basics of supply chain and issue in supplier selection in Indian construction industry for material procurement

1. Construction Supplier Selection
and Evaluation
1
Presented by Under guidance
Vishal.R.Kachwah Of
MIS :121420005 Prof. Dr.
N.A.Hedaoo

2. OBJECTIVE OF THE STUDY
 The main objective of the study is the following:
 To understand the mechanism of suppliers selection in Construction supply
chain management.
 To study the various supplier selection criterion to integrate suppliers in
construction supply chain.
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3. The Supply Chain View
Suppliers Manufacturers Warehouses &
Distribution Centers
Customers
Material Costs
Transportation
Costs
Transportation
Costs Transportation
CostsInventory
Costs
Manufacturing
Costs
Source Make Deliver Buy
Supply chain management is a means for dealing with these processes in a
structured manner.
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4. Flows in a Supply Chain
Customer
Material
Information
Funds
The flows resemble a chain reaction
Supplier
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5. What Is Supply Chain Management (SCM)?
The right
Product
Higher
Profits
The right
Time
The right
Customer
The right
Quantity
The right
Store
The right
Price
=++ ++
Achieves
 A set of approaches used to efficiently
 Suppliers
 Manufacturers
 Warehouses
 Distribution centers
 So that the product is produced and distributed
 In the right quantities
 To the right locations
 And at the right time
 System costs are minimized and
 Service requirements are satisfied
+
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6. Stages Of Supply Chain Management
 Stage 1 (Supply chain assessment)
This stage the existing work procedure and work methodology are accessed.
 Stage 2 (Supply chain redesign)
Existing work procedure are found out and steps are taken to improve the supply chain
 Stage 3 (Supply chain control)
Close control over the working and check if the desired goals are achieved or not.
 Stage 4 (Continuous supply chain improvement)
Keep on changing the supply chain the keep up with the changing requirements of the
organization.
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7. Supply chain management in construction
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8. General structure of construction supply chain (CSC)
CSC includes the flow of information ,materials, services or products, and the flow
funds between client, designer, contractor and supplier
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9. Generic configuration of supply chain in construction industry
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10. SUPPLIER SELECTION IN CONSRUCTION SUPPLY
CHAIN
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11. Construction Purchasing Mistakes
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 In most cases, construction organizations are not proficient at identifying
the capabilities of their suppliers.
 They sometimes rationalize supplier decisions based on convenience.
 They wait too late to assess the value added by suppliers and service
providers.
 They do not recognize the impact of the economic changes on bulk
materials prices.

12. Barriers to Supply Chain Management
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 Failure to share project information
 Fear of loss of control
 Lack of self awareness
 Lack of partner awareness
 Inability to recognize project goals
 Lack of understanding project owner
 Lack of understanding of supply chain

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 Process-based evaluations
assessment of the supplier’s production or service process
the construction organization will conduct an audit at the supplier’s
site to assess the supplier’s operating systems.
 Performance-based evaluations
Assessment of the supplier’s actual performance according to a
variety of criteria, such as:
delivery reliability, cost, and quality defect rate.
There are two main categories of supplier evaluations
Criteria for Supplier Evaluation

14. SUPPLIER SCORING AND ASSESSMENT
When scoring and assessing suppliers, the following factors other than quoted price must be
considered:
Replenishment lead time
On time performance
Supply flexibility
Delivery frequency/minimum lot size
Supply quality
Inbound transportation cost
Pricing terms
Information coordination capability
Design collaboration capability
Exchange rates, taxes and duties
Supplier viability
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15. The impact of each factor on total cost is summarised in the
following
Purchase
Price of
Component
Inventory Transportatio
n Cost
Product
Introduction
Time
Cycle Safety
Replenishment Lead Time X
On time Performance X
Supply Flexibility X
Delivery Frequency X X X
Supply Quality X X
Inbound Transport Cost X
Pricing Terms X X
Information Coordination X X
Design Collaboration X X X X X
Exchange Rates and Taxes X
Supplier Viability X X
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16. SUPPLIER EVALUATION SYSTEM
The three general types of supplier evaluation systems used today are
Categorical method,
Cost-Ration method,
Linear averaging method.
The guiding factor in deciding which system is best is;
•Ease of implementation
•Overall reliability of system.
It should be noted that implementation of the results is the matter of the buying
organization’s judgment.
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17. Supplier Cost Material Quality Speed Total
A Good (+1) Unsatisfactory (-1) Neutral (0) (0)
B Neutral (0) Good (+1) Good (+1) (+2)
C Neutral (0) Good (+1) Neutral (0) (+1)
Example of categorical method
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 The buyer develops a list of performance factors for each supplier
 track of each area by assigning a “grade” in simple terms such as:
“good,” “neutral,” and “unsatisfactory.”
 The advantages associated with, it can be implemented immediately
and is the least expensive

