Electronic Construction Procurement System
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1. Project Background & Rationales
This chapter is an overview on the procurement system, the rational and objectives behind the project and the whole endeavor. Project manager also displays the roles and responsibilities in addition with planning description for electronic construction procurement system. In order to increase the success over the system objectives, the must be a well-organized and comprehensive documentation planning as following.
1.1 Project Background
1.1.1 Manager Challenges in Construction Development Project
Construction management is a set of guidelines and standards can be define through the combination of four major mixture of activities in separate phases of initiation, execution, monitoring and closure with the objectives of reduce the effort and time required for a quality unique product.
Managing a construction project is a challenge of management over nine knowledge areas and balancing the expectation of external and internal stockholders. Besides, manager must be aware of the changes and their impacts and necessary updates for other aspects of a running project.
Construction is one of the most successful industries using project management standards and approach with a relatively a high success rate in the number of projects and achievement. In procurement process, manager should be responsible to execute and monitor entire stages in procurement and sourcing a project. This can be start by gathering supplier information and external sources to evaluate and eventually select the most cost effective and quality set of suppliers according to project specification and requirements.
In huge construction developments, procurement manager should provide all raw materials and supply entire project, while in limited scope projects this process may undertake by independent individual and hence, project manager monitor progress through timely fashion reports (PMBOK®, 2008).
1.1.2 Construction in technological age
Construction is a 3.9 trillion USD annually globally with accelerated growth; increase the industry size for a large number of markets including plumbers, transportation wood and many other industries (Barbara J. Jackson, 2010).
According to a higher level of complexity in construction projects, main competitive advantage in current market situation may be to reach higher degrees of effectiveness and timeliness over projects in compare with competitors. Now days with all technological advancement, construction managers is able to work on a web based platform and take the advantages of tight control over all aspects of the project.
1.2 Problem Statement
While in software development labor and expertise dominate a significant part of the project and product development, in construction projects, procurement is the main major portion of budget allocation for overall project budgeting. Therefore, cost effectiveness achievement in construction developments would result in a great saving and can be translated as a competitive advantage in the whole industry.
This factor encourages and justify for developers to be attracted in any tools and techniques which can result in such huge cost effectiveness over projects. Besides, development managers would like to have an effective direct communication to suppliers and make it feasible to take raw materials with a fair price through negotiation and buying techniques. Therefore, any system with major marketing objectives can assist manager reduce the material price, increase the quality over inbound and achieve a large amount of time cutting which can be describe as total project cost reduction (Harold Kerzner, 2009).
«Electronic Construction Procurement System» is a Web based commerce tools with effective marketing objectives and aims to create value to target market in development industry.
1.3 Project Objectives
In Electronic Construction Procurement System like any other project, the main objective would be to stay on the time, resource and quality of the major deliverables. As an individual project, researcher is limited to information sources and a year time constraints defined for a final year project. In higher degrees of achievements, project can be maintainable and sustainable for further improvements and enhanced future functions.
1.3.1 General Project Objective
Basically, in this project lack of direct communication between construction manager and construction industry suppliers is the major concern. System would be capable of access to a wide range of suppliers and their products with sufficient information and details required for procurement managers in sourcing project. This is expected from the project to deliver a new business model capable of handling business processes in a higher level of effectiveness and efficiency. As a B2C digitalized commerce tool this is expected that organization reaches a higher amount of sales which can be translated to higher profit.
In Electronic Construction Procurement System like any other project, the main objective would be to stay on the time, resource and quality of the major deliverables. As an individual project, researcher is limited to information sources and a year time constraints defined for a final year project. In higher degrees of achievements, project can be maintainable and sustainable for further improvements and enhanced future functions.
System will create value through a well-designed accessible platform contain all required information related to products and functionalities required to create and support a sustainable source of development supplier in construction sector. This is expected from the project to deliver a new business model capable of handling business processes in a higher level of effectiveness and efficiency. As a B2C digitalized commerce tool this is expected that organization reaches a higher amount of sales which can be translated to higher profit. Besides, ease of management and higher level of integration would also apply to the company after digitalization of the procurement.
