United We Stand, Divided We Fall

"All for one and one for all, united we stand, divided we fall." The classic quote by the Three Musketeers is appropriate to the construction industry and is at the heart of supply chain management. Any discussion of supply chain management requires the term to be defined. While many people use the term, far too often they misuse it. They think of supply chain management in terms of cost or functions such as purchasing, transportation, or warehousing. Unfortunately, that is not supply chain management.

For most people in the construction industry, supply chain management requires a paradigm shift in thinking. In essence, it requires a totally new way of looking at the construction process. In the traditional approach to construction, the buyer attempts to obtain the lowest price by getting multiple bids. While this approach may appear to generate the lowest price for an item, it typically does not create the best price for the project. The practice of attempting to buy each product or service on a construction project at the lowest cost is referred to as sub optimization.

Unfortunately, Edwards Deming began arguing in the 1950s that sub optimization typically leads to higher costs. The reason is that price is meaningless, unless it considers the product’s or service’s cost impact on other project costs.

For example, one distributor of light fixtures may offer a lower price because he plans to deliver all the fixtures at one time. Early delivery requires all the fixtures to be delivered before the first fixture is needed. This approach may save some transportation costs, but at what other added costs? When fixtures are delivered before they are needed, the contractor is forced to store them at the site, and most likely will have to move them several times before they are installed.

Early fixture delivery results in additional costs for the electrical contractor. Research confirms that this is a common practice causing material to be moved four and half times on average before it is installed.

There is the expense of protecting the fixtures and the labor cost of moving them. The longer the fixtures are on the site, and every time they are moved, increases the likelihood they will be damaged. Further, workers are more likely to be injured when moving materials then when installing them. Resulting injuries would have a negative impact on the contractor’s worker compensation modifier, which would raise costs not only for the current project but future projects. When all the above extras costs are added up, they typically exceed the small savings in transportation cos