A new approach to managing supply-chain risk

Managing risk and keeping open procurement options have long been barriers to successful partnering in the construction industry. A pioneering system for managing construction risk that embodies a new form of insurance as a means of controlling risk, raising standards and realising true ‘grass roots’ supply-chain integration promises huge advantages for all construction parties. ALAN KENNEDY explains.Ever since Sir Michael Latham’s report ‘Constructing the team’ more than 10 years ago, we have listened to the pundits of construction reform persistently preaching that overall cost savings of 30% and more can be achieved through collaborative working. However, a decade of energetic partnering later we seem to be struggling to achieve anything remotely like these savings.

Fig 1: A COMPASSure pre-assembled supply-chain module.

The problem is that to get into that sort of cost-saving territory, we really need to be collaborating right through the supply chain — from the client at one end to the component supplier at the other. Cosy boardroom deals between clients and main contractors may look good on paper, but they really cannot hope to deliver the hard savings that can only ever be achieved at the industry’s sharp end. Now, COMPASS, the not-for-profit construction reform organisation, is in the process of launching a radical new model for managing supply-chain risk that claims to do just that. Notwithstanding the potential benefits clearly available from strategic supply-chain arrangements, it is clear that the construction industry will always require the flexibility of transient, project-specific procurement arrangements. This is because the dynamics and diversity of the construction market and its tendency towards bespoke solutions mean that, in practice, the scope for permanent, or even semi-permanent, ‘top-to-bottom’ (i.e. fully integrated) supply-chain configurations is always likely to be somewhat limited. It is also fair to say that most lead contractors and clients have a natural and reasonable aversion to entering long-term procurement arrangements with downstream suppliers. They see this as limiting their competitive options. They need to multi-source for security reasons, and they certainly want to avoid the risk of ending up in bed with partners that do not turn out to be as ‘complementary’ as they expected. This situation is not helped by the sheer impracticability and cost of finding and assessing perhaps many hundreds of potential suppliers from a population that may run into the thousands.

Fig 2: COMPASSure provides risk control with multi-level protection.

Even were it possible to conduct this process of selecting suppliers in a meticulous, fail-safe manner, the basic problem does not go away. It simply mutates into one of establishing, managing and continuously maintaining intimate, stable, mutually beneficial and functioning relationships with the numerous disparate organisations that have been selected. In practice, any broadly implemented system of centrally managed supply-chain integration and control quickly runs up against the ‘deadly duo’ of unmanageability and unacceptable cost. This explains why most construction integration to date has been concentrated at the client end of the supply chain. The COMPASSure risk-management model provides a compelling solution to this seemingly intractable state of affairs. Recently launched by the not-for-profit organisation COMPASS, this self-governing procurement model has been successfully validated in the field over a 4-year period. It brings far-reaching benefits to all construction parties and provides a real economic driver for more integrated construction at the point where, in the opinion of many, it matters most — at manufacturer and specialist contractor level. Pre-assembled supply chain modules This procurement concept revolves around the creation of pre-assembled supply-chain modules, each consisting of closely integrated manufacturers and sub-contractors. The output of each of these modules is underwritten by a comprehensive insurance-backed COMPASSure guarantee covering both supply and installation. The module is controlled and co-ordinated by the ‘system provider’ (usually, but not necessarily, a manufacturer), who will normally assemble and supply a complete construction system or solution (Fig. 1). A unique characteristic of COMPASSure is that it can be applied right across the construction supply spectrum, from groundwork and civils to structural building and M&E systems. In this procurement scenario the client/procurer simply makes COMPASSure a compulsory tender stipulation from the outset. By simply specifying COMPASSure he is then guaranteed, a quality solution from a properly integrated and fully controlled supply-chain module. Crucially with this approach, the procurer’s basic competitive imperative does not have to be compromised. The procuring party can simply write COMPASSure into the specification and put the work out to tender in the normal way. There is no need to be permanently tied to any particular suppliers, and the procurer can engage and disengage with different supply-chain modules in line with specific project or term-contract demands. In this way, the procurer enjoys the necessary supply flexibility and guarantee of availability, and yet all parties can reap the benefits of ongoing, continuously improving, relationships. Best of both worlds It is this intrinsic flexibility that is one of the key advantages of 'mix-and-match' procuring through a COMPASSure modular supply-chain structure. Project teams can partner with any COMPASSure System provider in the certainty that the COMPASSure specification will ensure a uniformly high quality of outcome. The flexibility of the concept extends to its ability to be used within or alongside virtually any form of traditional, management or design/build contract and as part of any partnering/procurement route, all the way from open and selective competitive tendering to strategic framework and PFI arrangements. This inherent adaptability means that project teams do not necessarily need to abandon tried-and-tested methods of working to capitalise on at least some of the benefits from COMPASSure. It also means that it can be used as a basis for moving, in a controlled step-by-step manner, from historically less efficient methods of procurement to more progressive contemporary methods. Furthermore, the validity of COMPASSure across the entire spectrum of construction products and processes means that the specifier can use it to achieve a consistent standard of insurance-backed protection across a whole range of disparate building elements. Project teams can achieve these benefits without the effort, expense and obligation of entering binding, long-term relationships with perhaps dozens, or even hundreds, of occasional, small-scale, low-value and contractually remote suppliers and sub-contractors, who, nonetheless, play a huge cumulative role in the successful delivery of any construction project. With COMPASSure, for the first time, project leaders really can have the best of both worlds: the benefits of integrated supply chains AND the benefits of competitive tendering. Alan Kennedy is executive secretary of COMPASS (Construction Manufacturers Partnering Association), The Stables, Hazel Grove, Yealand Redmayne, Lancaster LA5 9RW. Tel. 01524 782830 info@team-compass.org
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