The document discusses relationship management in the construction supply chain. It explains that (1) maintaining strong relationships with subcontractors and suppliers is important for contractors to control costs and ensure quality work is done on time, (2) factors like specialization and outsourcing mean contractors rely heavily on subcontractors, and (3) with fewer subcontractors and suppliers, strong relationships are even more crucial for success.

1. Relationship Management (RM)
CONSTRUCTION SUPPLY CHAIN
MANAGEMENT (MGT60803/QSB 2433)

2. Introduction
• Supply Chain Management (SCM) process is
based on the idea of efficient resource
coordination and teamwork.
• Depending on whether a project is a vertical
or horizontal construction, an architect or
design engineer is selected based on
qualification and experience to develop a
design that meet the functionality and end-
user requirement of the project owner.
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3. Introduction
• Horizontal construction generally refers to
bridge design, and vertical construction refers
to design of buildings.
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4. Construction Supply Chain
Relationship Management (RM)
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5. CSC Relationship Management
• The prime contractor takes full responsibility
for coordinating and motivating the supply
chain to deliver high-quality project under
budget and on time.
• The supply chain approach depends on a
prime contractor being guided by the
following five fundamental principles:- **
**Next page
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6. Fundamental Principles
1. Competing by adding supply chain value and
eliminating waste (Lean construction)
2. Establishing long-term relationships with
subcontractors and suppliers (RM)
3. Focus on supply chain value analysis and target
costing (value chain)
4. Development of continuous improvement throughout
the supply chain
5. Promotion of upstream and downstream information
technology
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7. 7

8. Relationship Management
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• Construction supply chain relationships have
become increasingly important for a number
of reasons.
• There is a major trend toward contractor
specialization away from building an entire
project and to more subcontracting of a
variety of bid items.

9. Relationship Management
• It is estimated that 80% or more of total
project revenue often passes directly to
suppliers and subcontractors as payment for
labor, materials and equipment.
• This incredible transfer of dollars downstream
emphasizes the importance and significance
of construction supply chain relationship
management.
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10. Relationship Management
• For any construction organization to stay
competitive in today’s aggressive market
sector, it is essential that they maintain strong
relationships with their best subcontractors
and suppliers.
• When a construction business subcontracts a
large percentage of project activities bid
items, the importance of supply chain
relationship management cannot be under-
estimated.
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11. Why Relationship Management
(RM) is so important in
construction industry?
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12. Because …
• Prime contracting organizations experience a
great deal of pressure from project owners
and from competitors to keep their edge and
stay in business by reducing costs, improving
project quality and enacting continuous
improvement.
• Many construction organizations are also
reducing the number of subcontractors and
suppliers on their list of bidders.
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13. Because …
• The costs of subcontracting and buying
materials from a larger number of
subcontractors and suppliers, while still
managing a relationship with each, may be
too great for a company to absorb.
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14. Subcontractor and Supplier
Reduction
• With the decreasing number of subcontractors and
suppliers used by construction organizations, it is
more important than ever to maintain strong
relationship.
• Keeping these relationships healthy will secure a
source of highly qualified subcontracted capabilities
and materials that allow for the possibility of lower
costs and higher quality.
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15. Subcontractor and Supplier
Reduction
• In addition, strong relationship will offer the
promise of greater market share for the
increasingly competitive construction market.
• Companies that are shifting toward a smaller
subcontractor and supply base cannot ignore
the role that relationships will play with the
remaining subcontracted capabilities and
material suppliers.
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16. Subcontractor and Supplier
Reduction
• Another reason that construction supply chain
relationship management is important is the increasing
shortages of skilled capabilities and resources.
• Many resources and commodity materials are becoming
harder to acquire, and becoming more expensive to
purchase.
• With rising prices and increasingly scarce materials
supply, a construction organization must maintain strong
relationships with the subcontractors/suppliers of these
materials to guarantee that they are the first-priority
customer.
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17. Dimensions of SC Relationships
Four behavioral dimensions – the four C’s
(1)Counterproductive (lose - lose relationship)
(2)Competitive (Win – lose)
(3)Cooperative (win – win)
(4)Collaboration (win – win)
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18. Four Dimensions
Counterproductive
•Each firm is focused on getting what is the best
for it that puts the other at a disadvantage.
•Does not promote a positive rapport between
firms involved.
•Discourage future dealings between firms and
create instability in each firm’s reputation.
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19. Four Dimensions
Competitive
•Firms strive to get the very best arrangement in
their negotiations and fail to see the benefits of
both firms obtaining their goals and objectives.
•They will make sure they are on top and do not
care about the other firm’s well-being.
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20. Cooperative
•Recognize the potential value of both firms
getting what they want and maximize the
potential of having a long-term relationship.
•A cooperative alliance lacks of teamwork that
is needed the various construction organizations
to optimize the benefits for all of the members
of the supply chain.
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Four Dimensions

