The traditional model of construction is the purchase of a product that is governed by legal contracts. This identifies what the client requires but provides uncertainty about how it is implemented. This uncertainty is passed, in turn, onto contractors and sub-contractors as risk. As projects become more complex it becomes harder to co-ordinate the large number of specialist sub-contractors and the process can become slow and expensive and there is a need for integration and non-hierarchical systems.

Construction companies are increasingly dependent on the organisations they supply to and by from, particularly lead contractors. Many of these companies have realised that 60-80% of their turnover is accounted for by money spent outside their own organisation. Studies have shown that profit can be increased by up to 10% by a 1% improvement in value secured through better purchasing. One method to achieve this is through better supply chain management.

Construction supply chains are generally complex and traditionally based on competitive tendering and established on a project-by-project basis. Rethinking Construction stresses that integration of the supply chain will increase productivity, reduce project times, increase cash flow and provide opportunities for innovation. Accelerating Change has set a target that 50% of construction projects should be working using integrated supply chains by 2007.

The fragmentation of the industry has meant that small and medium-size specialist contractors and suppliers within partnering and strategic alliances has largely been ignored. The contribution of these organisations to the total construction process can account for as much as 90% of the total value of the project. In order to achieve better performance in construction it is vital, therefore, that better organisation is required and one method of achieving this is through supply chain management.

Supply chain management and strategic alliancing is become more widely used however it is often misused or misperceived. There is a view that the current arrangements only seek to increase the profitability of the lead contractor and this leads to a lack of trust between parties. Partnering is seen as one means to combat this mistrust and should also remove the other significant barrier of lowest price tendering.

In order for supply chain management to be successful there should be an increasingly close relationship between customer and supplier that should lead to;

• Development of long term relationships with suppliers

• Greater and earlier involvement of suppliers

• Development of mutual trust

• Formation of supplier associations

Commitment is required at the highest level of management as well at site level and to make supply chain partnering work. It is recognised that the lead contractor is the key to establishing a partnering culture and this works best where the client is also committed and involved.

Construct Wales recognises that supply chain partnerships should be established in its wish to expand best practise and release untapped profits within the industry. The programme has wide experience in construction and other sectors that can assist in the setting up and functioning of specific supply chain partnerships.