The World Conference on Accelerating
Excellence in the Built Environment
2-4 October 2006
EFFICIENCY VERSUS EFFECTIVENESS IN
THE CASE FOR AGILE SUPPLY CHAINS
Dr Andrew Fearne
Kent Business School, UK (firstname.lastname@example.org)
Centre for Performance Improvement, UK (email@example.com)
Cardiff Business School, UK (GoslingJ@cardiff.ac.uk)
This paper is based on research carried out into Construction Logistics. The
research explored issues relating to how supply chains are managed and
construction sites organised in the areas of transportation, stockholding and
the efficiency of on-site labour.
One of the areas explored in the research was the extent to which the
discrete and indiscriminate application of lean operations in construction
supply chains can reduce the ability of the industry to deliver schemes
effectively. Efficiencies in one part of the supply chain are having unintended
consequences further down the chain. Clients could be waiting longer for
their building projects to be completed and both main contractors’ and trade
contractors’ profit margins could be squeezed because the completion of site
operations is being disrupted.
The research highlighted a number of key issues relating to projects in
general and construction in particular that make the discrete application of
‘Lean’ operations inappropriate. These issues include the relatively high level
of uncertainty that exists in construction operations, the rapidly changing
profile of activity over the course of the life of a project and the fact that
transactional relationships tend to be relatively short-lived and adversarial.
This paper focuses on the issue of efficiency versus effectiveness in
construction operations and makes the case for Agile supply chains as an
effective way to deal with the uncertain nature of project environments.
Interest in operational aspects of supply chains within the UK construction
industry has grown considerably over last 5 years. This has coincided with
the application of ‘Lean Thinking’ in both project delivery and supply chain
logistics. ‘Lean thinking’ seeks to remove or significantly reduce variability in
the operating environment, to highlight and remove inefficiencies in the
production process, reduce buffer stocks and streamline capacity.
While the application of ‘Lean thinking’ has generally been highly beneficial in
focusing attention on inefficient operational practices there is a danger that it
can have negative unforeseen consequence for effective project delivery.
Material suppliers have been pursuing a policy of reducing stockholdings of
finished goods. Trade contractors are focusing on achieving high utilisation
rates for their labour and paying too little attention to completing tasks against
programme. The highly cost competitive nature of the construction industry is
driving material suppliers and trade contractors down a ‘lean agenda’ that is
primarily (if not exclusively) focussed on efficiency and capacity utilisation
rather than on what the clients want – projects completed on budget, on time,
In summary, the discrete and indiscriminate application of ‘Lean thinking’ is
resulting in the removal of capacity from the system. This in turn is making
the system vulnerable to the impact of uncertainty. The research lead us to
contend that Agile rather than Lean supply chains could be most suited to
supporting effective project delivery.
2. Characteristics of the construction industry
Construction is essentially a project based industry operating within an
environment of considerable complexity and uncertainty. This complexity is
due to the fragmented structure of the supply chains, short term and
adversarial trading relationships, poor information flows, a high degree of
dependency between tasks and relatively long durations for individual task
In terms of the dependency between activities there are very often multiple
resource inputs that need to be satisfied simultaneously for an activity to be
completed. For any activity there are generally up to nine inputs that are
1. Output from preceding task
5. Information – what is needed to be done
6. Space – access to the working area and space in which to work
7. Method – as in how the works is to be done
8. Permissions – in terms of planning, building regulation and statutory
9. Environment - as in weather conditions
Therefore, even with a relatively high level of certainty of each resource being
available the overall level of certainty of a task being able to commence when
planned is surprisingly low. For example, assuming that each of the nine
inputs listed above has a probability of occurrence of 97%, the overall
probability that the task will be successfully completed is only 76%.
It can be argued that the coordination of these resources or inputs is
essentially the process of logistics management. Improving information flow
and checking resource availability will clearly have a major benefit in
improving the effectiveness of the system.
