The material supply chain management in

a construction project: A current scenario in

the procurement process
Cite as: AIP Conference Proceedings 2020, 020049 (2018); https://doi.org/10.1063/1.5062675
Published Online: 05 October 2018

S. Hasim, M. A. Fauzi, Z. Yusof, I. R. Endut, and A. R. M. Ridzuan

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© 2018 Author(s).
 The Material Supply Chain Management in a Construction
Project: A Current Scenario in the Procurement Process
S. Hasim1,a), M. A. Fauzi2,b), Z. Yusof1,c), I. R. Endut1,d) and A. R. M. Ridzuan3,e)
1
Faculty of Civil Engineering, Universiti Teknologi MARA,
40450 Shah Alam, Selangor, Malaysia.
2
Faculty of Civil Engineering, Universiti Teknologi MARA Pulau Pinang,
13500 Permatang Pauh, Penang, Malaysia.
3
Institute for Infrastructure Engineering and Sustainable Management (IIESM), Universiti Teknologi MARA, 40450
Shah Alam, Selangor, Malaysia.
a)
Corresponding author: sulaimanhasim@yahoo.com
b)
azrizal_fauzi@yahoo.com
c)
zulki225@salam.uitm.edu.my
d)
z_intan@yahoo.com
e)
ruslanridzuan@yahoo.co.uk

Abstract. Supply chain (SC) is a new term that emphasizes interaction between marketing, logistics, and production. With
the application of SC, comes the opportunity primarily related to the management of procurement of logistics material
across corporate boundaries, such as between firm and its suppliers. This paper presents the existing research in the field
of materials procurement of SC which includes SC concepts and traditional management versus supply chain management
(SCM). The discussions on the evolution of SCM have also been included to show how SC is defined and practised today,
with the intention of highlighting new opportunities to improve the performance of materials SCM. This paper indicated
that SCM has transferred us from ultra-functional material chain insights to intervention and even between organizations.
The SCM concept is now commonly used in businesses for corporate interests in the SC (from organizations that extract
basic raw materials to end customers). The basic principles of SCM are integration. However, SCM is not well-known in
the construction industry. This paper considers the potential of applying SCM to integrate the construction process in
Malaysia and hence, addressing urgent issues including poor cost, practices and environmental performance associated
with the traditional process.

INTRODUCTION

Supply chain management (SCM) first appeared in 1982 and was described as an integration of end-user business
processes through an original provider that provides products, services and information that adds value to customers
[1]. SCM is a concept the originated and was developed in the manufacturing industry. The first visible signs of SCM
were in the Just in Time (JIT) delivery system, as part of the Toyota Production System [2]. This system aimed to
regulate supplies to the Toyota motor factory just at the right time. The main goal of this system was to drastically
decrease inventories and to effectively regulate the suppliers’ interaction with the production line.
The Council of Supply chain Management Professionals (CSCMP) a worldwide association of SC development
for researcher and practitioners’ states that SCM encompasses the planning and management of all activities involved
in sourcing, procurement, conversion and all logistics management activities. It also includes coordination and
collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and
customers. Meanwhile, Stock and Boyer [3] have define SCM as the management of a network of relationships within
a firm and between interdependent organizations and business units consisting of material suppliers, purchasing,
production facilities, logistics, marketing, and related systems that facilitate the forward and reverse flow of materials,

Advances in Civil Engineering and Science Technology

AIP Conf. Proc. 2020, 020049-1–020049-8; https://doi.org/10.1063/1.5062675
Published by AIP Publishing. 978-0-7354-1738-0/$30.00

020049-1
services, finances and information from the original producer to final customer with the benefits of adding value,
maximizing profitability through efficiencies, and achieving customer satisfaction. SCM is a network of facilities that
produce raw materials, transform them into intermediate goods and then final products, and deliver the products to
customers through a distribution system [4-7].

The Chronology of SCM

SCM was created in the early 1980’s era and have developed from time to time, as it became a useful tool to
integrate business stakeholders for effective and efficient business delivery. The chronology eras of SCM is described
in Table 1.

