A study on supply chain management in construction

INTRODUCTION
Construction Industry is regarded as the fastest expanding industries in the world and
finds its presence in all sectors of the economy. This industry's contribution to global
GDP is roughly one - tenth of the total amount [1]. The infrastructure spending in
construction sector as a part of India’s GDP rose from 6.4 percent in 2008 to 9 percent
in 2017. The Indian construction industry is expected to grow at a compound annual
growth rate (CAGR) of 15.7 % to reach 738.5 billion USD by 2022. The uniqueness
of each project and prevalence of fragmentation in construction process makes the
construction supply chain different from production supply chain. In construction, all
the processes from production to installation takes place at site and depend on the
physical conditions such as soil and weather conditions.

Construction supply chain management (CSCM)

Supply Chain Management in construction is defined as “the network of facilities and
activities that provide customer and economic value to the functions of design
development, contract management, service and material procurement, materials
manufacture and delivery, and facilities management” [7]. Implementation of CSCM
offers new approaches to new approaches to reduce the cost accelerate construction
and increase reliability [8]. The performance of the entire supply chain is affected by
four major drivers: inventory, transportation, facilities and information. Three major
drivers - transport, facilities and information - are closely related to inventory. With
the objective of lowering the inventory level, decisions are taken to determine the
values of these other major drivers [11].

Inventory
Inventory cost contributes to a large percentage of the total construction cost. The
total inventory cost has four major components including cost involved in ordering,
cost of holding, cost of item and back ordering cost. In construction industry, large
inventory present at site is a ubiquitous phenomenon. This is mainly due to lack of
demand control, which means producing the right quantity at the right time, and the
contractors tend to procure the raw materials much before they are actually required.
This causes the holding cost to increase which ultimately causes the total inventory
cost to rise.

Main objective
The objective of the current study is to apply supply chain management techniques to
the construction of prefabricated steel structure and study its feasibility.
The specific objectives of the project are:
a) Perform value stream mapping on the fabrication process of steel elements, in
order to optimize labor requirement at site.

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 b) Inventory management at site using economic batch quantity model, in order
to reduce the total inventory cost incurred.

METHODOLOGY
Construction supply chain management has various aspects targeting various facets of
a supply chain. In our research we have applied principles of forecasting, value stream
mapping and inventory management to optimize inventory cost, labor cost, material
cost and production rate. In construction industry each of these principles are usually
applied individually in order to optimize eith29er of the aforementioned elements,
while we have attempted integrate these principles and apply them to achieve overall
optimization. In order to do this, we performed a case study on a pre-engineered to
apply our integrated approach and successfully derived useful results from it.
We focused on the steel construction at the site which involved to major processes,
namely fabrication and installation. Necessary data related to the project were
collected from the project managers and interviews were conducted from the site
engineers.
Value stream mapping
Value stream mapping was done for the fabrication process of the steel elements
namely columns, jack beams and rafters. The fabrication at the site was conducted in
three phases. It was satisfactorily assumed that the production time of each of the
elements was equal. The fabrication of each element consisted of 7 steps. Cycle time
for each step involved was calculated and inventory at each stage was tracked to
produce the current state site map.
The current state map also showed the number of workers involved in each step of
fabrication. This process flow was followed for all phases of fabrication. Large
amount of inventory can be seen at the early stages of the fabrication which is mainly
due to the customer pressure to utilize the steel plates present at the site. VSM
conventionally aims at reducing the total cycle time of a process but in this research
we had based our proposed value stream map on demand control. We had kept the
total production time allotted for each phase as constant and attempted to optimize the
labor cost and total inventory at each stage. Total man hours required for each step in
the fabrication process was calculated and optimum numbers of men were allocated at
each stage to accommodate production of two elements per day in order to meet the
demand. Since the demand rate for each phase was different the aforementioned
process was employed in each phase and future state site map was suggested for each
phase. From the current and future state map, value added time, total cycle time, non-
value added time, percentage value added time was calculated. Percentage value
added time, number of man days, and labor cost was compared between the current
state map and future state map.

Economic batch quantity (EBQ)

EBQ model is followed when production and consumption takes place at the site. This
model is an inventory management technique used to optimize the total inventory

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cost. In this research, EBQ model had been applied to the fabrication and installation
of steel elements including columns, jack beams and rafters. Fabrication and
installation was considered equivalent to production and consumption respectively.
Total inventory cost of the initial inventory model was first calculated followed by the
determination of the total inventory cost of the new model.
From the data collected at the site, the current production-consumption model was
plotted with time on X-axis and inventory on Y-axis. The plot consisted of three
curves for each type of element. This was followed by the calculation of area under
each of the three curves to determine the total inventory of each element throughout
the production cycle. Area calculated under each of the curve was divided by the total
production time of the respective type of element to obtain the average inventory of
each type of element.