However the application of discrete lean approaches very often has the
opposite affect. This is due to the tendency of removing capacity within the
system and hence reducing its ability to deal with uncertainty.
Capacity in these circumstances means under-utilised productive resources
or stocks of materials, plant and labour. The Lean agenda will very often
drive out under-utilised capacity and reduce stock, as they are seen as waste.
Driving efficiencies in these areas will risk reducing effectiveness in overall
One notable feature of the project environment is the asymmetric impact of
variability in task durations. Any late completion of a task on the critical path
will immediately impact on the programme by delaying the start of the
succeeding task. However, an early completion of a task on the critical path
will very likely have no corresponding beneficial effects on the rest of the
programme. This is due to the fact that the resources required to perform the
next task will very often not be available any earlier than had been scheduled.
Agile supply chains can respond to opportunities to benefit from earlier than
anticipated completions, so potentially removing some of the asymmetry.
Given the complex nature of projects, characterised by a vast network of
inter-related activities, the biggest challenge is to find a way of managing the
project in such a way that is can be delivered effectively – that is within time,
budget and specification. It is against this background that we need to assess
the suitability of Lean methods as a tool to assist with delivering projects.
3. Case study findings
Key findings from two major construction projects undertaken on behalf of a
major private residential developer by a regional contractor provide evidence
of the potentially detrimental impact that an exclusive focus on efficiency can
have on effective project delivery1.
The fist project consisted of the construction of 146 one and two bedroom
apartments in three blocks, and fourteen town houses. The project was
undertaken on a design & build basis using traditional brick and block
construction. The project commenced in December 2003 and delivered to
This study was funded by the UK CITB-ConstructionSkills.
programme in September 2005. The second project consisted of 3 blocks of
flats ranging from 4 to 5 stories constructed with a reinforced concrete frame
and a block of three storey flats built using brick and block construction. This
project commenced in July 2004 and was completed in December 2005.
The information collected through this research was based on observational
studies undertaken from a series of site visits. This was supported by
interviews with members of the site management teams, trade contractors,
material suppliers and a number of personnel involved with logistical
operations such as lorry drivers, gatekeepers and forklift truck drivers.
The management on the two sites chosen for this research project could both
be regarded as examples of good practice in the industry. Thus, the problems
identified are likely to be reflected to an even greater extent across the
construction industry as a whole.
The case studies focussed on three areas of construction operations:
transportation, stockholding and on-site labour. In this paper we review the
findings on stockholding.
Stockholding describes the process of holding materials in readiness for a
subsequent activity. This process forms part of a chain of activities that
eventually leads to the final incorporation of the material within a building.
This chain of activity can be taken right back to the stockholding of raw
materials and then forward to the stockholding of finished goods through the
distribution chain form manufacturer, distributor to end user.
A Lean approach to stockholding, without due consideration of the project
environment, would have stock reduced to a minimum. Stock is regarded as
a source of waste that is relatively easy to remove (as it is visible for all to
see) and hardest to justify in an efficient production process.
There has been a general move by construction material suppliers to reduce
stockholdings of finished goods. This move has been spurred-on by the
desire to achieve cost savings and improved cash-flow. What might have
been a standard stock item are now offered on a make-to-order basis. This
move has resulted in lead-times increasing and becoming more variable.
There is also a move to reduce stockholdings on site in favour of just-in-time
deliveries. This can be seen as a high-risk strategy with a limited up-side
given relatively high levels of delivery unpredictability.
When materials are delivered to site they are either put into stock for use at a
future time or immediately incorporated into the building. The majority of
materials are put into stock. This could be in a temporary holding location for
a couple of hours or in a storage area where they might be held for days if not
weeks. When materials are put into stock they will require additional handling
before their incorporated into the building. This double handling adds costs
and increases the risk of damage. However, this research highlighted the
important role that stockholding plays in regulating the flow of materials and
ensuring that materials are available when needed.