Beside all advantages of efficiency and effectiveness of direct communication and commerce in construction industry, system attempts to provide a great range of functionalities through an interactive platform for both managers and suppliers in an electronic selling channel.
1.3.2 Specific Project Objective
In addition with the objectives above, system would be an effort to increase quality over projects through evaluative tools of procurement items as the main sourcing project platform. Specifically suppliers would have access to value provided reports which can indicate industry trends and use as an input for strategy driven effort.
1.4 Scope of the Project
System major objective is to facilitating commerce of construction suppliers and gives the raise in services and offering to developers and project managers. Therefore transaction validation and other bidding issues would not be covered through existing purposed system and may be an effort for system futuristic.
1.5 Study Limitation
1.5.1 Project Constraints
According to nature of an individual project and limited amount of resources, project and study was successful to figure the relevant but not best set of requirements. Review on available literatures and updated materials were limited to time constraints as the nature of project.
1.6 Focus of the study
According to domain topics and major objectives of the system, researcher focused on the level of interaction in electronic B2C platform and requirements of construction procurements in the center of supplier manager relationship.
2. Project Plan
In planning stage, manager should take in consideration of setting a realistic and clear set of activities in a comprehensive documentation according to project objectives. However, planning should be always a subject to change and periodically review in every construction project. From this point, project manager should be a powerful change manager in result of any internal or external trend or changes in project scope and specifications.
As explained in the PSF, manager should get ready to face a certain level of risk in any project. Risk management should be according to the likelihood and impact of the risk to the project and output a risk registry well documented plan.
Similar to other projects, manager must predict and prepare to reduce the risk and its impact indeed. Project risk can arrive through various changes, improvements or external factors. Manager should plan to identify and resolve higher likelihood events quick and efficient.
2.2 Development methodology
Using methodology in procurement system can prevent developer to face multiple expensive reviews over development stages. A good methodology also gives a better alignment of project with defined objectives and increases the level of outcome quality over deliverables.
There are a number of methodologies can be used for this project according to requirements and specifications. However, according to time constrains and resource limitation in a final year project, Waterfall methodology gives a better outcome and meet key targets with a complete objective coverage over each phase of the development.
SDLC is a clear approach for system development and software implementation projects. Since a lot of Websites developed as online software and applications, there is no wonder if SDLC used in Web Development (Margaret S. Wu and Shih-Yen Wu, 1994).
System requires a higher degree of support and maintains and SDLC would be a quality approach for maintain based products. A part of support after system delivery would be a comprehensive documentation with enough detailed explanation over deliverable product.
2.3 Schedule planning
Time management enables manager to check progress over all phases of project and update as necessary to meet the time deadline and resource availabilities. In this project, Microsoft project management is the main tool gives visually of time and task from beginning to the last stages of the project.
3. Company Background & Structure
In the market, «Akitechnique» interior design products is a growing set of architecture sourcing of construction, which provide a comprehensive set of services and additional advantages to developers in Malaysia.
Over recent years, company tends its focus through providing a wide assortment of products and sourcing national based development in Malaysia.
3.1 Company Mission and Vision
After near one decade existing in the industry, company mission is focusing on customer needs not only through quality concern in product and varieties in size and range of items but also to increase the level of services, delivery time, shipping and quantity required for national developers. Company transfers its experience to all national based projects and assesses the level of customer satisfaction providing consistent support and consultant through best quality product and considering all ethic issues in this relationship. Company aims to become a world player in construction industry, in both private and public sector projects without communication and geographically constraints. Organization aims to reach a percentage of Asia industry market share and expand to one third of countries to cover all opportunities with quality solutions.
3.2 Organizational of Staff and Company Structure
«Akitechnique» is a relatively small organization with a manufacturer sector as the main operational segment. Structure of company is simple as a top manager over operation, marketing, R&D and sales department. General tasks such as recruitment and HRM would be handling through executive director and top manager control the results.
Fig. 3.1 — Functional organizational structure
Company departments as it shown in table above, uses a simple hierarchy structure through a functional organizational structure. Since, company established one decade ago, still the scope of internal resources are completely limited.
3.4 Products and Services
Products mainly divided in two groups of custom furniture and interior products. Custom furniture sector includes custom cabinet, kitchen and wardrobe, kitchen appliances and fitting, office furniture and products. Interior products include floor finishes, wall covering and soft furnishing, light fixtures and sir purifiers.
