Logistics is the science of getting the right products to the right place at the right time for the lowest price – and it's about to become a skill that companies have to acquire. A crucial part of supply-chain management, logistics takes care of the ordering and delivery of materials, meaning builders can get on with what they're good at: building.
"In my opinion, logistics is going to become absolutely crucial to the construction industry," says Tony Douglas, group technical director at BAA. "The industry's got a great opportunity here. It's exciting stuff."
The discipline is about eliminating wasteful practices from the supply chain. This is big money in construction – waste is believed to account for as much as 40% of costs, and BAA estimates that its site workers spend between 10% and 40% of their time on logistical activities, such as ordering and transporting materials. Logistics professionals say firms could cut 15% off their materials and labour costs by making better use of basic techniques pioneered in other industries, such as retail and manufacturing. Projects can be built more quickly, more safely, more sustainably and more profitably.
The strategic forum, the Egan-chaired body charged with improving the industry's performance, agrees. "A considerable amount of waste is incurred in the industry as a result of poor logistics," the forum states in the first draft of its Accelerating Change report, published earlier this year. Designers, contractors and product suppliers should examine how improved supply and delivery systems and better tracking of materials through the supply chain can help to deliver productivity improvements, the report urges.
The industry has a lot of catching up to do. Over the past decade, retailers and manufacturers have spent millions introducing sophisticated logistics systems that have transformed their businesses. Two years ago, car-maker Ford appointed UPS Logistics Group to manage its supply chains in the USA, Canada and Mexico. Within a year, UPS helped Ford to cut 26% off the time it took to deliver new cars to dealers and saved £85m each year through reduced inventory costs. Over the next few years, Ford expects to achieve a further time saving of 14% and additional savings of £680m through its partnership with UPS.
In the UK, supermarket chains such as J Sainsbury and Tesco have achieved huge productivity gains by overhauling their supply chains. Andrew Gough, strategy and marketing director at UPS, points out the bottom-line calculations driving the retailers: "Sainsbury's margins are 4%. Logistics accounts for 11% of their total costs. If they reduce logistics costs by 10%, they add about 25% to their net margin."
Following the leaders
Construction could learn a thing or two from the big retailers, says Rick Ballard, director of consultant The Logistics Business. "Fifteen or 20 years ago, retail supply chains were unsophisticated," says Ballard. "But logistics is the thing the big supermarket chains are competing on now. By contrast, the construction industry has not been thinking about things as well as the big retailers."
The tide is beginning to turn, Ballard believes, as firms take on board Egan-style thinking about supply-chain management. "We're starting to get more and more enquiries from construction firms. There's a growing recognition that logistics has a part to play."
It's not just on site where efficiencies can be made. Suppliers are losing money whenever they allow products to sit on warehouse shelves. "It's a palette of pound notes that's costing them interest," says BAA's Douglas. "Construction suppliers bemoan the fact that they don't make adequate margins, but they don't understand how much working capital they have lying around gathering dust. Other industries have improved working capital by 20% by getting smart on logistics."
BAA is one of the firms pioneering the use of logistics on construction projects. Last year, the airport operator opened a supermarket-style "consolidation centre" at Hatton Cross near Heathrow. The centre, a converted British Airways hangar, receives materials destined for building jobs around the airport. Materials are then logged, stored and distributed to sites. Suppliers deliver to the Mace Solutions-operated centre during the day rather than directly to the congested and security-sensitive sites; loads are broken down and redistributed around the airport at night ready for use the following day.
The centre, currently undergoing trials, is expected to supply every construction job at the airport within 18 months. In the first few months of operation, the centre is supplying 30% of airport E E jobs and has brought savings of 0.6% for shell-and-core projects and 2.1% for fit-out jobs through greater efficiency, reduced waste and less damage to materials. BAA expects these figures to rise to 1% and 3% respectively by February 2004, which would enable the company to recoup its investment in Hatton Cross.
The way of the Jaguar
But there's more to logistics than lorries and warehouses. The word derives from the Greek "logistikos", meaning "to compute" – hinting at the advanced data-management capabilities required to organise and track the movements of vast quantities of goods.
The Institute of Logistics and Transport defines the discipline as "the time-related positioning of resources, or the strategic management of the total supply chain". The trucks that transport materials around the country are just the last, most visible stage of a process that, at its most sophisticated, starts right at the beginning of a project.
"We come in during the design stage," says Mike Holley, programme manager at FX Coughlin, a division of Exel, the world's largest logistics firm. FX Coughlin manages supply chains for firms including car-maker Jaguar and retailer Sainsbury. "With Jaguar, for example, we worked alongside the designers developing the new S-Type," says Holley. "While the car was being designed we were looking at alternative supply chains so the team could make a more informed decision as to whether to use a particular set of components."
Once the design was finalised, FX Coughlin took care of ordering materials from suppliers, arranging deliveries and delivering them to the Jaguar production line using "just-in-time" principles.
The same techniques could easily be transferred to the construction industry, says Holley, who is advising BAA on its Terminal 5 job at Heathrow, and who has helped client Stanhope develop logistics expertise for office projects in London.
Holley's first experience of construction came three years ago, when Stanhope director Peter Rogers asked him to suggest ways of improving on-site materials handling at Christchurch Court, an office development at Paternoster Square in the City of London.
He was taken aback at the industry's lack of sophistication. "The difference I've noticed is that in manufacturing and retail there's a far greater emphasis on how the supply chain is organised than there is in construction."
