One after another, the application of smart storage and delivery techniques has transformed UK industries. Now, at last, it is about to do the same for construction. Welcome to the new era …
It's how parcel companies deliver to any address in the world within 24 hours. It's how supermarkets keep their shelves stocked with fresh food every day of the year. It's how car-makers ensure that there are exactly enough components to keep their production lines rolling.

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."

Case study one Wilson James

Materials handling firm Wilson James is pioneering the role of logistics partner on a construction project team, and it is doing it at one of the highest profile – and toughest – sites in Britain: developer Stanhope’s Paternoster Square development in the City of London. At Paternoster, Wilson James, which won the specialist contractor of the year prize at this year’s Building Awards, is responsible for managing the delivery and movement of materials for all the project’s trade contractors. Neill Jackson, a senior manager at Wilson James, says the site’s location, plumb in the heart of the City, means that establishing a consolidation centre, as it did for BAA at Heathrow, is a non-starter – particularly for the distribution of goods overnight. “Noise is the biggest problem,” he says. “Work is restricted to between 8 am and 10 am, noon and 2 pm, and 4 pm and 6 pm.” Jackson describes the on-site operation as a series of six simple steps:
  • Four to six weeks before goods are due to arrive on site, the preplanning of the delivery begins.
  • One week before delivery is due, a slot at one of the site’s loading bays is provisionally booked.
  • Twenty-four hours before the goods are needed, the delivery time is confirmed and the point (or points) of use is established.
  • Once the vehicle arrives, a representative from the trade contractor quickly checks the goods for quality and quantity before the Wilson James team move in to distribute the cargo straight to its point of use.
  • Once the truck is unloaded, pallets and packaging materials are reloaded onto the vehicle for return to the depot. To substantiate his claim that a dedicated materials handling operation on site will increase productivity, Jackson uses the example of an 18-tonne plasterboard delivery Wilson James had unloaded at Paternoster that morning. “Normally it would take a trade contractor four hours to unload the truck and put the materials into storage,” he says. Jackson says that by using a dedicated logistics team, the truck was unloaded in 75 minutes with the plasterboard delivered to six different work places around the site – while the dry-lining contractor continued with its work. Using a dedicated logistics contractor to provide materials to the work face just before they are needed has also freed the site of piles of stored materials, which increases the area where contractors can work and creates space for more trades. As well as improving efficiency, keeping the site clear of materials helps improve safety by removing trip and fire hazards. It also reduces damage to materials, which Stanhope’s director Peter Rogers says can be as much as £2/m2. However, not all material movements on site can be scheduled on a daily basis. For consumable items, such as nuts, bolts, screws and tape, Wilson James has created a “market place”. Trade contractors can request boxes of supplies delivered to their place of work on a daily basis by posting request forms in boxes around the site. “It helps them keep an accurate record of the materials used on the project,” says Jackson. “The next step for us will be to approach trade contractors to handle their logistics operations.”

    • Case study two Canary Wharf

    Woe betide the trucker who turns up at Canary Wharf at the wrong time. The development in London Docklands operates a strict booking system for site deliveries: “no booking, no entry,” says logistics manager Douglas Blackstock. With 300 vehicles delivering to 12 high-rise projects each day, there is huge potential for chaos – particularly as on-site storage space is extremely limited and each load must be immediately craned or hoisted straight from the truck to the required floor. The Wharf’s logistics team uses a software package called Zone Manager to synchronise deliveries to preallocated slots on the 70-odd hoists and tower cranes. Logistics and project managers schedule deliveries, pre-book crane time and inform their suppliers. About 10% of deliveries still arrive out of sequence and are turned away. “It has been very effective, but it needs tightening up,” says Blackstock. To improve things, he is considering charging trade contractors for their crane slots – but they would pay the fee only if they missed it.

    Case study three J Sainsbury

    “Good food costs less at Sainsbury’s” – and good logistics is expected to save the supermarket £100m over the next three years. The retailer is trying to catch up with rival Tesco by overhauling its entire distribution network as part of a £600m business transformation programme. “We are turning our supply chain into a world-class operation,” says a company spokesperson. Working with Exel Logistics, the retailer has developed a national integrated transport planning system, employing route planning to reduce distribution costs. The project aims to create savings of at least 25% in warehouse costs and 30% in transport costs. Sainsbury is replacing its 21 distribution centres around the country with eight state-of-the-art “fulfilment factories” capable of handling 100 million cases of goods a year and serving at least 70 supermarkets and up to 150 local stores. It is also replacing its IT systems, introducing a paperless warehouse management system.