3.5 Sustainable Development
Continues improvement and sustainable product development considers a key strategically factor for the organization. As a key market player and according to company mission and vision, keeping in mind that «Akitechnique» cares to customer requirements and ethical and environmental business factors. Therefore, no wonder that organization has a significant contribution in building hospitals and other «quality sensitive» projects.
One of the invested effort areas could be mention as minimization of wastage and material consumption through flexibility of products according to orders. Besides, company uses environmental friendly material to produce well engineered minimum environmental impact items.
3.6 Distribution Channel
Currently physical channel is the only and major selling channel for «Akitechnique». However there is a low level of technological and electronic engagement through an informative purpose website which cannot support any commerce and marketing activity. Website has a relatively low degree of interaction and minimum of functionalities without any CRM tool or interaction enhancement.
4. Literature Review
4.1 Industry Snapshot
The following section describes trends over construction industry through analysis of major financial elements and industry key factors. These key factors include major industry contribution in global GDP, spending geographical deviation and key success factors for construction developments and projects.
4.1.1 Construction development industry
In 2010, the whole industry experienced 1.6 percent growth and value of 6,077.6 million (Report Linker, 2011). This makes construction as a high level valuable industry comparing to the other trade markets. The value is not only in the construction itself, the industry give the raise to the other industries through direct and indirect values and communication. For example in a homebuilding project which does not carry a lot of complexity, there is hundreds of business which should get the effect of the project. Plumbers, steel industry, transportation and even government tax would be included in a simple construction project. According to accelerated growth of population and economic rate in recent years, industry faced to a rapid growth especially in Asia pacific nations like China and Singapore.
According to global construction spending figure by Davis Langdon China and USA have over 700 billion US dollar which indicates the increasing level of development (Davis Langdon, 2011). Considering spending growth in global scope, there is a shift of the rate from developed countries towards developing countries.
There are varies of majors in construction industry which architecture and civil engineering has its own definition of construction. Here, this process may include making and assemble of any type of infrastructure. Beyond only a single task, large projects in this industry can be consider as multitasking and this endeavor should be manage by the project manager. Besides that, supervision of construction manager is also vital for project success. Planning considers a key activity for undertaking a project. Therefore, a successful project must have an effective planning and accuracy of execution.
A project is not only control through planning and execution and furthermore; manager should know and balance the external and internal environmental factors and also stockholder’s expectation. Resource allocation and supplement should be in a convenience form in a project and don’t allow budgeting and scheduling negatively get affected.
The term construction in general may refer to different types of projects which could be divided to building and industrial project types which are different from the way of planning, team working and execution.
Building projects can be renovation or innovation of the existing or new project. The large percentage of the projects is those only aim to renovate an existing one. Interestingly, the owner may act in different projects rules such as planner, painter and designer due to the small scope of the project. Some types of activities are the same for all construction projects indeed. Commercial projects can be done through players in public or private developers and with utilization of different approaches. According to the risk associated with the projects, developers with more experience and skills may detail the entire projects variable which controls the risk and impact of any new change for the normal project process.
Developer must take the authorization for construction project in legal form and also ensure that materials are easy to acquire in the site area. Normally manager may calculate cost per meter for construction of project to gets a more accurate estimation of the project budgeting. This number could be completely different from area to area and based on the material quality and the construction type according to customized order projects.
Construction project in an up to dated form of definition can be the conversion of a design to the form of reality through a well-organized planning and execution. A design team would be assigned to plan and integrate planning team together in a project. The outcome for design team would be drawing and may include the required attributes of civil, mechanical engineers or other expert groups. Basically in a private project, all human resources acquire by the project owner. This also can have the form of bidding in which the most cost efficient developer team would take the award from the owner. Now a days, a construction firm may have experts in varies of fields and this gives a raise and higher degrees of competitiveness to such organizations attempt undertaking different types of projects. According to the higher complexity of the construction projects in today’s infrastructure and market needs, building engineering provides a certain levels of training for different project phases along the technical team and manager task to increase integration and awareness over complexity hidden in the project.
