approach the construction industry would benefit significantly given
their heavy emphasis on planning, which is a routine activity apart from being a
separate phase.

36
Thus Collaborative Planning would be of great use to a construction organization
in improving its approach towards planning wherein it is continuously integrated
with the other stakeholders especially its vendors.

Collaborative Replenishment for Construction Industry

Apart from planning there is yet another area of focus which is equally important
as the planning activity. It is the ensuring of availability of material and equipment
for uninterrupted activity. Non availability of material and equipment are one of
important or the important reason for disturbances in project execution. In the
construction industry construction material and equipment is required as they
have stick to pre determined deadlines. Material and Equipment are generally
stocked at the construction site and consumption depends heavily on the
availability of man power, productivity of manpower and the duration of the
construction activity. Availability of the required number of equipment like
Concrete Mixer etc also affect the consumption of the inventory stocked for
construction. Therefore consumption is highly dynamic, and this may be
addressed by involving a good inventory model. But since there is high human
involvement and huge variation in consumption a collaborative approach would
be better.

Collaborative Replenishment is the simplest approach a construction industry

can adopt so that they keep their inventory levels in check and avoid out of stock
nightmarish situations. This approach suggests that the construction organization
be in constant touch with its vendors by sharing a common platform to inventory
management. Thus replenishment would be a double side driven activity than
being just a single side driven activity.

Collaborative Replenishment a time tested would best suit the inventory

management needs of the construction industry.

37
Customization of CPFR

CPFR is an approach which we had discussed heavily in the earlier chapters.

Customization is the suitable word I felt should be mentioned here because there
is implementation of only two of the three approaches suggested by CPFR.
Before going to Collaborative let us discuss the relationship of Forecasting with
the construction industry.

CPFR has been implemented in industries where they follow Made To Stock
(MTS) process. Industries like FMCG, Electronics etc forecast the demand and
then manufacture thus they stock inventory in anticipation. In case of the
construction industry where MTO is followed the scope of Forecast is limited.
This doesn’t rule out the importance of Forecasting in a construction
organization. Forecasting is used at smaller levels when compared to other
industries mentioned here.

Therefore for in this thesis Forecasting has been brought in the scope. But then
there is a strong belief that collaborative forecasting when implemented would
near similar results as collaborative planning and collaborative forecasting as
suggested in this thesis.

Conclusion

Thus Collaborative Planning and Collaborative Replenishment would suit the

construction industry. This is the stance which has been taken in this thesis. The
results of the analysis of the questionnaires answered by the respondents from
the construction industry may strengthen the point of the stance taken by this
thesis.

38
Solution Selection
In the literature review and during the course of the thesis the researcher had
gone through various collaboration strategies like VMI, ECR, CR and CPFR. The
researcher found that VMI talked about third party inventory management, ECR
talked about consumer response, CR talked about continuous replenishment and
CPFR talked about Planning, Forecasting and Replenishment. The researcher
selected CPFR as a collaboration method although with a little customization to
suit the construction industry. The researcher has analyzed in the section
Collaborative Planning and Replenishment for the Construction Industry
that how CPFR would be beneficial and would be used in the construction
industry. Thus according to the researcher CPFR would benefit the construction
organization both in Planning and Replenishment hence the reason for selecting
for CPFR. The solution would be a IT based one as the researcher believes that
in this networked world an IT based solution would be comfortable and easily
accessible for the users.

39
Recommendations and Summary

Introduction

This solution to be proposed consists of usage of IT infrastructure. This solution

talks about how a website developed for this specific need could be used by the
construction organization and the vendors for solving issues related to planning
and replenishment. The earlier chapter 6 talked about how Collaborative
Planning and Collaborative Replenishment of CPFR can be used for the
Construction Industry. This solution works based on the concept of collaborative
planning and collaborative replenishment. This model is a pure conceptual IT
model which can be executed on a custom basis for an organization. As most
organizations specific processes apart from generic processes, for example the
process of procurement may be same by the steps followed in any two
organizations may not be identical. So this proposed IT model would benefit any
construction organization who would use this model to develop his or her solution
to implement collaborative planning and collaborative forecasting

The proposed solution helps in implementing the Collaborative Planning and

Collaborative Replenishment. This solution works based on a Web Based
collaboration Website. The Website serves as a Front End for the application.
This would help in integrating as many partners as needed into the application.

Role of IT

Information Technology (IT) does play a crucial role in today’s economy. As

shown in the findings that most organizations are using IT in their work and are
becoming more Tech Savvy. IT has a certain traits, if u see an ERP application
like SAP which has brought a sea change in the most organizations manage their
operations. IT helps in bringing transparency and reduces the cost of

40
communication. For a collaborative effort where a Vendor and the Construction
organization may be distributed across diverse locations, IT is the preferred
platform to come together and nurture a fruitful relationship.

Thus this very role of IT has been a very compelling reason in adopting an IT
based solution for proposing this Web Based IT Collaboration Model for the
application Collaborative Planning and Collaborative Replenishment

Proposed Solution

The proposed solution consists of the displayed IT infrastructure. The concept is

visualized with help of a website and an IT infrastructure which uses two servers
one in which the application rests and another is to manage the Database. The
software which would be core to this proposed model would be in a application
server i.e. a place where it is stored and it would be supported by a database
server which would help manage the data for this software. The users can
access this application 24x7 and the users are primarily the construction
organization and the vendors who support the construction organization.

