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CHAPTER FIVE MANAGING THE SUPPLY CHAIN FOR PROJECTS
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In the past decade, the concept of the organizational supply chain has
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become an increasingly important method for analyzing corporate operations Supply chain management (SCM) refers to the management of materials and information flows both in and between facilities and other stakeholder organizations This includes vendors, manufacturing plants and other fabrication facilities, distribution centers, and even distributors themselves SCM, therefore, involves an enormous undertaking from a logistics perspective Recent estimates have placed the annual expenditures on nonmilitary logistics at $670 billion, over 11 percent of gross domestic product1 In many organizations, logistics costs run at approximately 30 percent of total cost of goods sold2 Consequently, the amount of money we are considering and the potential savings from effective coordination of logistics cannot be underestimated Increasingly, project organizations and project managers are heeding the call to pay attention to the impact that the supply chain has on the performance, not just on the firm overall, but on individual projects The goal of project-based SCM is to create a coordinated planning network that allows for optimal acquisition,
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Page 104 scheduling, shipping, and distribution of goods and services used in creating a project As a result, project supply chain management (PSCM) requires project managers and team members to adopt an external focus to project development Put another way, tending the project while our focus is entirely in-house is no longer useful In a globalized, hypercompetitive marketplace, being first to market involves managing the entire logistics process, rather than simply developing the project without regard to the larger picture Suppose you are a member of a project team and have discovered that a competitor is in the process of developing a project very similar to yours Unlike your firm, however, the rival s project team is in close touch with all external vendors, shippers, warehousing and facilities management personnel, and distributors Your team concentrated solely on the project s development, trusting your acquisitions and purchasing people to get materials to you when you needed them Which team do you think stands the better chance of getting the necessary materials, completing the project, and getting it to market in the more timely fashion Complex projects that require the input from multiple vendors and support organizations cannot afford the luxury of waiting patiently for materials to arrive In our consulting and work experience, one of the common mistakes many project managers and their teams make is to create a relationship with vendors based solely on price, short-term time horizons, and a one-job-at-a-time mentality The first sign of problems in the relationship typically shows up when the first promised delivery date is missed Then the telephone calls start, the excuses begin, and the real target delivery date is agreed to Unfortunately, to you every day that passes until the new delivery date means additional costs due to the changes in your planned work sequence and accelerated work, as well as, in the worst case, delay and loss of revenue This is not the way to manage the supply chain for our projects Canny firms realize this point Companies as diverse as General Electric, Ericsson, Boeing, ABB, Hewlett Packard, and Aker
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Page 105 Maritime have some important similarities; all have been successful for a number of years, all have good project management systems in place, and all place a premium on gaining and maintaining effective external relationships with their suppliers Whether the key is global outsourcing, as GE champions, or long-term subcontractor partnerships, which is the path Boeing has followed, the key lies in proactive management of the supply chain Project supply chain management requires a new way of viewing the traditional approach to managing and supporting project development Consider the diagram in Figure 51 Traditional project management often offered a truncated activity flow; that is, the emphasis tended to be on front-end procurement and supply issues and internal project development That is not to say that clients were unimportant, but beyond attaining specific order information from them, clients had little say in the project as a work-in-progress activity Under the operating philosophy typified by this model, coordination with vendors through procurement practices was key to preparing the stage for project development Further, the
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