Supply Chain Management vs. Procurement

At KDI, Supply Chain Management (“Supply Chain Management”) is the narrow slice of the future of construction that we’re focused on.  

With that in mind, we’re taking a closer look at what supply chain management is in construction and how it differs from traditional procurement.

The Difference Between Supply Chain Management and Procurement

This article by Dr. Robert Handfield at NC State does a nice job introducing Supply Chain Management and captures key elements related to Supply Chain Management activities:

1. It is an ACTIVE process.
2. It is engaged to drive value and competitive advantage.
3. It is a conscious effort to deliver in the most effective and efficient way possible.
4. It operates at a program level, with a focus on long-term partnership and continuous improvement.
5. It focuses on both the physical movement of goods and the movement of information across a system.

Procurement on the other hand is often transactional. It is the act of trading dollars for goods or services. This includes negotiation of the terms around an order but doesn’t always involve deeper supply chain management strategies.

From our perspective, good procurement is a subset and outcome from good supply chain management.  It is the cultivation and development of relationships, performance, and planning activities across a distributed supply chain that leads to positive procurement outcomes measured by cost and schedule performance.

Supply Chain Management for Planning and Purchasing 

As we mentioned in our last blog post on our future view of construction, construction program owners typically manage their supply chains with an emphasis on improvement and problem mitigation (where procurement happens). Less focus is placed on addressing downstream supply chain factors and processes (where effective supply chain management strategies can be deployed). 

Using this visual as a reference, procurement often happens on the left side of the graphic (within the green box) while more sophisticated supply chain management strategies occur on the ride side of the graphic (within the yellow box.)

As an example, you’ve just learned the lead time for your unit substation has grown to 36 weeks. It almost certainly doesn’t mean that the entire assembly is delayed for 36 weeks but more often than not, one component of the unit substation has a supply issue. Perhaps it's a MV/LV transformer, a relay, or maybe a power quality meter. Understanding this information and using it to address planning and purchasing is supply chain management.  

Creating Scale through Supply Chain Management

Another practical example is found in creating and leveraging scale. If ten of your products use the same material (say, copper busbar), perhaps there are supply chain strategies that can be employed to negotiate those purchases or the delivery service level agreements associated with that bus at scale (program versus project). This is not to say it's about dollars - there aren't always savings - but managing for performance-based outcomes.

Benefitting from Advanced Supply Chain Management 

Extrapolated across a large-scale construction project, the mapped supply chain is daunting, complicated, and enormous. 

That said, consider that someone else (100s of someones) is managing it for you today, without standardized information exchange, and those decisions are impacting your jobs.

Starting a journey to benefit from more advanced supply chain management strategies starts with understanding the organization and robustness of your supply chain at a deeper level.  

KDI exists to help you define and organize these complicated supply chains and make them part of your planning, design, and construction processes.

Contact us today to learn more about how we do that and what we deliver to help you drive long-term value from your programs.