41
 Internet

Vendor or Partner
Builder System
System V1, V2…Vn

Collaboration Website

Application Data Base

Server Server

A Web Based Collaboration Model for Collaborative Planning and

Collaborative Replenishment

The whole set up works as a series of requests, views and actions. The partners
who are into this setup need to feed their data into the website. Every partner has
his login. Here we assume that this application would be owned by the Builder
and that he would integrate his vendors into this application setup.

The Vendor(s) and the Builder periodically fill in all the Plans, Orders, Inventory
and other Agreed Upon Information. Both the Builder and the Vendor(s) place

42
requests to view each others information to facilitate their decisions. In addition
all other information like Orders and Inventory are also shared among the
stakeholders.

This Web based application also facilitates the decision making process where
the Vendor(s) can submit his or her plans or other information for approval and
comments from the Builder.

Key Processes Involved

Some of the key processes which can be performed using this Web Based
Solution are detailed below.

1. Information Updation Process:

This is to be carried out periodic levels. Information is to be updated by all

the stakeholders concern. These periodic levels depends on the nature
and agreements between the Builder and the Vendor(s)

The Vendor(s) logs into the website and submits his information related to
planning, inventory availability, orders information etc. This information is
then stored by the application. Similarly the Builder logs into the website
and submits his information related to planning, inventory information etc..

2. Information Retrieval Process:

The Vendor logs into the application and submits a request for viewing the
information related to the Builder by selecting a set of criteria. The
information which can be viewed by the Vendor can be controlled by the
Builder through the login process i.e. no two Vendors may or may not
have access to any particular information.

43
 The Vendor then views the information based on the selected criteria. The
vendor can only view the information and he or she can updated only if he
has the rights and also depends on whether the information is information
is editable or not. This display of the information depends on the number
of criterion

The Builder also views the information related to one or more Vendors by
selecting a set of criterion. The display of information for the Builder would
have different views single vendor single criteria, single vendor multiple
criteria and multiple vendor multiple criteria. The Builder can modify all the
editable information.

3. Collaborative Planning Process

The Builder initiates the process by preparing submitting a plan related to

any activity. This plan can be viewed only by the affected Vendors. The
respective vendor logs in and views the plan. The vendor first submits the
comments about the plan which can be viewed by the Builder. The Builder
makes the necessary changes and submits the Plan for the vendor to view
along with his comments. The Vendor then views and again posts his or
her comments.

Also a Vendor can submit a plan based on activity against a Builder’s Plan
or as a normal plan for Acceptance. This plan is then viewed by the
Builder. The Builder or Vendor may Accept, Accept with Modification or
Doesn’t Accept the plan and along with this the Builder or Vendor posts
his or her comments for the Builder or Vendor to view. This cycle would go
through few or more series of iterations before both the Vendor and the
Builder agree to some final situation.

44
 Every Collaborative Planning Process would get a unique id and all history
related to the transactions would be stored with respect to this id. The
status of the Process would be either Active, Completed and On Hold.
Active means that the series of iterations are going on, Completed means
both the Vendor and the Builder have agreed upon a common plan and
On Hold means the Builder and the Vendor have put this process on hold
for a agreed period of time which may be due to shift in operational
priorities.

4. Collaborative Replenishment Process

Here to the Builder initiates the process by preparing and submitting a

Replenishment Order. Here the Builder would can a unique id for each
replenishment process. Also this process would support multi vendor
replenishment i.e. inventory received for replenishment from multiple
vendors.

The respective vendor when login views all the replenishment orders sent
by the Builder. Against this replenishment order the Vendor creates a
Delivery Schedule whereby the Vendor tells date, time, product type,
product quantity, transportation type etc. that would be dispatched to the
site. The Vendor can send his or her Order Execution Acceptance only
after the Builder accepts his or her Delivery Schedule. Here to the Builder
or Vendor can Accept may Accept, Accept with Modification or Doesn’t
Accept the plan and along with this the Builder or Vendor posts his or her
comments for the Builder or Vendor to view. This cycle would go through
few or more series of iterations before both the Vendor and the Builder
agree to some final situation.

45
Finally after the Delivery Schedule is accepted by the vendor and builder
and after that the Builder receives the inventory and sends a Physical
Acceptance upon which this process is closed. all history related to the
transactions would be stored with respect to this id. The status of the
Process would be either Active, Completed and On Hold. Active means
that the series of iterations are going on, Completed means both the
Vendor and the Builder have agreed upon a common plan and On Hold
means the Builder and the Vendor have put this process on hold for a
agreed period of time which may be due to shift in operational priorities.

Suggestions

The solution proposed would help a construction organization by

1. Improve Workflow - By streamlining the process of planning and

replenishment. A track of communications is kept which would help
to check the flow of the communication at any given point of time
2. Reduce communication costs – The costs are reduced as all
communication happens in the website with strict deviation.
3. Lesser Confusion – There would be no confusion as all information
is available. Confusion generally results in false assumptions and
improper communication
4. Increased Clarity in communication – There is no ambiguity as the
planning and replenishment process as information is shared and
communicated duly.
5. Improve Information Sharing – Since all the planning and inventory
information is shared the decision making process would be stream
lined thereby minimal or no delays
6. Improved Productivity in Planning – Planning is made know to both
the parties the construction organization and the vendor to plan
every time right the first time.

46
 7. Improved Inventory Availability – Due to higher information
availability and collaborative replenishment the availability of
inventory at the construction would definitely see a significant rise
leading to greater stock availability

Thus this thesis suggests a construction organization to implement this Web

Based IT Collaboration Model for implementing Collaborative Planning and
Collaborative Replenishment and gain significantly.

47