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Capital Projects Supply Chain Management:
SC Tactics of a Supplier Organization
Iris D. Tommelein*, Nadia Akel**, and J.C. Boyers***
* Professor, Civil and Envir. Engrg. Department, 215-A McLaughlin Hall, Univ. of California,
Berkeley, CA 94720-1712, 510/643-8678, FAX 510/643-8919, tommelein@ce.berkeley.edu
** Ph.D. Student, P.E., Civil and Envir. Engrg. Department, 215 McLaughlin Hall, Univ. of
California, Berkeley, CA 94720-1712, TEL 925/465-4655, ngakel@uclink4.berkeley.edu
*** Corporate Alliance Team Operations Manager, Butler Manufacturing Company, 700 Karnes
Blvd. (64108) P.O. Box 419917, Kansas City, MO, 64141-0917, 816/968-3914, FAX: 816/968-
4385, jcboyers@butlermfg.com
Abstract
Supply chain management (SCM) is increasingly getting attention from companies involved in
the delivery of capital projects, but some companies have strategically been pursuing SCM for
many years already. Recognizing the different levels of SC maturity among engineering and
construction firms, we intend with this paper to pique interest in SCM for those who are not yet
practicing it. This paper describes a multitude of supply-chain tactics that one supplier
organization has implemented. The company described in this case study designs, fabricates, and
erects pre-engineered metal buildings and components. The company also has subsidiaries that
manufacture other building products. Recognizing the value of SCM, competitors in this sector
of the engineering and construction industry as well as companies in other sectors may want to
assess under what circumstances these SC tactics apply to their business, and then rethink their
business opportunities and corresponding SC strategy.
Introduction
Supply chain management (SCM) is increasingly getting attention from companies involved in
the delivery of capital projects. While capital projects SCM is new to some companies, others
have strategically been pursuing it for many years already. Tommelein et al. (2002) define:
“SCM is the practice of a group of companies and individuals working collaboratively in a
network of interrelated processes structured to best satisfy end-customer needs while rewarding
all members of the chain. While SCM may be practiced on a single project, its greatest potential
benefits come when it is practiced at the enterprise level, when it involves multiple companies,
and when it gets applied to multiple projects over an extended period of time. Note therefore the
consistent use of the plural ‘projects’ in … Capital Projects Supply Chain Management (CPs
SCM).
CPs SCM is recognized as a leading process improvement, cost saving, and revenue-
enhancing business strategy practiced in today’s business world. All disciplines within a
business (conceptual design, engineering, procurement, fabrication, logistics, construction,
accounting, and legal council, …) can be, and most often are, involved in CPs SCM.”
[SCM] “is difficult because it involves managing a complex and dynamic network of
organizations that operate to meet numerous different, conflicting business objectives. Managing
not only the processes within individual organizations, but also considering the chain of
processes while aiming for global system optimization is what is known as supply chain
2
management. The key to success in SCM is aligning the objectives and the corresponding
production systems of all organizations in the supply chain to the fullest extent possible.”
“Effective integration and optimization of supply chains can have a tremendous, positive
impact on project schedules, delivery time from concept development to turn-over, costs,
customer satisfaction, and, ultimately, the bottom-line success of each project as well as the
long-term success of every participant in the supply chain. Companies not engaging in SCM may
find themselves falling rapidly behind in performance relative to their supply-chain conscious
competitors. While supply chain managers aim to reward all members of the chain, they do not
guarantee all of today’s players to be in the game.”
SCM has emerged as a new field in-and-of its own (the term was coined by Houlihan in
1985), but it builds on advances in fields such as logistics, operations, and purchasing, and it
leverages the use of information technology. SCM must be considered of strategic importance
for it to be implemented successfully. Ganeshan et al. (1999 p. 843) stress that “SCM is rooted in
senior-level decision making. Otherwise, SCM may well be reduced to its component functions
… Of course, SCM includes implementation and operational aspects in which day-to-day
operations are managed below the senior management level.”
Once a company’s management has decided to strategically pursue SCM, a variety of SC
tactics can be considered for implementation. To illustrate, this paper describes SC tactics
implemented by Butler Manufacturing Company (‘Butler’). (Chapter 8 in Tommelein et al.
