The Integrated Approach
Guest contributor: Kari Baden
As the UK economy stands on the edge of a double dip recession, the construction industry is under ever greater pressure to drive down costs, minimise risk and improve delivery timescales. Many of the larger construction companies have begun to embrace standardisation, using Integrated Building Architectures to enable effective use of new technology and facilities standards to future proof buildings, offer commercialisation opportunities and transform security and energy consumption management.
Yet cost of deployment remains a problem for the industry: the inherent inefficiency of the supply chain, with its multiple, role-specific sub-contractors is adding an estimated 10 per cent to costs. As Kari Baden, Managing Director, Dimension Data Advanced Infrastructure, explains, unless the construction industry begins to transform supply chain efficiency and rationalise suppliers it will struggle to leverage the benefits of the ‘Integrated Building Architecture’ to drive down costs and improve the long term viability of buildings.
Building on the Blueprint
Competitive differentiation has become a critical issue for a construction industry that is still enduring the impact of the ongoing financial downturn. Indeed, over the past few years many of the UK’s leading building companies have increasingly looked to leverage new standards in facility services and technological innovation to create highly intelligent infrastructures that are transforming the way buildings are used and managed.
From digital CCTV to improved building security, to the adoption of innovative energy management solutions and the exploitation of real time digital advertising, technological innovation has become a fundamental aspect of construction success. These technologies are ensuring buildings have greater commercial appeal for potential tenants whilst also delivering the lower operating costs and future proofing demanded by owners. Indeed, 75 per cent of a building’s total cost comes from operational expenditure – based on a typical 25 year lifecycle.
At the same time, the industry has actively embraced technology maturity and open standards to change the way buildings are designed. Leveraging a blueprint for an intelligent building - the ‘Integrated Building Architecture’ – is enabling companies to manage capital expenditure and control costs in both the design and operation phases.
Rationalising the Supply Chain
However, the build phase remains too expensive: construction costs are still too high due to the continued reliance upon niche experts. This use of specific, specialist sub-contractors is entrenched within the construction industry and made excellent business sense for traditional building models and processes for design and build.
Indeed, work packages have been aligned to fit the specific skills of these organisations. Purchasing has been transactional and price driven, with companies able to attain the lowest cost for each element of the build. Splitting the build into clearly defined components has traditionally minimised risk and improved control, enabling companies to swap sub-contractors easily should performance levels drop.
However, this approach is not always the most cost effective. It results in significant duplication, with labour and preliminary work often supplied and charged for multiple times. It makes even less sense for a construction industry actively embracing the Integrated Building Architecture and building solutions that, by default, demand the use of multiple diverse technologies.
The change in the way technology integrates, a change that has been driven by the welcome increase in open standards, has also had an effect on the risk associated with managing multiple suppliers. Indeed, with the fast growing number of building systems integrating and communicating over a converged IP network, it is critical now not only to ensure each subcontractor is working effectively and delivering to a high standard but also to consider how every component of the build interoperates.
The implications on procurement of this highly integrated and interoperable model are significant. Take the implementation of a CCTV system as an example. Under the traditional procurement model used in the construction industry, each component of the solution, from structured cable points to CCTV cameras, would demand two separate visits by two separate engineers. By rethinking the way work packages are considered, such jobs can be undertaken by a single individual, driving down costs.
Reducing the number of sub-contractors working on the project cuts down the complexity of project management, easing the process of coordinating activity across the build and improving overall control. With effective project management, it can also reduce installation time and, hence, overall project completion.
There is, however, a strong requirement for an organisation to take on the role of ‘system integrators’ to ensure every aspect of the build works both in isolation and together. This is not a core skill set for the majority of main contractors, creating a need to pass the responsibility and accountability for total integration to another specialist company to effectively manage the process.
Of course, supply chain rationalisation has been a core component of business efficiency for several decades. According to an Ernst and Young (E&Y) study of 1,400 senior managers and chief level executives, 28 percent of companies are increasing collaboration with suppliers, a figure rising to 39 percent for companies considered by E&Y to be high performers. Indeed, the construction industry has worked hard to streamline and rationalise processes for building materials and equipment: leading support service and construction company Carillion expects to save £140 million a year by 2013 by cutting its supply base by 80 per cent - from 25,000 to just 5,000 suppliers.
However, there has to date been less focus on the actual build element of the overall process: organisations are still reliant upon large numbers of disparate sub-contractors. Yet by adopting an integrated delivery structure that combines highly effective on site management with the use of multi-skilled engineers and contractors, it is estimated that build costs can be reduced by up to 10 per cent.
It is by addressing this last component of the process, rationalising the complete supply chain and adopting an integrated approach that the construction industry can drive down costs and rapidly deliver the highly intelligent and commercial buildings now demanded by the marketplace.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”