Calculation of setup cost

Setup cost calculation is an important step in EBQ model formation. In our case, same
setup was required for the fabrication of all three types of elements. Hence, the EBQ
model was based on a single setup scenario. In order to calculate the setup cost,
capital cost incurred for machinery, frame for lifting, fabrication equipment, ginpole,
scaffolding etc. was calculated considering the ongoing rate of interest for short term
loan. Apart from the aforementioned cost, labor cost incurred during the setup was
also considered. Capital cost and labor cost was added to obtain the setup cost.

Calculation of inventory holding cost

Next, the inventory holding cost was calculated. In order to do this, the average
weight of all the columns, jack beams and rafters were determined. And the total cost
of steel plates for all the elements was calculated by multiplying the average weight of
the elements with the ongoing rate of steel. The cost obtained was multiplied with that
average inventory of the particular element. Similar steps was performed for all three
elements and added to obtain the total inventory holding cost. Adding the inventory
holding cost and setup cost will give us total inventory cost for the current inventory
model as mentioned in equation (2.5)

Total inventory cost (TC) = Total Set up costs (TSC) + Total carrying cost (TCC)

Calculation of EBQ
Following above, we calculated the Economic Batch Quantity and proposed a new
inventory management model. Initially it was satisfactorily assumed that production
rate of each element were equal and a weighted average production rate was
determined. This was followed by calculation of demand rate for each type of element
separately based on the time allotted for fabrication in the project schedule. Using the
setup cost calculated earlier, interest rate, demand rate and production rate, cycle time
was calculated. Cycle time is the time interval between two consecutive production
points. In this model, cycle time is considered to be equal for all the three types of
elements. Using the cycle time obtained, EBQ was calculated for all three types of

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 elements. This was followed by the calculation of maximum inventory for each type
of element. Following illustrates the formula for calculating EBQ as mentioned in
equation (1).
Q= √ ❑
Where,
Q is the Economic batch quantity
D is the demand rate
Co is the setup cost
Cc is the inventory holding cost
P is the production rate

RESULTS

Value stream mapping

According to the schedule, a total of 66 elements were to be produced in a time span
of 35 days. The entire project was divided into three phases as shown in Table 1. On
plotting the current state value stream map the total cycle time for a single element
was determined to be 146.67 hours. The net value added time amounted to just 8.67
hours. Therefore, the percentage value added time, which is calculated as the ratio of
net value-added time to the total cycle time was 5.9%.

Table 1: Phase wise production of elements

Phase No. of elements Days Allotted
33 19
27 10
6 6

Figure 1 represents the current state value stream map. It is known from the current
state VSM that 15 men are employed for a period 35 days irrespective of the demand.
This leads to overproduction and unwanted inventory.

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 Figure 1: Current State Value Stream Map
Phase 1 of the fabrication process required the production of 33 elements in period of
19 days. On applying demand control, the number of laborers required for each
activity was determined. The total number of men employed in Phase 1 added up to
12. The value stream map for phase 1 of the fabrication process is shown in figure
5.2. The total cycle time for the production of a single element was calculated to be
60.61 hours out of which the net value adding time was 5.96 hours. This gives the
percentage value adding time to be 9.83 % which is greater than 5.9 % that is
proposed by the current state value stream map. Moreover, the demand for 33
columns is met in 19 days.

Figure 2: Value Stream Map for Phase 1

The demand rate in phase 2 is higher when compared to that of phase 1. Therefore,
using demand control, the number of men required at each stage of the fabrication
process is recalculated to meet the new demand. The total number of men employed
in phase 2 is 18. The value stream map for phase 2 of the fabrication process is shown
in figure 3. The total cycle time for the production of a single element was
calculated to be 57.93 hours out of which the net value adding time was 3.88 hours.
This gives the percentage value adding time to be 6.70 % which is still greater than
5.9 % that is proposed by the current state value stream map. Moreover, the demand
for 27 columns is met in 10days.