4.1.2 Development spending growth
Spending in different nations for a constructive project is a key factor assist researcher to analyses the level of national contribution and industry development. Below figure is a clear description of 13 main and major developed and developing countries in construction.
Figure 4.1 — Share of Construction Spending Growth
There are 3 types of trends in construction spending which researcher categorized countries according to them. First group had intensive growth over construction spending in projects align with national basis objectives. China and India will locate among above ten percent growth nations in 2011. Some countries like UK and Korea didn’t face significant amount of growth and some other like Italy just had a relatively smooth decline in their spending. However a country like Spain according to its social factors had around ten percent decrease for the value of construction spending.
Different attributes and elements in a development project should be considered by project manager. A large number of such factors are related to procurement and its significant share of budget allocation for construction developments. Poor planning, forecasting and estimation of cost and resource are other major factors with huge impact on construction project.
As projects become larger and more complex, the level of integration should be increase for managers. Otherwise, there would be increasing backlogs and the risk of over budget or overtime delivery executive.
One other key factor for industry analysis and overview is the share and its transformation from developed to developing countries.
Figure 4.2 — Share of Construction Spending by Development Status
As it is indicated through above figure developing countries like China and India and also Middle Eastern region countries are transforming their share in construction industry from around 28 percent to more than 50 percent. The reason is because developed countries have already required established infrastructure and they don’t need to spend on new development. Therefore, government may focus to spend in the other parts and areas which might be more beneficial for the national economic growth.
4.1.3 Procurement market trends
Based on the unstable condition of global market and industry due to economic and political factors, risk of price fluctuation is crucial concern for each project. However, managers would cover additional cost through marketing in a higher selling price.
4.1.4 Construction and Globalization
Current development trends in the Asian countries may lead us to get some new fact in construction industry. Now days there are more powered and stronger finance in construction projects belong to private sector. These types of companies are focusing the effectiveness and efficiency through right and high level of integration especially in vertical type. The advantages of such integration may obtain through integrated supply chain management and other sourcing system or management information system facilitators. Result of the technological and theoretical improvement of construction industry makes it more practical for foreign players and their effects in domestic market.
Some countries like Japan brought the technological advancement to entire global construction process. Hence, most of the developing countries took the benefits and increase the competitiveness for their running projects.
According to unlimited capabilities of technological enhancement industries are not limited to geographical scope. Suppliers obtained a greater chance of exporting material to different countries and through facilities of communication and additional online information for potential customers. On the other hand, projects also are not limited to team and location limitation. For instance, there are a lot of projects which should be done through resource and effort in separate and independent geographical location.
Progress in the worldwide economy, HR, ICT and management happened in construction industry growth and global management of the projects pushes industry to form globalizes indeed (Stephen O., Chotchai C., Pannapa H. and B. H. W. Hadikusumo, 2004).
During the last decade, globalization have affected the firms expansion and internationalization of the industry of construction and real estate and varies of project processes are dealing with no limitation in geographical constraints. Especially in sourcing the project, it becomes a norm to diverse over cost effective and more reliable set of procurement from different firms in the world.
There are several elements such as technological advancement (online project planner toolls e.g.) and transportation development wich cause such a trend give value to construction industry. Easy trading and taxation, facilitate rules in commerce and legel attraction laws gives this opportunity to local firms going beyond existing expansion and serve multi location projects across the world.
The globalization shold be cconsider and measure through appropriate measurement factors. In each industry globalization has 3 diffrenet task and phase. First type is the international trade for items and procurement which is provided by different manufacturers. Second type refers to cross- border investment for all products and services and distribution channels with elements of supply chain in construction industry. The third one is the portfolio of capital invested in the market to avoid any risk and negative circumstances.
There are also some issues in the industry globalization which a number of researches have been done about them. Raftery et a!' (1998) have analyzed over trends in current market and had the main focus in some specific region in China and Japan which had result to some important findings. There are stronger and larger players are roling the infrastructure in the national basis.
Vertical integration in the cosntruction sourcing specially the phase of procurement and forms of packaging and transportation have been formed. Besides, there is a growing trend of foreign players in the market and industry comparing with the recent decade which increase the level of competiton with the existing local players. Therefore, and according to the analyzed research there is a tendecy to deregulation of construction industry which can be a sign of globalization and significant descrepency with traditional businesas approach. This trend cause the financial and technological efficiency of the market raise and give the raise to other aspects of the business effectiveness.
