Supply Chain Blues
Two big issues in the construction of any project are costs and schedule. In an ideal world, there would be a way to meet the demands of both in a manner that satisfies all parties. Of course, that’s easier said than done. But building giant Turner Construction, specifically its Turner Logistics arm, decided to brainstorm on that exact issue and gathered key players in the design, construct and supply chain together earlier this month in Nashville, Tenn. to hash it out.
“Construction is a highly fragmented industry, yet we’re faced with the same issues as any other business in improving productivity, lowering costs, etc.,” said Tom Leppert, CEO of the New York-based contractor. “That said, perhaps the biggest threat we face on the construction side is commoditization. It’s huge.”
Peter Gross, P.E., CEO of EYP Mission Critical Facilities, couldn’t agree more, adding that construction projects, at least for facilities in the financial world, are driven by corporate purchasing and procurement managers, as opposed to the technical or in-house experts who used to determine what was needed in a complex facility like a data center.
“It’s become very difficult to differentiate yourself, and we’ve found the only way to do so is to prove your value in such a unique way that the client has to consider approaching projects in a different way [other than as a commodity].
In the case of EYP MCF, they’ve tackled this issue, in part, by teaming with the likes of Turner to create better leverage in securing critical equipment much earlier in the process and at a better price.
Beyond engineers and contractors, Leppert asked the group, which also included owners, architects and, of course, vendors, how such teams could be extended to where suppliers can be brought in to truly impact price and scheduling. It was pointed out this is easier to accomplish on private projects, especially when driven by a strong owner or led by someone in a design-build or nontraditional delivery method. But on public projects, or more traditionally let projects, it’s difficult, if not impossible, for suppliers to add value. But even on private projects, major silos still exist.
“We’re not being engaged early enough in the process,” said Welch Goggins, Jr., CEO of Aqua-Chem, a Thomasville, Ga.-based division of Cleaver-Brooks. “We’re really an afterthought, even in instances where we are invited to the table—we still go through the same traditional procurement and specification process.”
“If you expect optimization,” added Jan van Dokkum, president of UTC Power, South Windsor, Conn., a manufacturer of fuel cells and other power sources, “I need to know who my partners are so I can talk to the heating and cooling guys so we can achieve the results everyone wants.”
Clay Seckman, P.E., executive vice president of Nashville-based consulting engineer Smith Seckman Reid, said his firm would more than welcome suppliers to participate in the process, but a big problem is that components get wrapped up in the pricing, and second, owners don’t necessarily want to enter into sole-source arrangements.
“So we’re forced to almost have to dumb it [design specs] down to allow, say, six vendors on a spec,” he said.
“The process really is backwards,” agreed Charles Armstrong, president of Toronto-based S.A. Armstrong Ltd., a manufacturer of pumps and fluid-handling equipment. “I don’t get paid for my expertise; I get paid for my product. I’d give you the product free if it was the other way around.”
“In other words, if we’re in the information age, our industry is in the industrial age,” added Leppert.
Absolutely, said Armstrong, adding the bottom line is that there is a huge amount of unexplored white space that offers a great deal of potential. The question Leppert posed is, what is the next step?
To begin, according to Richard Cantwell, president of Odell International, a Charlotte, N.C.-based strategic planning and program management firm, the A/E/C industry needs to capture the lessons learned on a project, document this information, analyze it and then share it so it can be assimilated.
“Then come back with the same team on the field?” asked Leppert. “Yes,” said Cantwell, “But you’d also have to figure the appropriate risk-sharing and reward equation.”
To Seckman’s point about competitive bidding, William Bartley, president of Taneytown, Md.-based Evapco, said the situation appears to be in the owner’s court regarding such team approaches. But he did agree that more industry benchmarking is necessary.
Bob Levine, Turner’s senior vice president of health care, suggested it may be time to reconsider the standard AIA contracts. “We need a better client-control mechanism or a different way to approve equipment and designs on a job before it’s too late in the design cycle. But no one wants to address this.”
Levine’s Turner colleague, Rod Willie, who heads the company’s green buildings division, noted that the LEED process may be another way to go. Unlike the traditional design-bid-build process, the LEED process involves design charrettes, or big brainstorming sessions where everyone on the team has a say. Once the major ideas are identified, he said, the team has to bring in manufacturers as oftentimes custom equipment or solutions are required.
To Levine’s point about owner influence and new contracts, Cantwell also suggested that it may be time for the A/E/C industry to do some lobbying before the government and agencies such as GSA to consider new ways of approaching competitive bidding. “We have a great opportunity here, especially with the government, in that a lot of their projects right now have very limited time frames due to financing and budgeting windows. So they may be open to new ideas and delivery methods.”
In closing the discussion, Seckman said, unquestionably, the big savings on projects come from equipment and products that are delivered in a timely fashion, but everyone needs to learn to reach beyond the norm. “It’s a lesson I’ve learned on the health-care side of the business. There has to be a push away from designing in a vacuum but also with an accountability to each other.”