18. Example of cost ratio method
Supplier
Quality cost
ratio
Delivery cost
ratio
Service cost
ratio
Total
penalty
Quoted
Price/Unit
(Rs.)
Net adjusted
cost (Rs.)
AA 1% 1% 1% 3% 120 123.6
BB 2% 2% 3% 7% 115 123.05
CC 3% 1% 4% 8% 110 118.8
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 The first step is to determine the
internal costs associated with quality,
delivery, and service each element is
converted to a cost ratio
 An example of quality costs follows:

19. Supplier1 Supplier 2
Material Quality (weight = 50)
Acceptable lot 50 35
Total lot received 58 40
Quality Rating 86.2 87.5
Service (weight = 35)
On time delivery 52 38
Total lot received 58 40
Service Rating 89.7 95.0
Price (weight = 15)
Lowest price 75 75
Price submitted 75 82
Price Rating 100 91.5
Total Performance Rating 89.5 90.7
This method is the most commonly
used evaluation method.
Specific quantitative performance
factors are used to evaluate supplier
performance.
The most commonly used factors
are quality, service (delivery) and
price
Linear averaging method
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* 89.49 = (.5 × 86.2) + (.35 × 89.7) + (.15 × 100)
90.7 = (.5 × 87.5) + (.35 × 95.0) + (.15 × 91.5)

20. Internal financial problems
Working capital problems
Slow payment from project owner
Inferior plans and specifications
Inadequate technical capabilities
Insufficient information technology
Lack of communication between supply chain partners
Productivity inefficiencies
 Work quality problems
Work method problems
Delivery reliability problems
Bulk materials quality problems
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Customer issue in supply chain management

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Factor selected for study
Selection procedure Quality and timely work
Selection criteria Client briefing
Phase in which involvement Attitude of client
Technical expertise Minimum skill requirement
Testing capability Proper coordination
Relationship with supplier Frequent design changes
Waste elimination process Material availability
Suppliers’ geographical reach The incentives
Resourcefulness Complacency of suppliers
Transparency and openness Early participation of supplier
A SURVEY STUDY OF SUPPLIER SELECTION ISSUES IN
CONSTRUCTION SUPPLY CHAIN

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Relative Importance Index (RII)
Is the process where weight is given to each type of response as per the judgment of
the user. In this case;
 Strongly Disagree = 1
 Disagree = 2
 Undecided = 3
 Agree = 4
 Strongly Agree = 5
Then RII for each option is calculated using the equation;
RII = (W1*n1 + W2*n2 + ….) / A*N
Where W = Weight of the option as decided by user,
n = Number of responses under each option,
A = Highest weight given and
N = Total number of respondents.

23. References
1. Benton W C, Jr & Linda F. McHenry., [2010]. “Construction Purchasing and Supply Chain
Management.” New Delhi: Tata McGraw Hill
2. O’Brein William.J., Formoso Carlos T., Vrijhoef Ruben and London Kerry A., [2009]. “Construction
Supply Chain Management Handbook.” New York: Taylor and Francis Group
3. Vrijhoef Ruben & Koskela Lauri., [1999]. Role of “Supply Chain Management In Construction.”
Research Paper. University of California
4. Study on “A SURVEY STUDY OF SUPPLIER SELECTION ISSUES IN CONSTRUCTION SUPPLY
CHAIN” By Rohan Choudhury and Pratik Dave PGP ACM 23rd Batch (2009- 2011) NICMR,Pune

24. 0
0.25
0.5
0.75
1
Factors affecting Supplier Selection
RII

25. Understanding form study
While selecting supplier construction industry looks for consistent performance in terms of
quality and on time delivery.
 Client expect their suppliers to be responsive.
Supplier should have a good testing capability to finish project as per established QA & QC.
Frequent design changes the supplier and subcontractors are informed well in advance.
 Imposing penalty is the best way for preventing wastage at site.

26. Thank you