(2002) provides more detail on the Butler case study.) Butler supplies products and services in
the pre-engineered metal building market. Pre-engineered metal buildings have long clear spans
to provide unobstructed open floor space that can be used for warehousing, manufacturing
plants, schools, shopping centers, etc. In fact, nearly 70% of low-rise, nonresidential construction
involving buildings with less than 150,000 square feet (roughly 14,000 m
2
) is done with metal
building systems (Shoemaker 1999, http://www.mbma.com/).
Butler serves the nonresidential construction market both domestically and internationally. It
is a vertically integrated firm in that it can design, fabricate, and erect pre-engineered metal
buildings and components (primary and secondary steel elements, and light-gauge roof and wall
panels). It is a horizontally integrated firm in that it owns several subsidiaries that manufacture
and supply doors, windows, architectural wall panels, etc. The company holds patents covering
several product technologies, mostly in the cladding systems.
Butler uses the term ‘manufacturing’ in its name to refer to its designing and making of
building components by cutting, drilling, and welding steel plate and by cold forming sheet metal
at off-site locations dedicated to this purpose. These facilities are not job shops to the extent
needed when fabricating hot-rolled steel used in conventional steel projects; nevertheless,
Butler’s standardized components are made-to-order to suit individual project needs. Butler
facilities are therefore referred to as ‘fabrication plants’ and the process as ‘fabrication’ to make
it obvious that many SC tactics implemented or under consideration by Butler apply to other
engineering and construction companies as well.
Company Organization
Butler’s functional units are grouped under building systems, construction services (BUCON),
real estate, or architectural products. The company works through a network of local,
independent general contracting firms, called Butler Builders (Figure 1)(‘Builders’), to sell most
of its buildings on the order of 50,000 to 100,000 square feet (roughly 4,500 to 9,000 m
2
).
Builders market Butler’s products to architects-engineers (AEs), who may offer them as a
3
solution to the owner (Figure 2). Once selected, Butler handles the structural engineering (a
Butler engineer may act as the structural engineer of record for the project) and design detailing
phases, fabricates the components, and delivers them to site. In the meantime, Builders make
arrangements to erect the structure either with their own labor forces or using a subcontractor.
OWNER BUTLER
BUILDER
AE BUTLER
MFG.
contract
contract
contract
building
details
requirements
and criteria
design
docs
BUILDING
ERECTOR
materials
contract
Figure 1: Network of US Butler Builders Figure 2: Butler Builder Project Delivery
(from http://www.butlermfg.com/ services/realestate/ visited 9/10/02)
In the 1970s, Butler extended its in-house capabilities to include construction by creating
BUCON, Inc., initially as a design-build general contractor. While Butler uses Builders to
market its products, through BUCON it maintains its own construction forces to pursue a broader
range of projects independently of, or in conjunction with, Builders. BUCON operates as a
separate company even though it is a wholly-owned subsidiary of Butler.
Supply Chain Management is a Business Strategy
Increased competition in global markets and heightened expectations of customers have forced
firms to invest in their SCs (e.g., Simchi-Levi et al. 2000) and strategically establish various
kinds of preferred relationships. Table 1 presents alternative options for SC collaboration.
Table 1: Continuum of SC Collaborative Options
[adapted from Sanderson and Watson (1997 p. 390) and McCann and Gilkey (1988)]
Type of
Collaboration
Structure
Vertical Integr ation
(mergers &
acquisitions)
Joint Venture Direct Equity
Position
Licensing Single
Sourcing
Preferr ed
Suppliers
Market-Based
Contracting
Mode of
Governance
Hierarchic al
Competitive
Equity Stake
100%
1%
0%
0%
0%
0%
Description
Firms wholly owns or
has controlli ng interest
in supplies
Firm and suppli er
establish a third
firm to provide
goods and
services
Firm takes
equity stake in
supplier
Permission to
utilize a firm’s
patents or
proprietary
technology for a
fee or royalty
payment.
Collaborative
relationship
without
ownership by
guaranteeing
business over a
length ot time
Collaborative
relationship with
a limited number
of accredited
suppliers
Firm selects from
available suppli ers
on the basis of s hor
t
term contracts (no
alliance)
Collaborative
Butler’s organization today shows that company management has pursued vertical integration
(design, fabrication, and construction) as well as horizontal integration (structural framing, door,
windows, and wall panels) with 100% equity stake as a means to gain control over the SCs it
participates in. Such a degree of collaboration is rare in the construction industry. The company’s
integrated nature creates a unique opportunity for superior SC performance in the otherwise
fragmented AEC industry. However, Butler manages its wholly-owned subsidiaries in a
4
hierarchical fashion and holds each one individually accountable for maximizing profits.
