Essay: Advancements in Procurement Practices and Supply-Chain Management…

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Advancements in Procurement Practices and Supply-Chain Management in the Construction Industry

Table of Figures


I. Abstract
The objective of this research paper is to explore the potential impacts of
advancements in construction procurement practices and management. According to
the report Reinventing Construction: A Route to Higher Productivity elaborated by
McKinsey, the implementation of procurement and best practices can result in 5 to 10
percent of productivity improvement and 3 to 5 percent of cost savings at the
construction industry.
To better understand why improvements in procurement practices and supply-
chain can be disruptive for the construction industry, this report will present a
background section explaining how the historical conjuncture in this sector resulted in a
scenario where construction companies did not experience a productivity boom in the
most recent decades. Furthermore, in this same section, this paper will compare the
construction industry productivity evolution to the progress experienced by other
industries, especially the manufacturing sector. The idea is to create a benchmark of the
best practices currently being used and indicate which of them have the greatest
potential and applicability to be implemented in the construction sector.
Considering preliminary researches, the author intends to explain in another
section of this paper the advantages and disadvantages of each of the following
advancements: online live procurement bidding system, advanced intelligent automated
systems in the procurement process, advanced analytics to create predictive construction
resources demand models, use of the Internet of Things in the construction site, and 6-D
BIM to manage site stock. It is believed that these tools have the potential to
substantially fulfill the productivity gap that exists in the construction industry by
stimulating better procurement practices and improving the supply-chain management.
Besides presenting the historical, the current scenario and the advancements that
can be a breakthrough in the construction industry, this paper will discuss how these
changes can impact and modernize the relationship between owners, contractors, sub-
contractors, and suppliers regarding procurement process. The expectation is that they
have the potential to improve transparency and instigate long-term relations among
The contribution of this paper will be a brief research about how advancements
in procurement practices and supply-chain management can improve the construction
industry productivity and, therefore, generate a significantly positive impact to the
global economy.
II. Introduction
When comparing the Civil Engineering field to other sectors in the global
economy such as manufacturing, it looks like construction productivity gains have
frozen in time. Luckily, many analyzes suggest that the use of best practices from other
industries have the potential to fulfill the productivity gap that exists and, furthermore,
lead to a better management process.
According to a research published by McKinsey Global Institute in 2017, whose
part of the results is presented in Figure 1, between 1995 and 2014 construction had an
inferior labor-productivity growth when compared to the total economy and to
manufacturing. While these sectors had a 2.7% and a 3.6% compound annual growth
rate, respectively, the construction industry only experienced a 1.0% growth due to
many factors such as lack of investments in innovation, pour project management, and a
highly fragmented industry.

Figure 1 – Construction Global Labor-productivity growth

After extensive analysis, McKinsey’s research suggests that if the sector
implements advancements in seven key areas, presented in Figure 2, we can expect a
cumulative productive gain of 48% to 60%, and a cost saving of 27% to 38%,
depending on whether the improvements are applied to an emerging market or a
developed market.

Figure 2 – Potential Global Productivity Improvement from Implementation of Best Practices

By observing Figure 2, we can see that the construction industry dynamic in the
last decades has resulted in a productivity gap of 50% compared to the total economy
productivity. Fortunately, the expected productivity improvement cumulative impact of
the seven key areas presented can revert this situation and eliminate this contrast.
In this research paper, the objective is to investigate only one of these seven key
areas: procurement and supply-chain management. Over the report it will be discussed
five advancements in procurement practices and supply-chain management with the
potential to reshape the construction industry:
* Online Live Procurement Bidding System;
* Advanced Intelligent Automated Systems in the Procurement Process;
* Advanced Analytics to Create Predictive Construction Resources
Demand Models;
* Use of the Internet Of Things in the Construction Site;
* 6-D BIM to Manage Site Stock.
The expectation is that improvements in this area can result in more
transparency among contractors and suppliers, reduce delays, economies of scale for
certain products, and better logistics management with just-in-time delivery.
The intent is that, by the end, this paper can contribute to highlight what are the
advantages of these advancements and why construction companies should seek to
incorporate them to improve their productivity.
A final and important observation about the data presented in this report section
is that it considers the average situation of the construction industry in the world. If one
is to analyze this sector for a specific location or for a specific construction part, such as
heavy construction or subcontractors, the results discussed may not apply and a
different study should be used.

III. Background
In the Introduction section of this report it was presented some data to
demonstrate that, nowadays, the construction industry productivity is lagging behind
many other industries productivity. As an aggravating factor, this industry percentage
productivity growth is usually running below when compared to the same index for
other sectors.
In order to understand the current scenario, it is important to study the historical
conjuncture of the construction sector and the root causes of this productivity problem.
A study elaborated by McKinsey and published at the report “Reinventing
Construction: A Route To Higher Productivity” (2017) has identified that, overall, there
are ten root causes responsible for productivity problem and they can be categorized
into three areas: external forces, industry dynamics, and firm-level operational factors.
Figure 3 is a framework presenting all these root causes and its divisions.

Figure 3 – Root Causes for Low Construction Productivity

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