The decision on the timing of calling in materials to site has to take into
account a number of factors. These include:
i) Stocks as a buffer against uncertainty – uncertainty is in terms
of when materials will be delivered, the completeness of the
order and when they will be needed. The timely availability of
materials at the workface is clearly an essential requirement for
the delivery of construction tasks. Stockholding is a means of
ensuring that materials are available when required.
ii) The economics of purchasing in batches - significant discounts
are offered for purchasing in full loads. This means that there
is a tendency for more materials to be purchased than are
needed for immediate use.
iii) Controlling vehicle movements – limiting vehicle movements
favours larger and less frequent deliveries. This is an
important consideration when there is limited unloading space
and areas for vehicles to wait.
iv) Availability of storage space - the majority of sites have limited
storage space. This situation is also dynamic with the
positioning and availability of storage space changing over the
course of the project.
v) Different parties being responsible for ordering materials –
many of the materials on construction sites are provided on a
supply and fix basis by trade contractors. This means that the
main contractor does not directly control all aspects of
The majority of materials are handled more than once prior to their
incorporation into the building. In some instances double handling can occur
as a result of poor planning. This is where material has to be moved to gain
access to other material or where they have been placed in an inappropriate
location. This is usually a symptom of poor logistics planning and lack of
coordination with the trade contractors.
However, managing materials effectively on site often involves a degree of
double handling. This is because material storage plays an important role in
regulating the flow of materials to the work area. Wherever there is material
storage there will be some element of double handling.
The case study findings highlight many examples of practices or events that
could be described as inefficient in the sense that they involved ‘waste’.
However, in a project environment, which is subject to considerable levels of
uncertainty, many of these practices were logical and enabled the projects to
be delivered effectively by providing a buffer against uncertainty.
Two issues in particular were found to be worthy of closer examination on a
theoretical level. These were the impact of lead-times of materials on project
delivery and variability in output. Both these concepts are central to the
Lean vs. Agile debate.
4. Issues with regard to lead-time
The goal of a project is to get it completed to programme, cost and quality. In
order to achieve the goal we need to have a system that can deliver
throughput at an appropriate rate. In a project environment, in order to
ensure that the system can deliver the necessary throughput, we must have
the necessary capacity to protect the system from the shocks that it will be
The Lean approach applied to construction will often focus on reducing lead-
times. The question is will this approach necessarily help achieve the goal of
The issue with regard to lead-times can be examined in terms of an example.
Which supplier should be selected – Supplier A who has a lead-time of 2 day
or Supplier B, whose lead-time is two weeks. The answer is the one who can
satisfy my demand. If I have a demand for 150 units for delivery in five days
and Supplier A can only produce and deliver 10 units per day and Supplier B
can produce and deliver 200 units in 2 weeks then neither supplier can help.
If I can stagger my demand then supplier A can clearly start delivering much
early than supply B. Supplier B will be the first to be able to satisfy project
So what about ‘inefficient’ supplier C, with an overall lead-time of 4 weeks and
a capacity to produce and deliver 20 units per day. Recognising his
competitive disadvantage with regard to lead-times this supplier invests in
stock. He has the relative additional cost of holding 250 units in stock and the
cost of periodic right-downs. But in this instance he is able to satisfy my
So what is Supplier A to do to counter this stock holding strategy of Supplier
C? Quadruple its capacity so as to be able to deliver 40 units with a lead-time
of 2 days? Under this scenario Supplier A could now satisfy the demand, but
how ‘Lean’ would it now be. It would have short lead-times but it would have
potentially a high level of under-utilised resource. Supplier C would have
potentially far lower levels of under-utilised resource. Not only is it carrying
less productive capacity, its stock holding strategy means that its is using its
under-utilised capacity during slack periods to build up its stock so as to be
able to respond to peak market demand.