If considering technology in developing countries and construction projects, there is a transfer of technology and enhancement in result of advancement and knowledge gained in other fields of scince. Industry should have concentration over improvement in other areas as well such as procurement, management and approach, methodologies and etc in both public and private sectors.
According to the merger and acquization growing strategies, many industries now have a trend with the tendency to become major player in the field and compete in a more sustainable position relying on larger scope resource and company capabilities. Construction industry have the same growth strategy for those who are looking to gain a better market and benefits and increase their interest in a wider scope and focuse.
Hence, for many firms like Private Finance Initiative (PFI) projects in the UK the strategy was based on increase the size and gain the larger number of projects according to their larger capability and for example PFI had stronger financial indices in compere with the past. Biggest players in international market belong to US and Europe. Table below indicates recent rank of construction contractors according to global revenue.
International Contractor project value
Bechtel Group Inc
Kvaerner PLC Group
Kellog Brown & Root
Bovis Lend Lease
Hollandsche Beton Groep NY
Bilfinger + Berger
oster Wheeler Corp.
Philipp Holzmann AG
Hyundai Eng. and Const. Co.
China State Const. Eng. Corp.
As it shown in the table a large number of biggest international contractors in construction industry are those American and Europe nations which mainly enlarge their capability and resources through merging, acquisition and other growth strategies which make them get ready to undertake very large scope projects in the global scope.
As the conclusion construction is a growing fast paced industry towards deregulation and competitive strategically actions in the global financial and economic system. Although industry have a big trend, since construction cannot be traded across borders, the impacts of this shift and transformation of industry toward globalization is mainly obvious in the international contracts and communication related to industry.
Procurement methods in development companies
There are two different models of sourcing a construction project according to the type of required item and customization level for each item. Centralized units are in source or outsourced centers, departments or organizations which would be responsible to find source of suppliers, evaluate and purchase required material for project (Alberto De Marco, 2011). This is required more effort to get more efficiency and cost effectiveness. Therefore, this is a more suitable approach for bulk material purchase since there should be a level of communication and negotiation to save project procurement cost. A centralized unit can feed numbers of projects at the same time.
Figure 4.3 — Centralized Procurement Unit
Instead, some items should be customized or purchase in lower numbers. This would not be cost effective if management directs time and effort to this project. For this type, managers should directly connect to local sources of procurement and cover additional cost with increase last price according to the level of customization.
Figure 4.4 — Decentralized Procurement
For bulk items there is a significant time and cost required to get the efficiency for a significant part of budget. Instead, local purchase in decentralized system is not efficient. Besides, centralized approach is required to inventory area and management and could be happen with higher speed than decentralized approach. In fact, centralized unit is a suitable model which can be enhanced through using technological and digital advancement.
Procurement combination model
As it was explained, for each type of procurement unit, there are a set of advantages according to required item and level of efficiency for purchase amount. If a company wants to reach benefits of all models, this system should be capable of flexible purchase according to purchase amount.
In new model delivery time is the main factor which is tightly related and dependent to the overall efficiency in construction project. New system can handle both customized and bulk items to get maximum efficiency required through just in time order and item delivery.
Figure 4.5 — Combination of Centralized and Decentralized Procurement
Procurement stages and steps
Flow of procurement process is like purchase behavior process in single B2B relationship and simple pre-transaction set of behavior. First stage developer should send request of purchase to get as much as possible invoices related to required fields. In next step, there should be an investigation stage to find related potential suppliers. This is the time that procurement manager should send the bidding request to encourage competition among all available suppliers. After recieveing all bids and offers, manager should select the suppliers and update database if supplier is new to our database (Fisk ER, 2003).
The general information flow of the procurement stage
Figure 4.6 — General Information Flow of Procurement Stage
The agreement should be include of all required bidding details with the most clear perspective including shipping, delivery, warranty and other required confirmed details of transaction. This agreement would be then a part of important procurement documentation which should be deliver to financial department and also cost control related areas in the organization.
