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The construction industry’s failure to manage its downstream supply chain effectively is a huge missed opportunity. Correcting this situation could potentially decrease construction costs by 30 percent or more by eliminating inefficiency and waste. A challenge to correcting this situation is overcoming the misunderstanding that there is not much that can be done to improve the industry’s downstream supply chain because of the nature of the industry. Nothing could be further from the truth. In fact, studies in the United Kingdom, Australia, Canada, the United States and Singapore all found the construction industry very inefficient because it failed to take advantage of this opportunity.

There are three distinct ways to affect the supply chain and significantly increase efficiency and eliminate waste. Two of these ways are totally within the purview of contractors; therefore, they offer contractors opportunities for significant improvement regardless of the project delivery method. While both of these areas (explored later) offer significant savings, potentially the greatest opportunity for improvement occurs when the client embraces a collaborative approach to its construction downstream supply chain.

The primary reason for outsourcing is innovation, not cheaper prices. The good news is that when the outsourcing process selects high-performing, specialized experts, these experts implement innovative solutions that increase efficiency and reduce waste. However, high-performing contractors don’t always provide the lowest initial capital cost; they eliminate costs that are often hidden in the lower bid option, such as higher energy consumption, higher maintenance and/or less efficient operations for those working in the building. In essence, high-performing contractors take a holistic approach to the project instead of focusing on just the lowest capital cost.

The biggest problem with the design-bid-build approach to construction is it stifles the expert’s innovation and reduces efficiency by requiring it to follow the design team’s directions. This approach minimizes collaboration and the opportunity for the specialized expert to use its creativity, experience and knowledge. True experts are able to anticipate potential risks in a project’s design and are able to minimize those risks and their effects. In contrast, in the design-bid-build approach, the specialty experts are often prevented from communicating with the owner or the design team during the design of the project, never mind collaborating with them.

In contrast, recently a project team constructed the most energy-efficient office building in North America by using collaboration. The cost of the building was in the 25th percentile, and all the technology was at least 10 years old. When I asked a project consultant how that was possible, he stated that everyone collaborated to determine the best solution. Today’s projects are becoming more and more complex; therefore, it’s essential to use all the expertise and knowledge that is available. After all, the team is always smarter than the smartest person on the team.

If owners want to minimize their cost, they need to understand the importance of collaboration and of using the talent of the downstream supply chain to achieve that goal. They also need to understand that the lowest capital cost isn’t always the lowest project cost, as previously discussed. The integrated project delivery approach works when the right team is assembled because it uses the team’s combined expertise. However, it’s important to avoid using contractors that use the buzzwords but don’t walk the talk.

However, even when owners don’t employ an integrated project delivery method, contractors can still make their downstream supply chain more efficient and, therefore, increase their competitiveness when they are forced to bid competitively.

It starts with contractors avoiding the practice of going out for sub bids on every project in an effort to get the lowest bid price. Instead, contractors should select the best-qualified specialists for each trade and work with them to determine how to best reduce costs by eliminating waste. This isn’t a onetime effort but an ongoing process of continued improvement. If you change subs on every project, it’s virtually impossible to maximize efficiency.

It’s important to understand that a project is a team effort and reaching peak performance requires practice. It is no different in team sports. How often does a team with less individual talent defeat a team with greater individual talent because they work better as a team? However, when the best individual talents are honed into a highly efficient team, they become unstoppable. It’s time for the construction industry to focus on developing highly efficient teams instead of attempting to compete at the highest levels with a pickup team.

The actual savings in this effort are difficult to estimate because the relationships between every contractor and its individual subs are different. However, I suggest that contractors ask their subs one simple question to start the dialogue: What do we do that hurts your efficiency and raises your costs? You might just be surprised at the answers. To learn more about how you can turn your supply chain into a highly efficient team, I recommend you listen to the NCS Radio interview with Professor Sicco Santema titled “How to Increase Profitability by Focusing on the Downstream Supply Chain” (www.jackstreet.com/jackstreet/WCON.Santema.cfm). Professor Santema is an instructor at Delft University and a cofounder of Scenter, a consulting firm in the Netherlands.

The final issue is to manage the supply chain’s logistics. Poor logistics management increases project costs. For example, construction materials are moved an average of 4.5 times before they are installed. What does that cost?

One of the barriers to improved logistics is the conventional wisdom that we need to stay focused on our project or it will negatively affect our efficiency. Well, not always, says Bill Standish, president of Stangate Management. He explains it often hurts our efficiency and increases our costs. For example, a large contractor in Cincinnati may have 10 current projects in town. On a weekly basis, each project gets a delivery from Chicago, but if all the deliveries were coordinated on a companywide basis, maybe only five deliveries would be needed, thus saving transportation costs. For smaller contractors, this same type of effort can be used to combine shipments for several contractors. Before you dismiss your logistics issues as unimportant, Standish reports that contractors can reduce their project costs by 4 to 5 percent with improved logistics. Standish adds that contractors that have done that have seen their percentage of successful bids increase substantially.

To learn more about how contractors can improve their logistics, I recommend you listen to the NCS Radio interview with Bill Standish titled “Why Should Contractors Care About Their Supply Chain?” (www.jackstreet.com/jackstreet/WCON.Standish.cfm).

In today’s hypercompetitive marketplace, managing your downstream supply chain is not a luxury, but a necessity. To learn more about supply chain management and Best Value Model go to www.tedgarrison.com/best-value-model.