Realising the extraordinary: aligning clients and supply chains for success

By Elaine Hobbs (Project Director) and Ian Ballentine (Head of Global Programme Advisory)

Challenges for traditional supply chain models

The pace of industry change facing organisations is exceeding many business’ capacity and capability to adapt. At the same time, governments and the construction industry are driving innovation and evolving to enable more collaborative ecosystems and agile environments to foster greater success.

In response, organisations are adopting approaches to drive greater certainty in cost, value and performance in the delivery of major projects. These approaches include modular and off-site build solutions, which enable a repeatable delivery environment for the supply chain while enabling clients to become more capable owners. However, this requires substantive change across various business functions as well as upfront investment and focus.

Client organisations are also evolving their behaviours as they seek closer integration with those developing and delivering major projects, including their supply chains. They are increasingly looking to understand all work package requirements, how they interrelate across the programme and the outcomes they are ultimately seeking to achieve (whilst balancing different drivers for success). This recognises that one size doesn’t fit all when it comes to maturity of build approaches/risk, and that project drivers and levels of controls vary.

As end-to-end delivery understanding increases within client organisations, there is greater recognition and need for closer relationships between the client organisation and their supply chains – this means not just penetrating the Tier 1 work, but often further down into Tiers 2 and 3. This deeper level of understanding must be supported by clear visibility of obligations between each party within the supply chain (including the client organisation itself).

These trends are being fuelled by historic challenges, which have been recently amplified by the global pandemic’s disruption.

1. Market volatility and uncertainty: Client organisations are too often driving up costs artificially as they compete against themselves and each other for goods and services. Negative impacts are being seen on project productivity and ultimately schedule delivery due to workforce isolation and remote working practices. A domino effect is created where, for example, there is greater competition and demand for specialist skills, which in turn increases commercial pressures. This adds to the pressures on leaders to develop requirements to ever-greater time and cost constraints. All this must be done while supporting broader socio-economic outcomes and navigating market influences such as tariffs and sustainability. Supply chains are themselves competing for work, which is driving down pricing, prompting concerns about their resilience.
2. Lack of transparency and visibility of supply chains and critical suppliers in the extended supply chain: There is often limited visibility of sub-contractors and suppliers below Tier 2. However, organisations are becoming increasingly dependent on – and demanding of – their supply chains, without fully understanding their role, challenges at different tiers, what they need from their supply chain and what, in turn, the supply chain needs from them. This was evidenced in our market poll in March 2021 where only six percent of poll respondents felt that more clarity of the client organisation’s role was critical for enabling better understanding and support for supply chains. If visibility and understanding at a programme-level of criticality are inconsistent, there will frequently be a barrier to successful delivery which results in ineffective demand planning and low supply chain resilience.
3. Rigid approach to supply chain operation: Organisations still adopt traditional supply chain models, where risk is typically pushed down through the tiers and the focus is on contract control and delivery, rather than the overarching set-up of the project as a whole and its defined business case outcomes. Increasingly, organisations are now seeking to generate and access innovation and agile ways of working to increase value in project outcomes. However, these are often ‘bolt-on’ requirements on top of a traditional style market approach, rather than engendering this within the whole project life in terms of delivery methodology and culture.
   
   A more agile approach requires clients and supply chains to develop greater trust and fostering collaborative ways of working much earlier in the lifecycle, which can only be achieved if the project understands and implements the right project operating model from the outset. An example of such a collaborative outcome-based project delivery model, Project 13, was adopted at Sellafield in the UK. This aimed to create a high performing enterprise, blurring traditional organisational boundaries via a project delivery ecosystem.
4. Supply chain collaboration and understanding blockers: More than 40 percent of polled industry participants in March 2021 believed that increasing collaboration was fundamental for better enabling and understanding the supply chain. Poor collaboration within supply chains is prevalent, exacerbated by numerous ‘blockers’, which can include a lack of clarity of joint outcomes between clients and supply chains, misalignment of culture/behaviours, and overall poor performance management. This is evident in the levels of risk commonly pushed down the supply chain due to ease rather than where it can best be managed.
   
   In addition, inconsistency in commercial strategies and engagement with different tiers within supply chains, without proper alignment, is creating a breeding ground for discord. Ultimately, this is increasing risks and cost in major project delivery.

Trends in client operating models and supply chain impacts

So why is this happening when this has been known for so long? The main reason is the fact that no two projects are the same (making it hard to know the true cost of a scheme). Also, for many client organisations, there is a lack of competition that we see in other industries such as manufacturing and consumer goods, which have forced the costs down.

Over the past 12 months, we have seen an increasing recognition that for client organisations to succeed, they must have a stronger and more proactive relationship with their supply chain. They must view and value their supply chain as if it were a function within their organisation and bring them into strategic discussions and understand their role, as well as their supplier’s challenges.