4.1.5 Procurement Processes and Tools
Procurement considers one of the main parts in a construction project. In this phase, project manager have a primary outline of what should be sourced into the project. Next stage for project manager is to clarify from which source information should get obtained. Varies of records would be then utilized for selection of the best choice and combination of suppliers in which project management or recruited agent get ready for negotiation or bidding.
According to main objects of the project in timeliness and being cost effective, management should provide a list in which approved set of suppliers are available for all current and future project. Of course the entire list would always be a subject to change. Means that in the case a supplier increase its level of delivery or improve contribution to project cost effectiveness could be used in future development projects by manager.
This has been an option for construction developers to digitalize the ASL and remove redundancy over suppliers. This gives them also better chance of sorting and evaluation of existing vendors.
4.1.6 Cost control for developments
Company should be concern of the elements and factors which can negatively affect the overall; budget and time required for the project. For instance in the first stage of establishment a construction project, lack of reliable estimation and resource management, resource allocation and prioritization of entire WBS activities can easily harm the project outcomes. Management should avoid some popular paradigm in cost cutting. For example, reduce required budget may decrease the cost of activities in the first glance, however the effect might be on the quality and time of deliveries and outcomes.
Along the execution phase in construction projects, manager takes some activities as control over cost including procurement variance analysis through consideration of discrepancy between planned cost and actual spending for raw materials. This is crucial to make judgment according to analyze the cause of the difference and take the best solution to minimize these negative trends.
Basically all above could be ended in consideration of internal and external influencing factors in addition to figuring out the most appropriate strategy. Analysis and comparison must be undertaken without any delay. In transaction negotiation stage management should keep in mind to clarify all aspect of the bidding with entire required details. Vague specification may take into the advantage for some suppliers as they could deny benefits of developer from transaction.
There are two different strategies for controlling cost of procurement in a project. Corporate procurement strategy is the dependency of procurement activities to organization and its objectives. Project procurement strategy would be more concern to the relation of procurement activities (such as gather information, evaluation, selection and bidding) and internal environment of a project (Harold Kerzner, 2009).
4.1.7 Purchase process and evaluation
Negotiation is a personal skill which is required for all procurement managers and agents as a major key factor in efficient outcome. There are different objectives for negotiation beyond just to reduce the cost of purchase to minimum and take the advantages of a better pricing. Negotiators are looking to transfer the risk of transaction to the other party as much as possible.
The other objective could be to receive more and higher reliable set of services beside the required items. Warranties and transportation are very important for managers and a portion of effort in bidding must be spent to clarify these factors.
Figure 4.7 — Negotiation Processes
Negotiation includes some stages as the following figure, which outcome the agreement as a major documentation in project delivery documentation. These activities starts through an introduction for finding and agreeing on a basis common interest and should be end by details documented in the final agreement.
Key factors of evaluation
One of the major factors in evaluation is to clarify all responsibilities and roles of both parties contribution in bidding. This is also required for procurement manager to set methodologies and standards of sourcing project and agree on the exact price for major raw materials in each purchase or bidding (Ferraro, Gary P., 2002).
4.1.8 Applications in sourcing a project
Application in sourcing of construction project facilitate for manager to have a consistent and borderless access to procurement products and their suppliers from site office or any other area. In addition manager can have a fast and efficient access to updated details such as price as well as communication or transaction itself when approved.
Such procurement system is also capable of generating some value information in the form of decision support reports for managers and supplier industry players itself. Financial procurement control provides a tight monitoring atmosphere for analysis of discrepancy of estimated procurement cost with actual spending for each specific (George J. Ritz, 1994).
4.2 Construction Project Management
Management over construction projects includes all divisions of pre project activities and in addition with required set of execution and closure activities. There should be also more concern to external factors in logistic, legal and other industry attributes.
Figure 4.8 — Organizational Chart-Pre Construction Phase
This is the major reason which makes manager support the other levels and provide enough credibility to empower team working and reaching key targets. Project engineer should be aware of estimation and timeliness required for all activities. He should also be master in change management and impact analysis required as the result of improvements and external factors.
4.2.1 Project Management and Procurement
Project Procurement Manager Roles
As it was figured through analysis and revision in procurement approach, this is crucial to categorize project according to scope, size and major specification before selection of the right procurement method.