TABLE 1. Chronology eras of SCM [8-10]

Era Development
Creation The term SCM was first coined by an American industry consultant in the early 1980s.
However, the concept of the SC in management, was of great importance long before
in the early 20th century, especially by the creation of the assembly line.
Integration This era of SCM studies was highlighted with the development of Electronic Data
Interchange (EDI) systems in the 1960s and developed through the 1990s by the
introduction of Enterprise Resource Planning (ERP) systems.
Globalization This era is characterized by the globalization of SCM in organizations with the goal of
increasing competitive advantage, creating more value-added, and reducing costs
through global sourcing.
Specialization era phase In the 1990s industries began to focus on ‘core competencies’ and adopted a
one-outsourced specialization model. Companies abandoned vertical integration, sold off non-core
manufacturing & operations, and outsourced those functions to other companies.
distribution
Specialization phase two – Specialization within the SC began in the 1980s with the inception of transportation
SCM as a service brokerages, warehouse management, and non-asset-based carriers and has matured
beyond transportation and logistics into aspects of supply planning, collaboration,
execution and performance management.
SCM 2.0 Web 2. 0 is defined as a trend in the use of the World Wide Web that is meant to
increase creativity, information sharing and collaboration among users.

SCM in Construction Industry

The construction industry is one of the productive industry which plays an important role in the national social-
economies. This industry helps in generating wealth and development of the country. However, the construction
industry often associated with poor performance such as time and schedule overruns, poor health and safety
performance, product defects and high wastage. Hence, studies on the implementation of SCM in the construction
industry has been taken up by some researchers. Aneesa et al. [11] mentioned that SCM provides a great opportunity
for the construction industry primarily to reduce cost and time and thus improve the profitability of the construction
projects.
Vrijoef and Koskela [12] characterized the SC in construction as converging at the construction sites where the
object is assembled from incoming materials, temporary producing on‐site and off‐site construction projects through
repeated reconfiguration of project organizations separated from the design and typical make-to-order SC with every
project creating a new product or prototype. Tiwari et al. [13] also concluded that the contribution of SCM to the
construction industry includes cost and performance modelling of subcontractor and supplier production; improved
scheduling methods, particularly regarding the design and placement of buffers against uncertainty and changes;
Improved subcontractor coordination methods by linking site production to resource management; Improved
accounting and production control systems.

020049-2
 TRADITIONAL MANAGEMENT VERSUS SCM IN PROCUREMENT

Construction procurement is the overall process of identifying, selecting and obtaining all materials for the
construction process. The 'traditional' procurement route, sometimes referred to as 'design bid build' (or 'bid build' by
contractors) remains the most commonly used method of procuring building works. The client first appoints
consultants to design the project in detail, and then prepare tender documentation, including drawings, work schedules,
and bills of quantities. Contractors are then invited to submit tenders for the construction of the project, usually on a
single-stage, competitive basis. This may be referred to as a 'traditional contract'. The contractor is not responsible for
the design, other than temporary works, although some traditional contracts do provide for the contractor to design
specific parts of the works.
Typically, the client retains the design consultants during the construction phase to prepare any additional design
information that may be required, to review any designs that might be prepared by the contractor, and to inspect the
works. Normally, one consultant (often, but not necessarily, the architect) will be appointed to administer the contract.
Traditional construction contracts are most commonly lump-sum contracts, however, measurement contracts and cost
reimbursement contracts can also be used for ‘traditional’ projects where design and construction are separate,
sequential activities.
This form of procurement is suitable for both experienced and inexperienced clients. Fully developing the design
before tender gives the client certainty about design quality and cost, but it can be slower than other forms of
contracting, and as the contractor is appointed only once the design is complete, they are not able to help improve the
buildability and packaging of proposals as they develop. It is considered as being a low-risk method of contracting for
the client, as the contractor takes the financial risk for construction. However, if design information is incomplete at
the tender, or if significant variations are required after the contractor has been appointed, the cost to the client can be
significant. Because of this, and because of the separation of design and construction, traditional procurement can be
seen as adversarial. The most common forms of the traditional contract remain the JCT (Joint Contracts Tribunal)
Standard Building Contract, Intermediate Building Contract, and Minor Works Building Contract.
Cooper and Ellram [14] mention that the shift from traditional ways of managing the SC towards SCM includes
various elements as shown in Table 2. The traditional way of managing is essentially based on a conversion (or
transformation) view on production, whereas SCM is based on a flow view of production. The conversion view
suggests that each stage of production is controlled independently, whereas the flow view focuses on the control of
the total flow of production [15].

