Department of the Environment,
Transport and the Regions
Rethinking Construction
CHAPTER 4
Enabling Improvement
Long Term Relationships
- An essential ingredient in the
delivery of radical performance improvements in other
industries has been the creation of long term
relationships or alliances throughout the supply chain on
the basis of mutual interest. Alliances offer the
co-operation and continuity needed to enable the team to
learn and take a stake in improving the product. A team
that does not stay together has no learning capability
and no chance of making the incremental improvements that
improve efficiency over the long term. The concept of the
alliance is therefore fundamental to our view of how
efficiency and quality in construction can be improved
and made available to all clients, including
inexperienced ones.
- We have already mentioned the need for long term
relationships in construction in the previous section
where we discussed partnering the supply chain.
Partnering on a series of projects is a powerful tool
increasingly being used in construction to deliver
valuable performance improvements. We are proposing that
the industry now goes a stage further and develops
long-term alliances that include all those involved in
the whole process of delivering the product, from
identification of client need to fulfilment of that
need.
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Long Term Relationships
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The Whitbread Hotel Company rationalised its
supply chain from 30 contractors to 5 and embarked
on long-term partnering arrangements. Working on
the basis of mutual interest, a construction
strategy, objectives and improvement targets are
set through negotiation between Whitbread, its
partners and the supply chain. Whitbread shares its
five year business plan with its partners so that
they contribute proactively to the achievement of
Whitbread's objectives whilst planning their own
businesses with greater effectiveness. Whitbread
agrees fixed amounts for contractors' profits and
overheads and shares savings from performance
improvement with its partners. Competition within
the supply chain focuses upon delivering
continually improving performance.
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- In this connection, the Task Force wishes to
see:
- new criteria for the selection of partners. This is
not about lowest price, but ultimately about best overall
value for money. Partnering implies selection on the
basis of attitude to teamworking, ability to innovate and
to offer efficient solutions. We think that it offers a
much more satisfying role for most people engaged in
construction;
- all the players in the team sharing in success in
line with the value that they add for the client. Clients
should not take all the benefits: we want to see proper
incentive arrangements to enable cost savings to be
shared and all members of the team making fair and
reasonable returns;
- an end to reliance on contracts. Effective partnering
does not rest on contracts. Contracts can add
significantly to the cost of a project and often add no
value for the client. If the relationship between a
constructor and employer is soundly based and the parties
recognise their mutual interdependence, then formal
contract documents should gradually become obsolete. The
construction industry may find this revolutionary. So did
the motor industry, but we have seen non-contractually
based relationships between Nissan and its 130 principal
suppliers and we know they work;
- the introduction of performance measurement and
competition against clear targets for improvement, in
terms of quality, timeliness and cost, as the principal
means of sustaining and bringing discipline to the
relationships between clients, project teams and their
suppliers. The evidence we have seen is that these
relationships, when conducted properly, are much more
demanding and rewarding than those based on competitive
tendering. There are important issues here, particularly
for the pubic sector.
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Replacing Contracts with Performance
Measurement
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Nissan UK and Tallent Engineering Ltd have no
formal contract beyond an annual negotiation of the
cost and quality of the rear axles that Tallent
produce for Nissan's cars, and rigorous targets for
improving performance. Each morning Tallent
receives an order from Nissan detailing the precise
mix of axles required by Nissan and five times a
day Tallent deliver to Nissan's Sunderland plant.
If a problem was to occur with quality Tallent
would send engineers to Nissan to fix it on the car
production line. If a problem resulted in a
significant loss of production, Nissan would expect
to compensate Tallent for lost business or vice
versa, but this has never happened and both sides
work hard to ensure it cannot. Both Nissan and
Tallent use similar no-contracts relationships with
the firms delivering their construction
projects.
Nissan 's QCDDM supply chain management system
is acknowledged to be among the most effective in
the world. It measures all suppliers on
Quality, Cost, Delivery,
Design and Management against
negotiated continuous improvement targets. For each
element the supplier is marked on a range of
product and process items which are aggregated on a
weighted basis to give a performance percentage for
that element. Competition is created across the
supply chain by collating the performance
information every month and informing each supplier
of its performance in relation to the others.
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- Such relationships inevitably require mutual
interdependence, some continuity in workflow and, if not
stability, at least greater predictability. The Task
Force recognises that this can be difficult for the
construction industry. It is also potentially difficult
for many clients. However,experience suggests that long
term satisfactory partnering arrangements themselves
generate greater continuity in workload, and this may be
especially true in a construction industry in which an
increasing premium is being placed by clients on
quality.
Reduced Reliance on Tendering
- The most immediately accessible savings from
alliances and partnering come from a reduced requirement
for tendering. Whilst this may go against the grain,
especially for the public sector, it is vital that a way
is found to modify processes so that tendering is
reduced. Clients may well ask how they can be satisfied
that they are getting value for money. The answer lies in
comparison between suppliers and rigorous measurement of
their performance. With quantitative performance targets
and open book accounting, together with demanding
arrangements for selecting partners, the Task Force
believes that value for money can be adequately
demonstrated and properly audited. We invite the
Treasury, with DETR, to consider the appropriate
mechanisms further and give guidance to public
bodies.
- The radical changes required in the culture of the
construction industry are likely to mean that there will
be fewer but bigger winners. The Task Force's view is
that those companies with the right culture deserve to
thrive. Cut-throat price competition and inadequate
profitability benefit no-one. For the sake of the
long-term health of the industry and its clients we wish
to see a culture of radical and sustained improvement in
performance enabled in UK construction.
Published 16 July 1998
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