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05/03/2012 | Channel: Technology, Logistics / Packaging, E-Business / IT, Retail, Business, Manufacturing, Aerospace, Automotive, Engineering, Shipping, Construction, Food & Drink

Managing project supply chains

By Ron Basu

A primary objective of supply chain management is to ensure best customer service by balancing cost, time and quality along the links of the supply chain. Even though supply chain management is inextricably linked with operations management the mindset of project managers also appears to exclude the principles and objectives of supply chain management. Due to the perception of ‘oneoff’ and unique nature of a project versus the repetitive nature of operations, the traditional approach of project management has been consciously different to that of operations management.

There are many stakeholders, contractors and suppliers involved in a project. In the context of a major project lasting a few years and usually managed as an enterprise, supply chain management can experience additional risks appearing from a multiple tiers of suppliers and the intended linear process becomes unreliable. In order to minimise such non-linear project risks related to the project supply chain, the basic concepts, skills and tools of supply chain management could be even more important for managing projects.

Project supply chain building blocks
It is important that a ‘total supply chain management approach’ is applied and all the building blocks of the project supply chain are examined. If one concentrates exclusively on isolated areas, a false impression may be inevitable and inappropriate action taken. Our model for Total Supply Chain Management in projects comprises nine building block configurations in three streams, viz:

1. Project planning chain: In this stream the building blocks are dealing with project planning activities and the information flow. The building blocks in this stream are:
  • Customer focus and stakeholders
  • Resources and time management
  • Procurement and supplier focus
2. Project delivery chain: Here, the building blocks relate to the project implementation and closure activities and physical flow of materials on site. The building blocks in this stream are:
  • Supply management
  • Building and installation
  • Handover and closure
3. Project integration: In this group the building components of project supply chain are acting as the integrators of other building blocks as various stages of the project life cycle. The building components in this stream are:
  • Systems and procedures
  • Regular reviews
  • Quality and performance management
Customers exist both at the start and end of the supply chain. In a project supply chain a customer could be a sponsor, an investor or an end user. The basis of all supply chain planning and decisions is underpinned by the forecast of future demand created by customers. In all instances of a supply chain the first step is to forecast what the customer expectations will be in the future. It is recognised that a critical determinant of project success is agreeing the success criteria with key stakeholders, in addition to customers, before any design or planning activity. The demand forecast actually depends on project deliverables defined by the Product Breakdown Structure.

A key objective of supply chain management is to optimise the supply capacity to fulfill demand in time. One such process of optimisation is Enterprise Resource Planning (ERP) that has evolved from MRPII (Manufacturing Resource Planning). In project management Critical Path Scheduling and Earned Value Management are popular tools for assigning resources and time. The planning processes are supported by software such as MS Project and Primavera. However the application of ERP in major projects is now assisting resources planning and procurement schedules and is interfaced with EPM (Enterprise Project Management) systems.

Project procurement is often considered the focal point of project supply chain and the supply chain manager is usually selected from a procurement background. The procurement activities in projects have two main subdivisions: the buying of materials and placing contracts with suppliers and contractors. Hence procurement and supplier focus are interconnected. For the project supply chain, the procurement of external capacity and resources could include construction materials, part built up assemblies, contracting out utilities and maintenance, hiring casual labour, selecting approved suppliers and outsourcing. The selection of appropriate or preferred suppliers should involve alternative and complementary attributes between those suppliers and the receiving organisation. Tightly controlled service level contracts for high-risk deliverables are being supplemented by joint service agreements for medium risk contracts with the free exchange of data and knowledge.

Delivery Supply Chain
Physical inventory - whether equipment or material - must be controlled in projects. Although this is an area of neglect in many undertakings, the good practice of operations in assets and stock management should be applied to projects. The deliveries from suppliers, whether material or equipment, must be received, inspected and properly stored before use. The same attention to records and the control of goods from external suppliers should also be applied to internal suppliers.

In a project supply chain, ‘building and installation’ is the building block that makes things physically happen. It is where plans are executed in sites and facilities to produce goods or services for customers. This stage is comparable to operations management in manufacturing industries. However most texts on project management give only scant coverage on the topic of supply chain management.

In the context of project management, the final handover and closure process determines the success and sustainability of project outcomes. The skill with which the closure is managed has a great deal to do with the quality of life after the project. A successful closure is the destination of the project supply chain. The closure stage of the project may have less impact on technical success or failure, but it has huge influence on the residual attitudes of the client and end users toward the project.

Project Integration
Systems and procedures are essential components to integrate the building block configurations of the total supply chain. The activities of a supply chain are affected by both national and international regulatory requirements on packaging, storage, pallets, vehicles, working hours, tariffs and many other issues. The bodies of knowledge and project methodologies such as PMBOK (2008) and PRINCE2 (2009) are powerful guidelines to integrate the building blocks of project supply chain in order to successfully deliver a project.

The internet, now taken for granted, has seen the use of technologies to create electronic communication networks within and between organisations and individuals. The implementation of Enterprise Resource Planning (ERP), websites, e-commerce, electronic data interchange, and e-mail systems have transformed the process of the exchange of ideas and the sharing of data in ‘real time’.

Another important issue is improving the financial performance of the project. In response to pressures from stakeholders there is a risk of overemphasis on the shortterm financial performance. Consequently this myopic approach results in overinvestment in short-term fixers and underinvestment in longer-term development plans. There is a need for a balanced approach.

Regular reviews of project supply chain are comparable to Sales and Operations Planning (S&OP) in operations management. S&OP is a cross-functional management review process to integrate the activities of the total supply chain. Project review gatherings are held regularly and their frequency and participation depend on the type of meeting. Project team meetings by work packages or task groups are generally held every week and led by the Team Manger. Milestone review meetings are convened at predetermined dates and participated by the project board and Project Manager. In addition ad hoc review groups (e.g. pre-audit, health safety and environment, etc.) are also scheduled with specific agenda.

Quality and performance management acts both as a driving force of improvement and a fact based integrating agent to support the planning, operations and review processes. The foundation of performance management is rooted to quality management principles supported by key performance indicators of the Balanced Scorecard. Project quality is defined with three dimensions, such as design quality (specification), process quality (conformance) and organisation quality (sustainability). It is only when a project organisation begins to change its approach to a holistic culture, emphasising a single set of numbers based on transparent measurement with senior management commitment, that the ‘organisation quality’ germinates.


In this paper we have explained the characteristics and roles of supply chain building blocks in project supply chains and highlighted the benefits of supply chain management principles in major projects. These building blocks will be applicable, to a varying degree, to all types and strategies of supply chains regardless of whether they are in a major infrastructure project or a change management project or an information technology project. Supply-chain management building blocks and integrating methods are key to ensuring that project materials and resources arrive as required ensuring the success of a project.

Ron Basu is founder of the consulting company, Performance Excellence Limited and a Visiting Professor at the SKEMA Business School in Lille, a Visiting Fellow at Henley Business School. He is the author or co-author of nine management books.

All the issues and references in this paper are addressed in Dr Basu’s book ‘Managing Project Supply Chains’ published by Gower (ISBN 978-1-4094-2515-1) as part of the ‘Advances on Project Management’ series by Professor Darren Dalcher. Readers are entitled to a 40 per cent discount on this title.

Visit www. gowerpublishing.com and add the book to your basket, and use the code G12GCJ40 at the checkout. This offer expires on the 31st March 2012.