5. Issues with regard to variability
Construction can be characterised by high levels of variability of output. A
system that has high levels of dependencies between trades and combined
with high levels of uncertainty will tend to be difficult to plan and manage. So
what is the answer? A ‘Lean’ response would be to reduce variability. For
example, the Last Planner approach uses a system of look ahead planning to
check that resources are going to be available when needed. This is clearly a
sensible approach and is perhaps a little surprising that it is not used more
often. However, the underlying drive behind Last Planner is to reduce
variability. The question then has to be, is a reduction in variability per se that
As an example, lets take two trade contractors, trade contractor A and trade
contractor B. Trade contractor A can deliver output with a low variability and
Trade contractor B can deliver output with a high level of variability. Which
one should be chosen? To answer this we need to check on the project
objective. The project objective is to ensure sufficient throughput to achieve
the goal of delivering the project to programme, cost and quality. Trade
contractor A, with low variability, produces between 500 and 550 units of
output per day. Trade Contractor B, with high variability, can produce
between 350 and 1,000 units per day. If the required throughput rate is 600
units per day, trade contractor A is not going to be able to help. What about
trade contractor B? It depends on the probability profile of trade contractor
B’s output and the impact of delivering below the required output levels.
6. Area for future research
As part of the research we are looking into the lead-times of key building
materials and components to better understand the impact of their variability
on project delivery. Each lead-time can be split into individual elements
covering procurement, order processing, design, approvals, manufacture and
delivery. Each component can be treated as a stochastic entity which can be
modelled on the basis of a three point estimate. This estimate looks at best
case, average case and worst case scenarios.
As part of this process we are identifying the resource inputs that are needed
for each component of the lead-time. These inputs will be classified into
labour, plant, materials, information etc categorised as in-house or external to
the supplier company.
We are then looking to establish a sensitivity factor for each lead-time
component. These will indicates the degree to which the lead-time for that
component can be shortened by investment in process improvement
measures or the application of additional resource.
An optimisation model will then allow the identification of areas of supply
chain vulnerability. It will also be able to indicate what is the most appropriate
action to take. This could be to i) allow more time by focusing the placement
of key orders earlier, ii) improve monitoring and feedback, iii) improve
processes or iv) add additional resource. All these improvement strategies
cost money. The issue that this model will seek to address is what action will
give the greatest return in terms of improving the performance of the project.
The objective function of the mathematical model is the minimisation of cost
subject to achieving programme. Variables taking into account the
relationship between cost and delay are factored into the model. This allows
an analysis of what investment would be justified to avoid delays.
Outline of mathematical model
Minimize TC + DC × eps + RC(i) × red(i)
Subject to: Total Time + delay(i) - red(i) <= Tmax + eps
TC = total cost without project overrun
DC = cost of delaying the whole project by 1 time unit
RC(i) = cost for reducing the completion time of activity i by 1 unit
eps = total project delay
delay(i) = expected delay for activity i
red(i) = time reduction for activity i
In each of the three areas of construction operations that were examined in
the research there was evidence that the need for delivering projects
effectively was being undermined by a focus on efficiency considerations
stemming from Lean operational thinking. Efficiency in the use of resources
was undermining effectiveness in delivering projects.
When reviewing site logistics it can be easy to lose sight of the fact that
efficiencies in operational matters does not necessarily improve the
effectiveness of the construction process. The effectiveness of the
construction process can best be judged by how well the project is able to
deliver against the objectives of building to budget, programme and quality.
The Agile approach within supply chains recognises that capacity can play a
major role in improving the robustness and effectiveness of project delivery.
CITB-ConstructionSkills for supporting the original research
Paola Scaparra of Kent Business School for her work on mathematical
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Functional to Agile and Customised, International Journal of Supply chain
management, Vol.5, n0.4, pp206-213.
2. Fowler N., (2006) Efficiency vs. Effectiveness in Construction Logistics,
report to CITB ConstructionSkills, March 2006.
3. Koskela L., (1997). Lean production in construction. In Alarcon, L. (ed.)
Lean Construction. Rotterdam: A.A.Balkema Publishers, pp1-10.
4. Strategic Forum for Construction, (2005) Improving Construction Logistics
5. Womack J. et al., (1996) Lean thinking. Simon and Schuster, New York.