It would not be unusual for architecture and engineering firms to wonder how supply chain management (SCM) pertains to their particular business. Admittedly, SCM sounds like an expensive term concocted by Harvard grads and applied only to extreme manufacturing.  

We are just one entity in the design and construction ecosystem— where projects require the efforts of a multitude of people, and where our knowledge of the dynamics of this system makes us better project leaders. It would be irresponsible to think our world is limited only to the parties we held contracts with— our client and our own sub-consultants. Not understanding SCM can falsely lead us to believe that negative impacts to the project caused somewhere else in the network is simply a case of bad luck or clearly someone else’s fault.

For all intents and purposes, SCM is the procurement and management of materials and services from outside the project team to get the work done. Depending on the project size, this can quickly become a huge network of businesses. A minor slip anywhere along that chain could throw a project completely off schedule. Our main concern then, is securing a reliable supply of labor and materials so we can continue to add value and minimize total cost.  

Let’s take a closer look at the supply chain elements:  

People. Thinking about the built environment, there are suppliers, and suppliers to suppliers. There is also the customer, and the customer’s customers. In this ecosystem, we are both a supplier and a customer. Everyone is ultimately a supplier and customer to someone else— all trying to satisfy requirements and deadlines. A project chart explains decision-making relationships and approval pathways. For our part, we can more effectively evaluate subconsultants and suppliers based on their value-added capabilities, rather than just on cost. If we have the ability to select firms to join a project— they should be the right fit.  

Materials. With building volume down, one might presume that it’s much easier and quicker to purchase and dispatch materials. But, in fact, the opposite is true. As demand decreases over time, manufacturers cannot afford to hold inventories. The make-and-ship-to-stock model (where items are produced and distributed to suppliers and warehouses) has transformed to assemble-to-order and make-to-order models (where production or assembly takes place only upon specific project orders). Even then, downsizing in the manufacturing sector has put material demands on backorder. Owner-supplied materials and equipment were not uncommon before— this will still be an attractive option going forward, so long as it is skillfully planned.

Cash flow. If you think you’ve had it rough this year getting your receivables, consider the other businesses in the chain— like suppliers— who now won’t ship or place orders unless they have advanced payments— some as high as 50%. They didn’t fare well last year under the pay-when-paid scenario, and the prevailing power of the manufacturers has changed the dynamic for everyone. So, if you’re consulting the client on the budget and sequencing funding with construction, let them know more cash will be required upfront. Heavier financing at the beginning, rather than in the middle of the project, can mean something vastly different for the customer— and the customer’s customers.

Time management. I have seen several firms over-promise on project schedules because they counted on getting materials and services faster during this time of low demand. As mentioned above, it’s important to understand the additional risk present in this economy. You may not be gaining any time. Custom products and long lead items were always something we had to pay close attention to. Now, we have to be looking at everything this way.

Communication. The task of integrating and managing the people and resources in the supply chain, and ensuring the project is executed with the least amount of disruption, is not possible without a lot of communication. Open discussion of these matters is critical. Not only is the timing of our conversations vital, but exchanging information with the stakeholders in the chain is even more so. Communication means laying out all the risks for everyone involved, verifying production and delivery dates with key suppliers, agreeing on schedules everyone can reasonably commit to, and collaborating in ways we may not have done before. 

We know a few things about project leaders. We know their ultimate goal is to satisfy the requirements of the client in the most value-added way. We also know they find solutions to challenges, rather than placing blame or making excuses. At your next project meeting, bring these questions and suggestions to the table— even if you aren’t directly responsible for it. Understanding the supply chain, seizing the opportunity to add value, focusing on project goals, and keeping the project on track are some of the other things leaders in this industry do.