Phase 3 of the fabrication process required the production of 6 elements in a period of

6 days. The demand rate in phase 3 is lesser when compared to that of phase 1 &

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 phase 2. Therefore, using demand control, the number of men required at each stage
of the fabrication process is recalculated to meet the new demand. The total number
of men employed in phase 3 is 6. The value stream map for phase 3 of the fabrication
process is shown in figure.4.The total cycle time for the production of a single
element was calculated to be 70.58 hours out of which the net value adding time was
11.87 hours. This gives the percentage value adding time to be 16.82 % which is
much greater than 5.9 % that is proposed by the current state value stream map.
Moreover, the demand for 6 columns is met in 6 days.

Figure 5.3: Value Stream Map for Phase 2

Figure 4: Value Stream Map for Phase 3

Table 2: Comparison of Man hours between Current state VSM and Proposed
VSM

Phase Current State VSM Proposed VSM

1 285 228
2 150 180
3 90 36
Total 525 444

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Table 2 shows the comparison of man hours between the current state value stream
map and the future state value stream map. The total man hours involved in the
current state value stream map is 525 man hours. Similarly, the total man hours
involved in the proposed value stream map works out to be 444 man hours. The total
reduction in man hours from the current VSM to the proposed VSM is 81 man hours
i.e., a percentage reduction of 15.43.This bolsters the fact that value stream mapping
streamlines workflow and reduces lead time.
Total man hours saved = 525 - 444
= 81 man hours
Percentage reduction in man hours = (81/525) x100 = 15.43 %
Economic batch quantity (EBQ)
This project required the production and erection of 23 columns, 8 Jack beams
and 35 rafters in a period of 43 days. A period of 7 days was used for setting up.
Figure 5 represents the present inventory model.

Using the total inventory cost equation, the present cost of inventory was determined
to be Rs 14063.76.

Figure 5: Present Inventory Model

Figure 6 represents the proposed inventory model. The plot shows the proposed
Production-consumption model for all three different elements including columns,
rafters and jack beams. This model is developed based on the economic batch quantity

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 Figure 6:Proposed Inventory Model
Using the total inventory cost equation, the cost of the proposed inventory model is
calculated as Rs 10964.22.Therefore, the total savings in cost is given as
Total cost savings= 14063.76-10964.22
= Rs 3099.54
Percentage reduction in cost = (3099.54/14063.76) x100
= 22.04 %
Thus, the savings in cost on applying the proposed inventory model over the present
Inventory model is Rs 3099.54 i.e., 22.04 % savings in cost over the present inventory
model.

DISCUSSIONS AND CONCLUSIONS

Value stream mapping is one of the lean tools used in manufacturing to identify
bottlenecks that is, stages at which inventory is built up. These bottlenecks once
identified are rectified and workflow is streamlined so that there is a smooth flow of
material from one stage to another. The present project taken up consisted of seven
stages. Using value stream mapping it was identified that a large amount of inventory
was getting built up at the end of marking and cutting. The painting phase was another
bottleneck as the paint had to dry for a period of 8 hours prior to the application of the
subsequent Coat. These bottlenecks when left unrectified lead to build up of lead time
which reduces the overall efficiency of the process. This study uses value stream
mapping to perform demand control. Knowing the productivity at each stage of
fabrication, the available time and the number of units to be produced to meet the
demand, workers were assigned such that the overall demand was met as well as the
inventory built up at intermediate stages was reduced to a bare minimum. But the
bottleneck identified at the painting face was not rectifiable, as the paint used in the
process remained the same. This bottleneck can be rectified by using paints having

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lesser drying time. Value stream mapping effectively reduced the overall labor man
hours, reduced the intermediate inventory and help in meeting the required demand.
Economic batch quantity (EBQ) is a concept that is used to identify the optimal batch
size of a product in manufacturing industries, where the products are simultaneously
produced as well as consumed/ dispatched. As the present project involved the
fabrication of Steel elements at the site, it more or less resembled the manufacturing
environment. Therefore, EBQ was decided to be the most suitable model to be applied
to the present project. The production system followed at the site involved a lot of
uncertainty. Large quantities of elements were produced at a stretch and later
consumed, which lead to large inventory buildup. This fact became evident when the
inventory versus time graph for the present inventory model was plotted. As the
project involved three different kinds of elements namely columns, jack beams and
rafters, economic lot scheduling model was utilized to promote simultaneous
production and consumption of various elements involved in the project. On applying
this model it was observed that the peak Inventory of all the elements reduces
drastically. Nevertheless, simultaneous production and consumption prevented idle
labor. On calculating the total inventory cost for the present as well as the proposed
inventory models, it became evident that this model, if employed would drastically
reduce the total inventory cost. As the project involved customer financed warehouse/
site, the cost incurred towards storage was neglected. The savings in cost would have
been greater if the warehouse cost was born by the Builder.

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