Global Constrution Management and E-Commerce Mirosław J. Skibniewski Professor of Civil Engineering Purdue University West Lafayette, Indiana, USA

Definitions E-procurement Utilizing electronic media, including the Internet, to streamline as many steps in the procurement process as possible E-commerce Utilizing electronic media, including the Internet, to complete financial transactions between trading partners in the construction supply chain Source: Burger, C. A/E/C Systems Chicago

Definitions Business-to-Business (B2B) Refers to the many different type of interactions related to the purchase of goods and services between businesses B2B Electronic Marketplaces System of suppliers, distributors, commerce-service providers, infrastructure providers and customers who use the Internet for communication and transactions A vertical B2B marketplace provides market expertise and in-depth knowledge for a single industry, focusing on the many steps in the chain of one product category A horizontal marketplace serves many different industries Source: CFMA Building Profits, March/April 2001

Suitable Areas for B2B Dominated by SMEs Plagued by paper Minimal use of network Little relative IT investment Degree of Market Inefficiency Size of Market Real estate Business services Telecom services Industrial equipment Chemicals Metals Paper products Apparel Life sciences Insurance/ Financial services Wholesale energy Healthcare Construction Transportation Small business Electronics Food Autos Source: Morgan Stanley Dean Witter

Economic Value of B2B E-Commerce Product Costs Drop (Transparency) Process Efficiency Initial Focus of B2C E-Commerce Additional Focus of B2B E-Commerce Source: Computer Sciences Corporation, El Segundo, CA

Process Efficiency Example Construction costs/revenues Great impact on the Net Present Value (NPV) of construction by reducing the time it takes to build The industry spends over $500 million per year in overnight shipments of documents 40% of construction is labor, which is non-recoverable Need for logistics systems and coordination Revenues Costs Time Earlier Revenues Lower Costs Source: BuildOnline.com

RFI “SuppliersOnline” Participants Design “ProjectsOnline” Tender “TenderOnline” Procure “TradeOnline” Lead Management Project Management ClientsSpecifiers SuppliersSubcontractors Main Contractors Excess Inventory = BuildOnline’s current offerings Source: BuildOnline.com BuildOnline.com Business Model

US Company Outlays for E-commerce, per Employee, 2000 Finance Insurance Energy Chemicals Banking Transportation Construction $13,628 $12,731 $6,301 $6,095 $5,283 $2,367 $1,863 Source: CFMA Building Profits, March/April 2001

E-business and Construction Year Estimate Total construction market $1.7 trillion$2.1 trillion Internet transactions$3.4 billion$28 billion Source: CFMA Building Profits, March/April 2001

Construction Supply Chain Owner ContractorEngineerArchitect Subs Equipment Rental Suppliers Manufacturer Raw Material Distributor Fabricator Source: Burger, C. A/E/C Systems Chicago

Uniqueness of Construction Both spec and commodity buying Some items are very complex Service and documentation are often required Varying lead times Quality and delivery timing are critical Many sources (for most items) Local, relationship-based sourcing Many different buyers Lags in technology Source: Burger, C. A/E/C Systems Chicago

Processes within E-procurement Cycle Specifications Requisitions Request for Quotation Bid Analysis Purchase Orders/Change Orders Receiving Invoice Processing Electronic payment Source: Burger, C. A/E/C Systems Chicago

Auction / Reverse Auction Benefits Surplus material and equipment liquidation process is streamlined Greater reach and saving potential when price is exposed Drawbacks “Outernet” bidders may not participate Alienation of suppliers when prices are exposed in a reverse auction Source: Burger, C. A/E/C Systems Chicago

E-commerce Alternatives ApproachExamples Electronic RFQBidFax, Commence, Citadon, Buzzsaw Auction / Reverse AuctionMateriaLink,FreeMarkets Purchasing Web SiteCitadon, Buzzsaw, ProcureZone Integrating (ERP) Purchasing Application COINS, CMS, JDE, Penta, mPower, Bidtek Enterprise E-procurement Application Ariba, Oracle EDI Purchasing with Selected Vendors Numerous Source: Burger, C. A/E/C Systems Chicago

Electronic RFQ Benefits Potential to reach more suppliers / bidders Communications can be shared among all participants, adding tremendous efficiency Common interface for all participants Reduced costs and cycle times Drawbacks “Outernet” bidders may not participate Source: Burger, C. A/E/C Systems Chicago

Purchasing Web Site Benefits Rapid start-up Fast payments Drawbacks Generally not workflow enforced for maximum compliance and leverage Limited choice of suppliers Source: Burger, C. A/E/C Systems Chicago

Integrated Purchasing Application Benefits Integrated with ERP system User interface understood by existing users Drawbacks Existing construction ERP systems do not allow true E-commerce No leverage of technology Source: Burger, C. A/E/C Systems Chicago

Enterprise E-procurement Application Benefits Internet applications with intuitive interfaces Rapid implementation and ROI Workflow enforced for compliance and leverage Drawbacks Integration challenges with existing ERP systems Source: Burger, C. A/E/C Systems Chicago

Tax Issues Cybertaxes Thirty thousand taxing jurisdictions can require companies to file up to 6,500 different tax forms in the U.S. alone. Internationally, over 200countries impose direct and indirect taxes Not all Internet transactions are tax-free If an e-business company has a physical presence in a state, it will have to collect sales and use taxes from its online customers Location E-business companies may wish to establish operations in a cybertax- friendly state like California or in states without a sales tax, such as Oregon and Delaware Source: CFMA Building Profits, March/April 2001

Possibilities for the Construction Industry Construction Industry Attributes Large base of customers and contractors Extensive best practices Fragmented industry with many common areas of specialist knowledge Quality/safety/cost improvement focus; speed to change resolution Global industry with complex teams and geographic dispersion Key E-Business and Knowledge Management Capabilities Effective customer relationship management Best practice leverage Effective use of knowledge communities Continuous improvement through rapid information sharing Electronic collaboration capabilities Source: Computer Sciences Corporation, El Segundo, CA

Potential of e-Commerce in the Construction Industry Streamlining the supply chain increasing the benefits of competitive bidding Accelerating design collaboration among architects, engineers, contractors and suppliers improving overall project management through real-time access and the sharing of project information among all parties involved Reduce costs through: Source: CFMA Building Profits, March/April 2001