March 11, 2009

Canadian Construction Association

Export Development Canada studies Canada’s construction supply chain

VINCE VERSACE

staff writer

Scottsdale, Ariz.

Canada’s construction industry supply chain structural links are very integrated but the chain’s management approach varies from firm to firm, according to a study by Export Development Canada (EDC).

“Its supply chain is anchored in owners and specifically their prime contractors, who control supply chain spending and cash flow,” says Fergus Groundwater, program manager of the Global Trade Management Innovation Centre at EDC.

“The industry’s supply chains are extremely complicated and this has led its companies to create a highly developed culture of risk management.”

The construction supply chain study was conducted by EDC with collaboration from the Canadian Construction Association (CCA) and several regional construction associations. The study explored supply chain management practices and needs by talking to a detailed cross-section of the industry. The results were reported at the CCA conference this week.

Each construction project essentially establishes its own unique supply chain based on the industry’s tendency for a regional or local focus in its operations, Groundwater says. “The sheer complexities of most construction projects means communication among the parties involved, plus skilled labour availability, are the most important determinants of a project’s success.”

The high level of integration is necessary to overcome the industry’s challenges which include regulation, the number of parties involved in a project, engineering challenges, complex, uncertain and often untimely information flows, challenges of supplier performance, tight timelines, financing and payment risks, weather and scarcity of inputs, Groundwater found in the study.

“From its raw materials, to its finished projects, the construction supply chain is one of the most integrated and interdependent of all supply chains,” says Groundwater.

“It embodies a large and diverse group of participants, most of (whom) are directly connected to the end product, as opposed to being secondary or support players.”

The study found that trade contractors were delegated between 60 to 90 per cent of total project spending control. There has been a “limited adoption” of advanced tools and technologies for supply chain management in the industry, which leaves achieving efficiency and performance to a high level of co-ordination and human interaction.

“Many respondents reported deep concerns about the risk caused by underinvestment in the processes, tool and skills needed by project managers to handle their spending and procurement activities,” notes Groundwater.

Construction’s just-in-time delivery of materials and labour to job sites places “a considerable burden” on the industry’s distribution and wholesale segment of the supply chain, pressuring it to serve as the industry’s warehouse.

The study identifies opportunities for CCA that could help improve operational supply chain management gaps and help mitigate risk, improve cash flow and reduce exporting barriers. Among them:

• Developing materials to educate about the potential application of Stand-by Letters of Credit in supply chain risk mitigation and to free up working capital.

• Introducing and supporting the development of supply chain finance in the sector as a tool for cash flow acceleration.

• Developing relationships with supply chain risk management service providers to assist sector participants.

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