There are two divergent trends in client operating models which are emerging linked to this:

• Creating a more strategy-focused client organisation: Organisations operating transport services (such as aviation and rail) have seen their footfall-based operating models hugely impacted by the pandemic. They are now concentrating on significantly reducing overheads by focussing their capability on the strategic development and oversight of their capital programme and moving all the downstream control and transactional activities down into the supply chain. This approach requires support through the right level of proactive data/reporting so that the client organisation can proactively manage strategy and anticipate future forecast issues which may emerge. This change is reducing client overheads, but also enabling a stronger strategic focus and capability on how projects should be developed and delivered - whilst allowing the execution of these strategies to be managed by the supply chain.
• Creating a more capable client organisation: Other organisations less impacted in terms of footfall and revenue, are still seeking to drive efficiency by becoming far more engaged in design and construction. They are enabling this approach by strengthening and evolving their in-house client capability, where this cost of investment is easily recovered through reduced contingency levels and lowered unit build costs.

Both trends have the same underlying driver to increase the role of the client organisation and its effectiveness, by streamlining governance, increasing strategic knowledge/capability and removing man-marking through smarter integrated delivery models.

End-to-end solutions to support client organisations and suppliers

Organisations and capital delivery teams are shifting their attention to designing complete end-to-end project solutions at the outset, rather than waiting for the green light and everyone racing forward only focussing on the project tasks. This demands a focus on how the programme is set-up and transitions through its life. It takes the emphasis away from milestones and outputs, putting the focus instead on aligned outcomes, integrated functions, and integrated supply chain lifecycle models. It also requires broader capabilities and understanding across functions from the senior leaders, rather than purely in-depth project management/technical skills.

Our work on global major projects has shown that the creation of a structured and aligned supply chain requires:

• Visibility and transparency: enable effective decisions and productivity through data and analytics, which is supported by an ecosystem structure, supply chain mapping and demand planning
• The right behaviours: to empower the supply chain to innovate, problem-solve and promote a collaborative culture. The right behaviours start with the client, not the supply chain.
• A single risk-based lifecycle process, enabled by the right environment: this includes digitalisation to create modern new ways of working and supply chain processes integrated into the lifecycle (not added on top). Combined, this single process-based approach enables the supply chain to be a part of the client organisation, rather than being treated as an external supplier.

These factors, when combined, enable one integrated organisation where both the client organisation and supply chain operate in a fully aligned way. This integrated approach drives project delivery success by enabling a different approach to integrating the supply chain with the client organisation, coupled with the client recognising the role it needs to enable a single project ecosystem.

Ultimately, this approach can help future-proof an organisation by providing certainty of delivery through a collaborative, enabled and resilient supply chain that understands and is bound into the outcomes for the client. For suppliers it also provides certainty and an additional route to innovate, collaborate and generate future business.

Supply chain integration and alignment 

The following priorities have been identified to integrate and align the supply chain:

1. Aligned operating, commercial and governance approaches

Leadership teams must treat their supply chains like they were a part of their organisation and proactively identify or form the linkages between the target operating model, overall commercial lifecycle, client and market engagement strategies and outcomes. Both client organisation and supply chains must clearly define and understand where responsibilities sit across the lifecycle and what the respective cultures and behaviours are to enable alignment.

To support this, it is key that organisations examine and understand their cultures and behaviours, as well as expectations of the supply chain and adapt wider models to encourage alignment, clearly setting the direction for success and providing clarity and focus on joint outcomes. This is supported by embedding joint governance, integration of processes and embracing digitalisation of approaches to create new ways of working and consistency.

2. Increase visibility through mapping and understanding

Organisations need a clear understanding of their role, capabilities and capacity on which the supply chain can then be mapped. This will build an increased understanding of their supply chain to avoid misalignment of outcome and inconsistent priorities.

To ensure successful delivery of programme outcomes, client organisations should undertake comprehensive supply chain mapping, going beyond Tier 1 into sub tiers to identify supply chain opportunities and unseen vulnerabilities. This should be underpinned by scenario planning including ‘worst case’ scenarios that create transparency of fragility or resilience challenges, to enable removal of blockers within the different tiers. Once mapping is completed, performance monitoring through digital systems and data must become ‘business as usual’ to maintain visibility and enable proactive action when needed.

3. Empower supply chains and treat them as part of the organisation

Organisations and supply chains must be unified and have joint or aligned cultures and behavioural approaches and ways of working. By ‘de-badging’ and having a ‘one team’ approach collaboration and innovation will thrive. For the client organisation, there must be a vision, objectives, expected outcomes and recognition of its responsibility to enable the supply chain to perform. The client organisation must consider ‘enablers’ (e.g. freezing design early, articulating the stages of the programme and lifecycle milestones, streamlining governance and empowering innovating) and work with suppliers to enable and buy-in to them. The organisational approach needs to be continuously monitored and measured by undertaking a gap analysis to ensure it continues to be effective. This can then inform and enable a sustainable approach and reciprocal alignment (mirroring).

4. Create a ‘seamless organisation-supply chain’ by harnessing demand planning

Demand planning is one way that organisations can operate as ‘one’ as it provides a clear understanding of requirements, risks and milestones. Creation of a seamless organisation and supply chain requires end-to-end visualisation of project and programmes and support through the right level of proactive data/reporting so that the client organisation can proactively manage strategy and anticipate future issues which may emerge. It also requires identification of where waste can be driven out of programmes and establishment of a flow between the overall delivery programme, and the specific daily activities each supply chain partner needs to deliver.

For further information contact:

To explore how organisations and supply chains are creating a seamless organisation and request a copy of our full report email [email protected].