TABLE 2. Characteristic differences between traditional ways of Managing the SC and SCM [14]
Element Traditional management SCM
Inventory management Independent efforts Joint reduction of channel inventories
approach
Total cost approach Minimize firm costs Channel-wide cost efficiencies
Time horizon Short term Long-term
Amount of information Limited to needs of current transaction As required for planning and monitoring
sharing and monitoring processes
Joint planning Transaction-based Ongoing
Compatibility of corporate Not relevant Compatibility at least for a key relationship
philosophies
The breadth of the supplier Large to increase competition and spread Small to increase coordination
base risks
Channel leadership Not needed Needed for coordination focus
Amount of sharing risks Each on its own Risks and rewards shared over the long-term
and rewards
The speed of operations, ‘Warehouse’ orientation (storage, safety ‘Distribution centre’ orientation (inventory
information and inventory stock) interrupted by barriers to flows, velocity) interconnecting flows; JIT, quick
levels localized to channel pairs response across the channel

020049-3
 CURRENT PRACTICES OF PROCUREMENT PROCESS BY USING TRADITIONAL
CONTRACT

The critical role of materials management in the success of a construction project motivates the development of a
new framework for the process of materials management for the construction industry. Currently, materials
management functions in the construction industry are often performed on a fragmented basis with minimal
communication and no clearly established responsibilities among the parties involved [16]. The government spends
billions of dollars each year in the provision of goods and services that are needed to deliver public policy and business
objectives. Good public service outcomes depend on good procurement. Properly planned and effectively executed
procurement is essential for all agencies.
Procurement represents the process of obtaining goods and services from preparation and processing of a
requisition through to receipt and approval of the invoice for payment and is highly bound to SCM. Purchasing is
responsible for acquiring all the materials needed by an organization. Purchasing is the function responsible for issuing
purchase orders and initiating the flow of materials [17]. It is argued that purchasing describes the actual buying, while
procurement has a broader meaning which includes several types of acquisition (leasing, rental, contracting, etc.) as
well as the associated work of identifying and selecting suppliers, negotiating, agreeing on terms, expediting,
monitoring supplier performance, analyzing orders, material administration, and others. But these differences are
largely semantic and thus the focus is on the principle rather than drawing artificial boundaries around functions. The
procurement department’s mission is to provide the organization with the right amount of the right product, at the
right time at world-class costs. Procurement can be defined as the acquisition of goods or services. Procurement
(contracting) is a process that involves two parties with different objectives who interact on a given market segment.
Good procurement practices can increase corporate profitability by taking advantage of quantity discounts, minimizing
cash flow problems and seeking out quality suppliers. Since procurement contributes to profitability, procurement is
often centralized, which results in standardized practices and lower paperwork costs.
The 'traditional' procurement route, sometimes referred to as ‘design bid build’ or ‘bid build’ by contractors
remains the most commonly used method of procuring building works. The client first appoints consultants to design
the project in detail, and then prepare tender documentation, including drawings, work schedules, and bills of
quantities. Contractors are then invited to submit tenders for the construction of the project, usually on a single-stage,
competitive basis. This may be referred to as a 'traditional contract'. The contractor is not responsible for the design,
other than temporary works, although some traditional contracts do provide for the contractor to design specific parts
of the works.
Typically, the client retains the design consultants during the construction phase to prepare any additional design
information that may be required, to review any designs that might be prepared by the contractor, and to inspect the
works. Normally, one consultant (often, but not necessarily, the architect) will be appointed to administer the contract.
Traditional construction contracts are most commonly lump-sum contracts, however, measurement contracts and cost
reimbursement contracts can also be used for ‘traditional’ projects where design and construction are separate,
sequential activities. This form of procurement is suitable for both experienced and inexperienced clients. Fully
developing the design before tender gives the client certainty about design quality and cost, but it can be slower than
other forms of contracting, and as the contractor is appointed only once the design is complete, they are not able to
help improve the buildability and packaging of proposals as they develop. It is considered to be a low-risk method of
contracting for the client, as the contractor takes the financial risk for construction. However, if design information is
incomplete at the tender, or if significant variations are required after the contractor has been appointed, the cost to
the client can be significant. Because of this, and because of the separation of design and construction, traditional
procurement can be seen as adversarial.
The most common forms of the traditional contract remain the JCT (Joint Contracts Tribunal) Standard Building
Contract, Intermediate Building Contract, and Minor Works Building Contract. A large proportion of the construction
cost is material cost, hence optimizing materials cost can provide great economic benefit. Therefore, it is necessary to
control the main material cost for construction projects strictly. The main material means that the material is less in
variety while a large quantity of funds needed, such as steel bar and cement which generally accounts for a total fund
of between 60% to 80% [18]. Materials are one of the elements that require special attention when creating a project
master plan as well as during the daily construction progress. The absence of materials, when needed, is one of the
main causes of loss of productivity at a job site. Inefficient materials management can lead to an increase of 50% in
work hours. Thus, a detailed plan for the materials management of each construction project is very much necessary.

