|
|
|
|
NAED Releases Findings of Procurement Chain Study
The Education & Research Foundation of the National Association of Electrical Distributors (NAED) recently released the results of a research study examining procurement chain management in the construction industry. The study, co-sponsored by NECA's Electrical Contracting Foundation and other construction industry groups, was conducted by Dr. Perry Daneshgari, adjunct professor of engineering at the University of Michigan and president of MCA, Inc.
From 1996 to 2000, advancements in non-construction industries in the areas of procurement and business management improved productivity by an average of 3.9 percent per year. Yet during that same time, productivity in the construction industry decreased 1 percent. To increase profitability, an industry must also increase productivity. Since an industry's productivity is impacted by its procurement chain management system, researchers examined the processes contractors use to obtain and manage materials.
In the study, "Procurement Chain Management in the Construction Industry," researchers assessed the strengths and weaknesses of various procurement models commonly used in the construction industry: Specialty Contractor Procurement Model (SCPM); Owner Procurement Model (OPM); and General Contractor Procurement Model (GCPM). Additionally, the researchers examined horizontal integration, an alternative model of procurement used by the automotive industry. Horizontal integration is a collaborative reduction of cost among the stakeholders of any activity chain; if all members of the chain work together as a unit, instead of individually, the supply chain will become more profitable for all.
According to the study, the prevailing, existing and alternative procurement chain models are not satisfying the needs of most project owners. The researchers recommended instituting a new model that utilizes the benefits of horizontal integration. By doing so, each member of the supply chain, including the project owner, will be able to complete construction projects at a lower cost.
Copies of the study results and an accompanying CD were mailed to all NAED members and affiliates. The Foundation plans to create training courses in the future to help companies implement the research. For more information, contact the Foundation's Customer Service department at (888)791-2512, smaronie@naed.org or visit the NAED Web site at www.naed.org.
NAED is the trade association for the electrical distribution industry. Through networking, education, research, and advocacy, NAED helps electrical distributors prosper and improve the channel. NAED's membership includes distributors of all sizes, representing approximately 4,150 locations throughout the United States.
FACT SHEET
Procurement Chain Management in the Construction Industry
This study investigates the prevailing, existing and alternative models of procurement. In order to adequately assess the strengths and weaknesses of each model, a neutral comparison of each model was conducted. After thorough investigation, researchers determined that none of the existing or alternative models offer an efficient approach to procurement.
Depending on the situation, each procurement model provides a certain level of value. Overall, the Specialty Contractor Procurement Model (SCPM) and the Owner Procurement Model (OPM) generally provide the highest value to the owner. General Contractor Procurement Model (GCPM) does have some positive features, but does not provide the same value as SCPM or OPM.
Each procurement model can be summarized as follows:
Specialty Contractor Procurement Model (SCPM)
The traditional SCPM in which material transfers from manufacturer to distributor to subcontractor offers the most value for the owner for the majority of projects. Subcontractors, via their distributors, have access to the largest number of manufacturers - thereby having access to the greatest product selection. General contractors often run into problems with manufacturers due to the refusal of these manufacturers to bypass distributors and sell material directly.
General Contractor Procurement Model (GCPM)
The GCPM can potentially offer a greater time savings if the design specifications are correct and "time until occupancy" is at a minimum. Problems arise when "time until occupancy" is a pressing concern and projects begin with incomplete or incorrect design specifications due to the rushed nature of the project. Cost savings and product selection did not provide better value than the SCPM to the owner.
Owner Procurement Model (OPM)
The OPM appears to be viable for repetitive projects with little variation in design, but the scope of this research did not provide the details necessary to draw a conclusion on this model's value to the owner. The key to the OPM is that the owner must have an in-depth knowledge of the work that the specialty contactor performs. The OPM model has been successful for big-box retailers, chain stores and utility companies.
Horizontally Integrated Procurement Model (HIPM)
The HIPM is a collaborative reduction of cost among all parts of the supply chain. When applying horizontal integration, all of the participants in the supply chain use their expertise to reduce non-value added activities and reduce the work in process. The savings attained through increased productivity can substantially outweigh the direct cost of material or equipment. The project owner will achieve the best value by utilizing a procurement chain that is horizontally integrated and more efficient.
In order to improve procurement chain management in the construction industry, a new model should be instituted using the benefits of horizontal integration. Every owner must look at how each of the three categories - time, cost and quality - is impacted by the model selected. The advantages that each model offers depend greatly on the type of project, as well as the actions of the parties involved.
www.naed.org
|
|
|
|
|
|
