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The Supply Chain is a Key Part of Successful Collaboration

Ron Edmondson at Waterloo Air Products plc explains how closer collaboration with suppliers can take the sting out of construction costs.

The issue of collaborative working in construction has been high on the agenda for over 20 years.  The 1994 and 1998 reports by Michael Latham and Sir John Egan – Constructing the Team and Rethinking Construction, respectively – defined the need to work together to combat inefficiencies in order to achieve significant cost savings.

In part the industry heeded the advice with frameworks, in particular, becoming much more common.  I’ve had the privilege to be involved with different groups, helping to bring a manufacturer’s eye to the question of collaboration.  Starting with the Government’s Construction Best Practice programme, then the Movement for Innovation, today, I’m actively involved with Constructing Excellence.

The case for collaboration is clear.  It offers the best results – stronger long-term relationships, shared research for creating better ideas, time- and cost-savings due to greater understanding and reduced overheads.  All of these aspects have a direct impact on efficiency, both on a project-by-project basis and for ongoing best practice.

That said, significant improvements can still be made, especially when it comes to integrating suppliers more closely into construction projects.  Even now, the majority of communication takes place between client, contractor and architect, while manufacturers of building products are seldom involved until the later stage in any project.

Arguably, that’s due to a difference in mindset.  As a manufacturer, it’s second nature to buy from suppliers for years at a time because we can develop new ideas and solve problems together.  A long-term relationship creates a better understanding; our team gets to know the products instinctively but always know who they can call on for advice or training.

We couldn’t run without an integrated supply chain – but few of our customers have that system in place, meaning that they don’t always appreciate how manufacturers run a business.  You might call it ‘factory gate syndrome.’  As long as the products are being supplied on time and on budget, procurement managers, designers or contractors don’t look beyond the factory gate. And there is a lot to learn there.

Manufacturing and contracting are very different businesses. Although they often use a common language, the meaning in the processes and approach is quite different. This therefore leads to lack of understanding and a failure to get optimal outcomes. So the key to good collaboration between manufacturing and construction is translation, to ensure that best practice in one sector can be brought into the other.  Because of these differences the suppliers’ knowledge is rarely called on fully. Surely the companies that actually make the products have the most extensive knowledge of how to improve efficiencies for their customers.  At Waterloo, we’ve contributed to more than 50,000 separate projects within a relatively small team. This experience is far more than any of our customers could have.  The same applies to any building service, from lifts to lighting. It is deep experience in narrow fields and it should be called on.

As a Collaborative Working Champion within Constructing Excellence it’s part of my role to help customers understand where we can add value.  Often, that’s simply a case of explaining exactly where our costs as a manufacturer exist.

Ever since the Latham Report proposed a 30% cost saving across all construction projects, I’ve thought long and hard about how this can be achieved.  The most obvious point from the manufacturer’s viewpoint is that we can’t sell products 30% cheaper.  So it has to be about collaboration, working with customers to build in better efficiencies throughout the entire project.

Where can savings be made? The biggest savings comes from building a reliable supply chain using the same companies rather than jumping between suppliers from project to project.  We’ve estimated that, by doing this, it’s possible to cut costs as follows:

  • Saving on design – 10% by involving manufacturers from the start to achieve the most effective design using the manufactures experience and true manufacturing costs for value engineering.
  • Saving on procurement costs – 5% through economies of scale – plus, the fewer suppliers a company uses, the less time and effort is made on administering the accounts.
  • Simplification of selling process – 5% by reducing the manufacturer’s overheads. It’s an open secret, but any company quoting for a job has to charge not only for the project in question but the projects they won’t win.  We’re in the position of having a good success rate; even so, we have to factor in the reality that we won’t win every single contract.
  • Improvements with on-site efficiencies – 5% because using familiar products leads to a better fit

As for the other 5 percent? That comes from taking cost out of what the manufacturer does, by removing uncertainty, allowing longer term investment.

Plenty of research exists to support the estimates above.  For our part, we worked closely with Crown House and Carillion to determine the installed cost of a typical product.  We wanted to know, what does the customer pay – and where does the money go?  The findings looked like this:

  • Raw material – 18%
  • Direct labour – 6%
  • Factory costs – 6%
  • Installation – 8%
  • Design – 5%
  • Overheads – 52%
  • Profit – 5%

Spot the odd one out?  With so much cost involved in overheads, a 30% cost saving starts to look not only feasible, but realistic. Of course part of the overhead is necessary but a significant part is in the transactional costs of the way procurement as a whole operates.

With all of that evidence, it’s clear that more collaborative procurement methods can lead to big returns – and whenever organisations have committed to collaboration, the results have been very good.

Waterloo sponsors the Integration and Collaborative Working Award for Constructing Excellence in London and the South East, and I’ve been lucky to see some of the best examples.  The 2015 winner was the ProCure21+ Repeatable Rooms programme. Procure21+allows the NHS to use a framework agreement for capital construction schemes without having to go through the usual tender process.

One outcome from ProCure21+ has been Repeatable Rooms, a pioneering project to standardise hospital room designs and thereby remove cost from design and procurement.  For the acute sector, there are now eleven room designs, and deals struck with suppliers to make 12 standardised components available at reduced cost, with all data available across the NHS as Building Information Modelling (BIM) files.

Another previous Constructing Excellence winner was London Underground Limited, who introduced an innovative procurement policy to pay for suppliers’ ideas even if they didn’t win the contract.  The result was that supply chains opened up.  They could see the value of investing a greater level of effort and innovation, safe in the knowledge that there would be a guaranteed commercial reward.

The flipside to this is the danger of manufacturers withholding their best ideas in a conventional tender process.  Can a company afford to put in its best effort if they’re not sure they will get the work?

It’s a generalisation, but if a tender means lower upfront costs, a framework agreement produces a better long-term cost of ownership.  That’s because a framework approach encourages collaboration.  When the Highways Agency introduced framework agreements, suppliers started to come to them with money-saving ideas.  Once companies realised they could get a five-year service agreement rather than having to fight for each job, the solutions got better.

While it’s no surprise that expensive infrastructure projects are leading the way, the same efficiencies can be achieved whatever the size of the project. Every building is better with an integrated team.

At Waterloo, we want customers to see us as part of their team.  For our recent installation at the Francis Crick Institute, scientists had strict airflow needs to ensure their vital research wasn’t compromised.  With over 10,000 air terminal devices, that inevitably led to alternations and adaptations during the building and installation.  By having our man on-site to provide expert support, we saved time and money for the client and ourselves through managing workflow in a more informed and planned way.

The Government is keenly aware of the continuing importance of collaboration.  Its flagship strategy, Construction 2025 has identified lack of collaboration as a major industry-wide weakness – echoing the comments made by Latham and Egan in the 1990s.  Construction 2025 notes that “learning points from projects are often team-based and lost when the team breaks up and project ends.”

With the drive towards BIM as standard, Construction 2025 will enforce a greater level of collaboration.  That said, why force it? The simplest, and most effective, means of improving efficiencies in construction is to open up and talk to everybody involved – including suppliers. Look beyond the factory gate and there’s a wealth of knowledge that manufacturers are willing to share, in the name of saving time, reducing costs and creating better buildings.