Take the following example: "Typically on a building project the skilled tradesman moves materials through the building – they're carrying stuff up the stairs. While they're doing that, they're not doing what they're paid to be doing. You don't see a skilled worker at Jaguar leave the production line in search of materials." This ad-hoc approach to materials handling, with components being lugged around and stored in an unplanned manner, inevitably increases the risk of accidents and leads to unnecessary costs. Stanhope's Rogers estimates that his firm wastes up to £2/m2 on damaged material. "You have a 40 ft articulated lorry coming to site with a month's supply of plasterboard; it gets stacked on site; it gets wet; people use it as a dining table … and so on."
"The industry has a long way to go," says Bob Hill, principal researcher at BRE in Scotland, which last year published a pilot study of the way the industry organises the supply and delivery of materials to sites. "Logistics is going to be crucial but at the moment isn't really thought of as part of the supply chain – you just order stuff and it turns up. You go onto sites – particularly housing sites – and there's stuff lying around everywhere open to the elements."
The BRE report says that before firms can benefit from improved supply and delivery systems, they need to start measuring the flow of materials onto their sites so they can identify wasteful processes. "If you don't measure, you can't improve," the report states. "What we've found is a complete lack of any logistics data," says The Logistics Business' Ballard, who helped BRE compile its report.
"How many vehicles are coming? When are they coming? Where are materials being stored? This is fairly basic information. Other industries would be tracking materials and knowing exactly where they are, but there's none of that data on construction sites and no IT whatsoever to manage that data."
The adequate preplanning of jobs is also crucial if firms want to use logistics to create efficiencies, Hill and Ballard say. Hill uses foundation reinforcement cages as an example: they could be built on site, where workers and materials would be exposed to the elements, or they could be preassembled off-site, which would mean higher transportation costs. Only by thinking through the options in advance can firms decide which route would create most value.
Hill points out that many firms understand this, but their good intentions go out of the window in the rush to get on site. "It's not necessarily the contractors' fault," he says. "It's generally the clients'. Once they've got planning permissions they want to get on site as soon as possible. The process would benefit from spending more time up front planning and spending less time building."
Enlightened clients are using logistics professionals such as FX Coughlin's Holley to take care of both the preplanning and measuring processes, who can also provide them with data-management systems or help them to develop their own. Taking note of his comments about Christchurch Court, Stanhope asked Holley to prepare a logistics plan for MidCity Place – a 42,000 m2 office development in Holborn, central London.
Holley's team analysed the entire supply chain for inefficiencies. "We focused on eliminating any steps in the supply chain that didn't add value. In construction, the only activity that adds value is the actual fitting of the material to the building. Any other process is non-value adding."
The team started out by finding out exactly what was required on site and when. They spoke to every member of the supply chain, including trade contractors and manufacturers, to identify "delivery channels" – where materials were coming from and how they could best be brought to site. They then fed the information into software developed by software house Architectural 3D, which worked out the best flow of materials over the life of the project.
Once the building work had started, an on-site logistics team, ran by subcontractor Wilson James, took charge of moving materials to the desired location within the building using just-in-time principles. "We improved the productivity of the labour force, as they never had to leave the site in search of materials," says Holley. "It was safer, as there were no materials lying around. And there was less waste."
A DTI-funded report on the project found that Stanhope and contractor Bovis Lend Lease achieved a string of productivity improvements, including 35% less waste than on Christchurch Court, 30% higher turnover per worker per week, and a 25% faster build rate. There were other gains: for example, a pair of hoists was removed from the plant-hire requirements.
The study identified total savings of 2.3% on build costs, a figure Holley believes could easily have risen to between 5% and 15% if there had been a full implementation of logistics processes. Rogers says the modest savings were partly due to a lack of understanding on the part of the logistics team, who thought they could simply import automotive practices into construction. "They were too theoretical," he says. "Making deliveries to a fixed production line is very different to delivering to a site that may only have space for one vehicle, which might have a traffic warden standing in front of it, where work is at the mercy of the weather. Construction is a long way behind the car industry. We have to bring [logistics] people in, but they have to be able to adapt what they do."
FX Coughlin is now looking to aggressively market the expertise it has gained at MidCity Place to the industry. "It's a sector we are targeting," he says. "We operate across every sector of the economy – except construction. It's an opportunity for us. We're already talking to several major contractors."
Other logistics firms are also keen to get a slice of the action.
"We see a distinct opportunity to widen our services, which are applicable to the construction industry," says Andrew Gough of UPS Logistics Group. The transportation giant, which employs 365,000 people worldwide, hopes to win work on large-scale projects. "We see our positioning in the fit-out stage," says Gough. "The more complex the process, the more value we could bring. A shopping centre, for example – we could bring value there."
Eventually, Gough and Holley believe, firms like Exel and UPS could provide construction with a logistics infrastructure similar to that used by the big retailers. For example, they can see the day when a chain of consolidation centres located around the M25 could supply major sites in London. The preassembly of components could be carried out in these vast warehouses, which would then be delivered by trucks carrying out "milk rounds" – multiple drops to sites around the capital. This would reduce the number of vehicles on the roads and remove the need to store materials on constricted sites.
These powerful, global firms are not after a consultancy role in the logistics revolution: they want to work alongside contractors as full members of Egan-style integrated teams. This is going to make waves in the industry – Gough and Holley say they will be competing against project and construction managers, as well as the internet procurement portals.
"Construction management companies and project managers view our job as something they should be doing," says Holley. "They're asking why they should outsource to Exel something they regard as part of their core role."
The Logistics Business' Ballard says the major contractors should drive the widespread adoption of logistics in the industry, but says everyone in the business should be sitting up and taking note. "Good logistics means getting the right materials in the right place at the right time. All firms in the construction industry, big or small, should be looking to achieve that."