Figure 4.9 — Project Procurement Manager
Procurement manager could be agents, in home or outsource departments which are responsible to undertake the data gathering, evaluation and selection of the best sources in the market and industry.
In large scope construction development, there is normally a center of procurement cost and quality control called QS (quantity survivor) which attempts to reach higher degrees of overall project performance.
Procurement cost control
Procurement in construction consists of purchasing process for products and services with two basically objectives. First is to create new construction including the site and entire associated sub processes. Second objective have focus on the phase of maintains required for the execution phase of the project.
For management to get the best performance and result from services in the market, the best approach is full involvement of the client in entire stages of the business. A successful project is meeting the objectives in time, cost and quality as it was defined and agreed between the firm and client. In procurement stage, there are a lot of task and attributes which may have a huge impact on these 3 success factors in the construction project.
Costing in a construction project is mainly dominated through the elements of procurement and human resource required for the project. Not similar to software project which have dominated budget with human resource, construction projects have the main budget allocation to sourcing and required items. This made the cost control topic one of the main concerns for managers to reach a higher level of competitiveness and effectiveness.
Major challenges of cost control in a construction project for management of the procurement department would be to reach a reliable and accurate estimation and best evaluation, selection and bidding over required material in a project. As it discussed in the previous sections, negotiation process for procurement would be successful when the result form an agreement which represent a win-win situation.
Most of the time manager should overlook the resource selection and allocation to ensure the project is cost effective in compare to similar specification developments. Sometimes, this would be a tight control over cost associated for each single resource which might affect the project outcomes negatively.
Saving in procurement cost is a very effective way in project cost reduction since a large portion of budget is dominated by sourcing construction. Regarding this factor, delivery time is an important point to be noticed when manager select and evaluate supplier in bidding process.
Negotiation also considers an effective way to reduce cost or improve quality. Basically manager should spend more time and skill to get effectiveness in bulk items such as concrete, metal and frequently using items in construction buildings.
4.3 Business to Customer Relationship
Recent decades have more focus on the level of relationship strength rather than short term sales objective. Now a day’s business should care to sustainability factors and increase the level of reputation among the competitors to remain safe and successful in such competitive and effective business market relationship.
After cyber age in the beginning of the 21st century, B2C relationship becomes an applied topic to major industries. The B2C relation considers a powerful tool to create and achieve a better relation and effectiveness for exactly what is needed between two business parties.
According to the concentration of today’s management on the utilization of technological tools and up to date approaches, there are several trends and transformation for construction industry which form a competitive methodology and increase the sustainability in current market. Centralization of customer data and increase the power of information generation over existing form of decentralized data gathering can assist business to reach information which should be involve in the selection of strategically offensive or defensive movement in front of competitors. Segmentation of customers and target groping of potential unreached market is also a crucial way of saving cost and effort over communication required in the business. This clustering approach make the communication reach maximum of effectiveness and responding action. Therefore, after segmentation the service focus must be on the highest value customers and try to make them retain in firms share. The clustering approach gives the firm opportunity to lowering the cost of relationship and spends the rest of money to find more customers and increase its customer base.
No wonder industries faced to a higher level of adoptability, revenue and profit. Tools enable firms to communicate in a more effective way and without geographical barriers and time constraints. The effort required for such relation was less than traditional approach and quality increased for major industry rivals. System empowers firms to communicate and link old suppliers in a better and efficient ways in addition with lowering the cost and hence, for large firms this kind of saving, may reach to millions of dollars (Anon., 2006).
4.4 E-Commerce and Industry Tools
Electronic network raise the business opportunity to ignore constraints of traditional commerce in today’s market. In a perfect commerce platform, tasks and activities would be reviewed and presents through a fully integrated commerce system and therefore, there are some key features to fulfill this commerce set of objectives.
Figure 4. 10 — Marketing and Industry Tools
4.4.1 E-commerce and procurement
Digital Procurement Model
Advantages of procurement system on business cost and time consumption is a justified argument for today’s business in competitive industries. Especially in large items this type of cost saving considers to be more a necessity rather than being a choice. Table below explained the advantages and value elements of procurement system to a normal scope project in construction sector.
