SA needs constructive collaboration

SCIR 2009 incorporated the Complexity Masters theorem, developed and published by Deloitte in 2003. The theorem holds that companies in South Africa with complex value chains and the capability to properly manage those complex value chains are 73% more profitable than their peers.

Once the SCIR 2009 survey was completed individual sectors were analysed, including the construction industry. The results proved to be very revealing in terms of how the construction industry is not collaborating both forwards and backwards along the supply chain, and the impact this has on visibility.

Availability of information

When construction industry respondents were asked whether they are satisfied with the availability of information in their supply chain, only 58.2% of the respondents indicated that they were either “satisfied” or “very satisfied” with the visibility in their supply chain - a figure approximately 8% below the total sample.

The highest levels of satisfaction for supply chain visibility were for customer profitability (75.0%), stock levels of processed /finished goods in the supply chain (75.0%) and stock level of finished goods in the retail outlets (75.0%). The satisfaction with visibility of stock levels at suppliers was slightly less, at 66.7%.

The greatest area of dissatisfaction around available information was for logistics and distribution costs (66.7%). Overall these results indicate that the construction sector appears to have marginally better supply chain visibility downstream than upstream.

Low collaboration

When asked to indicate areas of collaboration between their company, suppliers and customers only 40% of respondents indicated that they are collaborating with suppliers on production planning and 30% on strategic planning. This stands in stark contrast to the Complexity Masters who reported 66.7% and 55.6% respectively for the same vital areas. In an industry which feels the impact of the skills shortage significantly, only 20% of construction companies are collaborating with suppliers around this issue - as opposed to 55.6% of Complexity Masters.

Perceived risks

The greatest perceived risk in collaborating with customers is loss of accountability, loss of flexibility, a decrease in efficiency in the short and medium term, and loss of competitive advantage (all at 62.5%). With respect to suppliers, the biggest perceived risks in collaboration are loss of flexibility, increase in costs in the short and medium term, and damage to their brand or reputation (also all at 62.5%).

While some of these perceived risks are very real, their effects can be mitigated through proper planning, a common understanding and open dialogue between the parties involved. Ultimately the benefits to be gained for all members of the collaborative relationship are greater than the perceived risks.

High reactivity

The construction sector did achieve a high rating for its reactivity, however this is likely to be a skill developed due to the cyclical nature of the industry, and as a reaction to the poor visibility levels it has brought upon itself. Overall the industry has lower scores than both the main sample and the Complexity Masters for collaboration both with suppliers and customers, indicating a general attitude or way of doing business which is out of sync with new age management practise in a globalising world, and poses serious implications for the industry's long term competitiveness and profitability.

Given the long lead times of the industry, both in the selling cycle and in the production cycle, attention to the collaborative aspects of the industry becomes even more important. Construction leaders would do well to study how the habits of the Complexity Masters have affected their bottom lines and their sustainability, and to creatively assess how this could be used in their own companies.

About SCIR

Developed and compiled by TerraNova Research, the SCIR is an annual, independent and international study into the supply chain and logistics practices of emerging economies around the world. The aim of the survey was to uncover the approaches that the most successful companies in the country have adopted to ensure competitive advantage. Findings show that greater visibility and reactivity in supply chains minimise the challenge of planning and forecasting and result in greater levels of competitive advantage and profitability.