21. Four Dimensions
Collaboration
•The two firms truly realize the benefits of
working together to optimize the outcomes of
both firms.
•The two firms work together to develop
strategy to deliver high-quality project on time
and under budget.
•Strategic partners frequently share resources
and information.
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22. Supplier Base
What is supplier base?
•The supplier base relates to the number, range,
location and characteristics of the vendors that
supply the purchaser.
•Supplier bases may be described as broad, lean,
narrow, single-sourced, local, national,
international, diversified or specialized.
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23. Supplier Base
• They can relate to a “family” of related
products and suppliers or the totality of
vendors with whom a purchaser does
business.
• Factors influencing the supply base of an
enterprise include:
- the core competences of the enterprise
- make, buy, outsourcing and subcontracting
decisions
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24. Supplier Base
- single, multiple and partnership decisions
- international and global sourcing
- countertrade, intercompany trading and
reciprocal trade
- risk aspects, especially in relation to ensuring
continuity of supply
- miscellaneous factors, such as the social
responsibilities of a large company to local industry or
the support of small companies
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25. Supplier Base
Supplier base optimization?
•Supplier base optimization or rationalization is
concerned with determining the approximate
number of suppliers with whom the purchaser
will do business.
•The need for such rationalization derives from:
- The requirement to control cost and
procurement processes as a large number of
suppliers will entail higher admin costs.
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26. Supplier Base
- The need to eliminate suppliers incapable
of meeting the purchaser’s performance
requirements or from whom the purchases
are made.
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27. Supplier Base
Possible risks of a reduced supplier base
•Over dependency on a single supplier.
•Danger of supply disruption due to strikes,
production breakdowns, floods or similar
natural disaster, disruption of supplier’s
suppliers.
•Reduced competition.
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28. Relationship Management
A relationship is defined as a connection or
association. Relationship apply when individuals,
organizations and groups within a external to an
enterprise interact.
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29. Relationship Management
Customer Relationship Management (CRM)
•As currently used, relationship marketing describes as
long-term marketing strategy in which emphasis is on
building and maintaining long-term relationship with
customers, rather than on “one sale at a time”
approaches.
•The marketing focuses on customer relationship
management (CRM).
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30. Relationship Management
Supplier Relationship Management
•As purchasing is the mirror image of marketing,
relationship purchasing aims to achieve strong,
lasting relationships with suppliers with a view
to securing mutual benefits and the added value
of competitive advantages for both parties.
•Purchasing or procurement focuses on supplier
relationship management (SRM).
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31. Supplier Relationship Management
How to establish relationship?
•Established communication channel
•Joint planning and forecasting
•Increase trust
•Enhanced collaboration approaches and perspectives
•Improved value for both parties
•Establish common goals and focus on long term
benefits
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32. Supplier Relationship Management
Benefits of SRM:
Reducing total cost of ownership
•Consolidation of suppliers
•Reduce administration cost
•Early supplier involvement (ESI)
•Enhanced delivery reliability
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33. Construction Project Partnering
• Partnering is a “long term commitment
between two or more organizations for the
purposes of achieving specific business
objectives by maximizing the effectiveness of
each participant’s resources”.
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34. Construction Project Partnering
Benefits:
•Shared ownerships of project objectives
•Shared resources
•Ease of communication flow
•Elimination of adversarial tendencies and
litigation
•Maximization of competitive advantages
•Continuous improvement
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35. Construction Project Partnering
Barriers:
•Concentrate on short term
•Lack of top management support
•Difficulties in creating mutual trust
•Lack of open communication
•Ineffective co-ordination
•Lack of partnering experience
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36. Discussions
• Do you think partnering will be more
benefited to each parties in construction
industry? Discuss.
• How can the barriers to be minimized if
partnering applied in the construction
projects?
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