020049-4
 PRELIMINARY PLANNING

An effective and efficient materials procurement system should be created for all construction projects. Potential
material yields lead to major delays in construction projects. Therefore, the procurement process of the material needs
to be well implemented by improving the procurement process to avoid the delay of supply [19]. Some studies have
suggested several ways to make an effective and efficient procurement system during the initial/preliminary planning
which includes the following:

x Construction team involvement in the estimation of construction material

Variations present problems to all parties involved in the construction process. The nature of variation was
identified as omission, addition, and the combination of both. To meet this challenge successfully, project
participants can minimize variations with extra careful, design stage and during construction. Continual
improvements in building design and construction must be made. Building designers and constructors should be
alert to these advances and learn how to apply them skillfully [20].
x Using computer applications for estimation
The use of software for estimating is in wide price now especially with the introduction of computer-aided design
(CAD). This practice hinges its success on the experience of the estimator as the data garbage in will be garbaged
out. The software still needs data on prices of materials, labour, overheads, equipment etc. for processing [21].
x Identify needed materials to be used and estimate quantities
The material quantities required for the assessments of the product stage were based on the bill of quantities
(BOQ) of a real-world case building, which is described in further detail later. The BOQ was derived from the
building’s building information model (BIM), hence offering a high level of accuracy in material amounts. For
calculation purposes, the materials of the BOQ were categorized under nine identified main material groups,
namely: aluminium, concrete, copper, fossil materials, gravel, other mineral resources, steel, wood boards, and
other wood-based products [22]. As described by Love [23], building construction estimating is the
determination of probable construction costs of any given project. Many items influence and contribute to the
cost of a project; each item must be analyzed, quantified, and priced. Because the estimate is prepared before the
actual construction, much study and thought must be put into the construction documents. The estimator who
can visualize the project and accurately determine its cost will become one of the most important persons in any
construction company.
x Classify major materials that need to be fabricated
Some designers pointed out that in Hong Kong, users usually prefer the traditional types of building elements
and components (e.g. cast in-situ concreting, masonry walls) to prefabrication elements due mainly to some of
the poor past records of performance of the older types of prefabricated units. Although advancements in
technology have already greatly improved the quality of prefabricated building products, only after the mindset
of designers and users are changed can prefabricated building elements become more popular in the industry
[24].
x Identify locally available materials
A study conducted by Danso [25], found that low strength, frequent maintenance, the requirement of intensive
labour work and easily wearing or erosion of the materials were found to be the major problems associated with
houses built with locally available materials in Ghana. Hence, he recommended for adoption and improvement
of the locally available materials for building houses is made.
x Request quotations from different suppliers
Request for quotation (RFQ) is a standard business process whose purpose is to invite suppliers into a bidding
process to bid on specific products or services. RFQ generally means the same thing as IFB (Invitation for Bid).
An RFQ typically involves more than the price per item. Information like payment terms, quality level per item
or contract length may be requested during the bidding process [26].
x Establish construction materials prices database
The first step was to benchmark SC costs to see how this company stacked up against other similar companies.
The benchmark revealed that because of previous cost reductions, the company was already well below industry
cost averages in most areas. The potential for large additional reductions was not there. Distribution
administration costs were already down. Some significant dollars could be saved by the more intensive

