Capital Projects Supply Chain Management Looking Beyond Construction Materials Management Jay Jean Jacobs

Team Charter Introduce supply chain management (SCM) to the construction industry. Facilitate more effective use of SCM in delivery of capital facilities.

Project Team Paul Behnke U.S. Steel J.C. Boyers Butler Manufacturing Buddy Clark KBR Mike DeMuro / Tom Kepper Intel Frank Dombrowsky Parsons Energy & Chemicals Jim Hershauer Arizona State University Mark Hodson / Allison Leer Eli Lilly Jay Jean Jacobs Skip Lee M. A. Mortenson Roger Long Anheuser-Busch Companies Mark Palmer, Project Manager NIST Skip Stuart Black & Veatch Iris Tommelein University of California–Berkeley Ken Walsh Arizona State University Terry Zgabay ChevronTexaco

PT 172 Deliverables Research Report 172-11 Research Summary 172-1 Implementation Resources Capital Projects SCM Assessment Checklist Example Supply Chain Maps with Metrics Implementation Guide for Capital Projects SCM

Supply Chain Management Supply Chain Management (SCM) is the practice of a group of companies working collaboratively in a linked chain of interrelated processes designed to best satisfy end-customer needs while rewarding all members of the chain. In summary Supply Chain Management is about getting organizations participating in projects or programs to work together for an optimum solution. SCM is recognized as a leading process improvement, cost saving, and revenue- enhancing business strategy practiced in today’s business world. All disciplines (conceptual design, engineering, procurement, fabrication, logistics, and construction to name but a few) can be, and most often are, involved in SCM. How many people in the room have supply chains in their companies? How many apply supply chain management in your corporation?

Why SCM? Effective supply chain management is a business practice that delivers: - process improvements - cost and time savings - revenue enhancements - new business opportunities

SCM is seldom practiced effectively across the construction industry! Research Finding SCM is seldom practiced effectively across the construction industry!

Barriers to SCM Implementation Traditional contracting practices Functional stovepiping Lack of SCM skills Local project vs. global program perspective Must be practiced at strategic, tactical, and task levels Risk aversion Lack of incentives Lack of standards

SCM Stakeholders Owners Engineering firms Contractors Subcontractors Equipment and material suppliers Raw material suppliers Lenders and insurers

Capital Projects Supply Chain OWNER CONTRACTOR specialists ARCHITECT/ ENGINEER EPC FIRM DEMAND DEMAND MATERIALS & SERVICES tier 3 tier 2 SUB- CONTRACTOR tier 1 CAPITAL INFORMATION tier ... tier 2 SUPPLIER tier 1 RAW MATERIALS PROVIDER

Research Approach Previous CII research CII Best Practices Case studies SCM best practices from other industries Literature reviews Industry survey Periodic peer reviews

Case Studies Tools and techniques: Supplier-Managed Inventories Supplier Relationship Management Web-Based Project Management Strategic Inventory Placement Core Competency Leveraging Streamlining Lean Production

Construction SCM Headlines In the case studies we observed… Intel Cuts Fab Construction from 36 to 18 months Conservative approach indicates $30MM inventory savings Mapping Helps Uncover SC Inefficiencies Mapping across organizational boundaries for pipe supports, contractor discovers 96% of elapsed time is wait time, only 4% is value add time SMI Effort Gives Electrical Contractor Boost Craft utilization increases 20-50% with partnership Supply Chain Efforts Cut Lead Time 70% Owner enters long-lead supply chain, holds inventory

Case Studies Lessons Learned Define and Optimize Core Competencies Plan across Projects Develop Right Relationships Share Information Standardize Map, Measure, and Improve Benefits accrue to ALL

Map and Compress SC Lead Time for Pipe Supports Lead Time ± 33 weeks Value-added Time/Lead Time = 3.8% … … Lead Time ± 1 week … … Start Design Select Supplier Ready to Ship direct work time = Value-Added time ± 2 mh (1) Select and Involve Supplier Early in Design (2) Other SCM Techniques

Map and Compress SC Lead Time for Pipe Supports Value-added Time/Lead Time = 4.6% New Lead Time ± 25 weeks .. ± 6 weeks Engineer and Supplier Collaborate Ready to Ship Start Design

The Challenges to Applying SCM Manufacturing SCM Capital Projects SCM High degree of design and part standardization Project-unique design and materials specifications Reliable demand forecast and planning capability Uncertain demand forecast and inadequate tools Rationalized supply base, set distribution network Project-specific supply chains Controlled environment Unpredictable environment Customer not involved Client intimately involved

All are essential for successful SCM! SCM Reality Check CII Implementation Survey reveals: < 30 percent use Mat’ls Management Best Practice < 32 percent use Design Effectiveness Best Practice < 50 percent use Alignment Best Practice < 50 percent use Quality Management Best Practice < 15 percent use Dispute Resolution Best Practice All are essential for successful SCM!

Rewards Are Worth the Effort! SCM Benefits Compression in longest paths of the SC Reduction in variability of lead times Reduction of cost risks and charges for extra services Reduction of communication errors and delays Reduction of waste Increased net present value due to savings in maintenance, repair and operation Additional income to all stakeholders Rewards Are Worth the Effort!

Follow-on research is needed Conclusions Supply chains can be complex Include all project stakeholders Proven techniques exist CII Best Practices can be integrated There are barriers to overcome Improved SC will enhance project performance The CII SCM journey has just begun Follow-on research is needed

Implementation Session Panel Mark Hodson, Eli Lilly (Moderator) Buddy Clark, KBR Frank Dombrowsky, Parsons E&C Paul Behnke, U.S. Steel Skip Stuart, Black & Veatch Iris Tommelein, UC-Berkeley Terry Zgabay, ChevronTexaco J. C. Boyers, Butler

Implementation Session Agenda 1. Check your SCM Readiness 2. Identify Strategic Opportunities 3. Assess Organization and Practices 4. Map 5. Collect Data 6. Analyze and Select Alternatives 7. Implement 8. Evaluate and Iterate