    Case study four UPS

    One thousand, three hundred kilometres of electrical cable. Two hundred thousand metal parts. Fifteen thousand square metres of carpeting. One hundred and fifty tonnes of paint. It’s enough to sink a battleship – but this was just part of the shopping list for the fit-out of Millennium, the world’s largest cruise liner. French shipyard Chantiers de l’Atlantique asked UPS Logistics Group to handle the fit-out. “Before we arrived, suppliers organised their own deliveries of materials and equipment – it was a recipe for chaos,” says UPS’ Andrew Gough. By introducing sophisticated logistics processes, the yard built the ship in 27 months, handing it over to operator Celebrity Cruises in June 2000. UPS took control of fit-out scheduling, building a consolidation centre on the dockside to process and distribute all deliveries. Working alongside the yard’s project manager, UPS drew up daily worksheets for every job on board the Millennium. They dealt directly with suppliers, placing orders and organising deliveries. “We negotiate the delivery,” explains Gough. “We may go and collect it ourselves or we may get them to send it in.” UPS co-ordinated vehicle movements around the shipyard, even building new roads to make traffic flow more efficient. Inside the forward supply site, it logged deliveries, stored materials and assembled palettes containing everything required by the fit-out teams. “The most important thing is making sure everything is on the palettes. The project manager draws up the list.” The palettes were delivered daily to points of work ready for each fit-out shift. UPS also programmed the flow of palettes along the ship’s narrow gangways and took all waste to shore. “We have a master schedule so we know when materials have to be there and where they have to be,” says Gough. “From there, everything works backwards through the supply chain – the carpet manufacturer doesn’t start dying its yarns until it knows what colour the client wants and when it wants it.” Chantiers de l’Atlantique’s restructuring seems to be paying off. Costs have dropped 10% a year since 1998 and it is now building six vessels a year instead of four.

    Case study five Terminal 5

    One hundred trucks arriving each hour – and only one site entrance. Building Heathrow’s Terminal 5 promises to be the biggest logistics headache the industry has ever faced. “For T5 to perform – particularly on time – being slick at logistics is going to be key for us,” says BAA group technical director Tony Douglas. “In the early phases there’ll be 20 goods trains of aggregates arriving each week. If we didn’t have a very sophisticated logistics process, we’d struggle. We’re going to have to be as good as UPS.” The challenges are huge. The site, which will be the biggest in the country when work starts later this year, is hemmed in by the M25 and subject to onerous restrictions on noise, traffic and night movements. Security also has to be tight. BAA considered outsourcing to a firm like UPS but has instead decided to build on its existing in-house capabilities. The airport operator already has sophisticated logistics operations running its duty-free retailing and maintenance operations, and it plans to extend this expertise for the £2.5bn terminal project. “We’ve already got the capability,” says Douglas. “It’s booze and fags and Rolex watches instead of building parts – but they’re effectively the same. We’ve hired a team of really sharp logisticians. We’re moving them all into T5 and saying ‘take our expertise and make it better’.”

    Bluff your way in logistics

    The logistics industry has its own lexicon. Here are the phrases you’ll need if you want to talk the talk: Consolidation centre A facility to which all materials are delivered. Materials are stored for brief periods, then repackaged for delivery to the point of use. Advanced consolidation centres can preassemble components. Delivery channels Routes through which materials flow between manufacturers, subcontractors, wholesalers, storage depots and the point of use. The number of routes is not a problem but organisations should work with the supply chain to use the channels in the most efficient way. Fulfilment facility The retail sector’s buzzword for a warehouse. “Fulfilment facility” is deemed to be more consumer-focused and dynamic than the old term, with its connotations of goods sitting around on shelves. JIT Just-in-time operating. A term widely misunderstood by the construction industry: true JIT involves delivering materials from the point of origin to the point of use in the most efficient way, so they arrive when they are needed. Storing materials in a warehouse until they are required on site adds cost and does not constitute JIT. The slogan of JIT is “throughput not storage”. Milk round A single vehicle delivering materials to multiple points of use on one journey. Picking Putting together palettes of materials or kits of parts for a particular job for a defined period of time – for example, everything an electrical contracting gang needs for a day on their part of the site. Picking is usually carried out at a consolidation centre (see above). Process mapping A graphical representation showing the stages involved in a process such as ordering bricks so as to identify steps that do not add value. SKUs Stock keeping units – the number of components used in a project. Good logistics involve the accurate logging of SKUs, tracking them as they pass through the supply chain and trying to reduce the total number wherever possible.