020049-5
 management of global transportation costs, and there was some potential for reducing inventories by managing
mix more intensively [27].
x Rely on the price of material suppliers
Ciliberti et al. [28] in the research findings indicated that single sourcing is a dominant strategy only when
supplier capacities are large relative to the product demand and when the firm does not obtain diversification
benefits. In other cases, we find that multiple sourcing is an optimal sourcing strategy. We also characterize a
non-intuitive trade-off between supplier minimum order quantities, costs, and supplier reliabilities.
x Rationalize the material prices used in the tender estimation
A further improvement of internal purchasing routines was made when purchasing cards were introduced. Using
these cards meant significant administrative processing savings since purchasing requisitions and purchase
orders could be eliminated. However, internal efforts to reduce cost while maintaining many suppliers can only
take the firm to a certain point after which there are no additional cost rationalizations to be obtained in-house.
Therefore, companies seem to be abandoning this philosophy, favouring consolidation to fewer suppliers [29].
x Shortlisting the potential suppliers
The NZ Transport Agency’s Procurement manual [30] consider shortlisting if it will reduce the total cost of the
supplier selection process. However, before deciding to shortlist, consider; the cost to potential suppliers and the
approved organization; time savings (urgency) and the features of the output to be purchased and the supply
market (i.e. consider differences in quality and in the price of the outputs between suppliers).
x Plan for materials requisition schedule
Material Requirements Planning is a time-phased priority-planning technique that calculates Material
requirements and schedules supply to meet demand across all products and parts in one or more plants.
Information Technology plays a major role in designing and implementing Material Requirements Planning
systems and processes as it provides information about manufacturing needs (linked with customer demand) as
well as information about inventory levels. MRP techniques focus on optimizing inventory. MRP techniques
are used to explore bills of material, to calculate net material requirements and plan future production [31].
x Evaluate the capability of supplier’s material delivery
The ability of the supplier to follow the predefined delivery schedule is always the prime criteria for selection in
this fast-moving world. This means that suppliers who keep their promises are easier and profitable to work with
Fawcett and Magnan [32].
x Select suppliers based on lowest price
Bergman and Lundberg [33], in the non-complex situation, when the costs of producing to different quality level
are well known and several firms can provide optimal quality, lowest price, is a simple and robust supplier
selection method and is to be preferred.
x Obtain materials requisition schedule
Material Requirements Planning (MRP) is a computer-based production planning and inventory control system.
MRP is concerned with both production scheduling and inventory control. It is a material control system that
attempts to keep adequate inventory levels to assure that required materials are available when needed. MRP is
applicable in situations of multiple items with complex bills of materials. MRP is not useful for job shops or for
continuous processes that are tightly linked [34].
x Assessment and updating database
Progressive organizations are seeking to optimize their SCs to gain and maintain a competitive advantage in
turbulent markets. To do this they must create alliances with their SC partners in general and suppliers. The
must also be selective with whom they form close business relationships. They must identify the best suppliers
that will satisfy their specific requirements, provide high levels of operational performance and complement their
competencies to advance their market position [35]. In measuring current practice against intended actions, there
is a gap in the assessment of suppliers as to their environmentally responsible processes and products. This gap
is not only in the form of a framework for supplier decision making when dealing with environmental issues, but
also exists in measurements and supplier assessment programs [36].

CONCLUSIONS

SCM directs our thinking towards opportunities available, by managing functional and corporate boundaries in the
traditional procurement. While SCM is a new term to describe the management of product flow activities, the concept
has been tied to physical distribution and logistics since the early 1960s. What's new is the emphasis given to border

020049-6
management. Exploring opportunities provided by SCM in materials procurement is a popular research area. SCM
elements are captured in a highly functioning, interfunctional coordinate trilogy and between organizations through
the procurement process. Many efforts throughout the year have been directed to manage intra-product flow activities,
perhaps because they are under the immediate control of product stream managers and are easiest to achieve. The
outward alignment of the function is difficult but offers an unprecedented promise of opportunity in SCM materials
procurement. Identification of boundary opportunities is quite simple, at least in theory. Armed with basic
management data and models, the benefit of managing functional conclusions or between organizations can be shown.
The materials management functions in the construction industry are often performed on a fragmented basis with
minimal communication and no clearly established responsibilities among the parties involved. The difficulty is still
in achieving the expected benefits. Since cooperation in traditional method is usually among the same members who
have different or separate reward systems separately, experts need to realize the benefits of their cooperation.
Balancing this benefit so that all members are better off for their collaboration is a new challenge for SC managers. A
new approach in the traditional process is needed in managing and finding ways to measure and report costs and other
data, such as customer demand and services that cover corporate boundaries; share information on the level of benefits
and place of their members living; and redefine the benefits that put some channel members in worse condition because
of their collaboration.

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