Sytem value features
The advantage area
Time and cost saving
Selection of best vendors
Linkage and negotiation
Best relation and result
Prevent overtime outcome
5. Research Methods
5.1 Research Organization
A well-organized data gathering tool selection should have the outcome including sufficient and reliable set of relevant and required data. Then in analysis stage, business requirement analysis should be conduct to reach the most close customer satisfaction for the final output.
There are several phases for researcher in data gathering need to be undertaken carefully as following.
Figure 5.1 — General Steps of Research Organization
In each stage, manager should monitor and control over accuracy and relevancy of the key target achieved. This is crucial for manager to ensure the selected tools are completely justified. This means that there must be a set of requirements in system and projects which is better fit to one or more methodologies. Manager should also consider the effect of external factor to the results of research. Some factors may cause bias and change or mislead the result of the approach.
5.2 Choosing suitable method
Despite varies of available data gathering approach, not any method is appropriate for construction system. Each technique has a set of advantage and disadvantage which make the project reach different degrees of requirement. Therefore manager must find the best mixture of tools and techniques which response the specification and uniqueness of the endeavor. Interview for instance is a good method according to it higher degrees of reliability. On the other hand questionnaire would be a cheap, quick and easy data gathering tool which has better and faster analysis. According to time and resource constraints in student projects, researcher needs simple planning and quick techniques (Jimme A. Keizer and Piet M. Kempen, 2006).
In this project, there would be one interview with development project manager to derive the system requirement in terms of functionalities of a B2B business. The rest of the requirements would be gathered through the design and implementation of interactive interface according to user preferences.
5.2.1 Collecting primary data: Interview
Interview is a very high reliable qualitative tool appropriate for explanatory projects and detailed requirements. Procurement system requires a set of narrative data about the difference between the standards of sourcing a project and what is practicable in the current market.
Manager can take the opportunity of describe business model and market without any involvement in writing. Besides, interviewer should ask for more details regarding the vogue answers to make all findings as clear as required.
Interview questions have been set according to the objectives and requirements of the procurement system. Major objective of the interview for this project is to find out required details of current business model in sourcing construction projects. Therefore manager were asked about the gap between planned and actual time and budgeting of the procurement and key challenges of project sourcing.
Setting out the objective division for procurement manager interview, the objectives can be divided into the areas such as Level of engagement of the process in electronic enhancements and tools, required purchase details, Risk management, Customization, Time constraints and Entire planning activities in procurement.
5.3 Research limitation
According to the nature of an individual final year project, and based on the time and resource constraints of the effort, the outcome may not be close enough to the real set of user expectations.
Based on the time, budget and resource constraints of the project, manager would not be able to gather primary information from all relevant users and developers in construction industry. Keeping in mind that managers and industry players in construction industry are not easy to interview. They are busy and their time has real value in working hours. However, according to higher reliability of interview in compare with other tools, gathered information would be sufficient to fulfill entire academic propose.
6. Analysis and design
6.1 Procurement Manager Interview
6.1.1 Respondent Interview Impression
Respondent had the feeling and willing of taking apart for exploring the details of interview. There is a great opportunity for procurement manager to describe key challenges and risks of sourcing a construction project. He also aims to enhance the process of procurement according to the practical experiences and current gaps in the whole set of activities.
6.2 Interview Questions
Please explain in details how much is your planned and actual procurement costs are aligning together?
How much project procurement engaged digitalization?
Level of engagement
What are steps in the procurement processes you are currently using for project sourcing?
In a common procurement process what are the required activities should be done?
Do you think that electronic and digital supply system can change the balance of transaction risk?
How can you control the price of customized items?
A summarized management challenges over development
6.3 Primary Feedback
Mr. Rashid bin omar
Direct Face to Face
Date and time of interview
01/28/2012 at 2: 00 pm
Please explain in detail show much is your planned and actual procurement costs are aligning together?
Initially, for every project in construction field, this is almost not possible to reach the time and cost key targets for more than 90% projects. There are a lot of variables in procurement and project sourcing which affect the result of project outcomes. Material price fluctuation and delivery time considers as the most important and influential among them.ПоказатьСвернуть