Because this is accomplished using performance metrics that do not necessarily foster
collaboration with other subsidiaries, Butler is missing out on some opportunities to capitalize on
potential synergies. In addition to managing its integrated businesses, Butler has also achieved
different levels of integration with external suppliers. Indeed, the traditional make-or-buy
decision nowadays is a build-buy-or-buddy decision (Champy 2002 p. 38).
Supply Chain Tactics
Butler has taken a leadership role in shaping the SCs it participates in. The company is
strategically pursuing SCM and, accordingly, has been implementing SC tactics. Examples are:
Identify Core Competencies: Butler has defined as a core competence the design and
fabrication of its name brand product, the Butler Building. This is not to say that the company
has not pursued other product development and marketing efforts in its 100-year history
(http://www.butlermfg.com/companyinfo/history.asp), but this product stands out as the hallmark
of the company’s success over the years. The key to exploiting a company’s core competence is
to maintain strategic functions in-house (Hamel and Pralahad 1990), and this is exactly what
Butler has done.
Optimize SC Roles and Responsibilities: Butler can design/engineer, fabricate, and erect metal
buildings and components, but this does not mean that it always performs all these functions in-
house. Instead, Butler’s Building Division and BUCON can play any combination of roles.
The company tries to
optimize SC roles and
functional responsibilities
based on individual project
needs, wrt. for instance,
the solicitation of work,
system selection, design
support, and construction
management and execu-
tion. Alternative configu-
rations of SCs Butler is
involved in reach across
company boundaries, up-
stream to third-party sup-
Butler Builder
BUCON
DESIGN F ABRICATIO N
ERECTION
SUBCONTRACTOR
Butler Mfg. Butler Mfg.
Other Fabricator
(pre-engineered
or not)
BUCON
Butler Builder
BUCON's BES
Other
Designer
GC
Other ErectorOther GC BUCON
Material Erect
(DB for steel structure, roof, and
maybe wall)
?
MATERIAL
ERECT
SUBCONTRACTOR
Figure 3: Alternative SC Roles and Configurations used by Butler
pliers, downstream to independent contractors including Builders, and they sometimes include
direct competitors. Figure 3 illustrates alternative SCs that may or may not involve Butler’s
Building Division (shown as ‘Butler Mfg.’), Butler Builders, BUCON, and other designers,
fabricators, and contractors. The thickness of the lines in the figure reflects the frequency or
commonality of occurrence of SC relationships. The model that Butler historically has pursued is
shown by the thick line connecting Butler Mfg.-Butler Mfg.-Butler Builder-Butler Builder.
Develop Alliances with Architectural Design and Construction Service Providers: The
product distribution network established through Butler Builders gives Butler a geographic
presence around the world, with access to numerous potential customers (facility owners),
architectural firms, and the local labor market (steel erectors).
Standardize & Modularize: The company offers a limited number of products (building types,
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component types, and colors) to serve a specific market segment. Selection is done by system,
which makes design, raw materials sourcing, inventory control, and fabrication relatively easy
and fast. Modular systems have numerous benefits, ranging from a reduced need for design
computation when used in repetition to component interchangeability, reduced fabrication
equipment setups, ease of shipping and erection, etc.
Each product line is defined by means of parametric designs, so that customization can be
done at a marginal cost. Custom design aims at optimizing materials savings because the cost of
design is small compared to the cost of materials and manufacturing—the latter two accounting
for nearly 85% of the product cost. By creating more unique designs for tapered primary
elements made from welded steel plate and by using standardized parts for secondary members,
Butler achieves a structural solution with economy in materials so that their buildings compete
on delivery time and cost with conventional steel buildings for these light-industrial applications.
The threshold for economic superiority varies, however, with the market prices for steel.
Should it be of value to the customer, the company can also deliver an entirely customized
product. By categorizing designs according to degree of customization, Butler fine-tunes the
efficiency of its design function while still taking advantage of its fabrication capabilities.
DFX or ‘Design for manufacturability, constructability, maintainability, or lifecycle
performance, etc.’: The X in DFX refers to the consideration given in the design process to
various downstream stakeholder values.
a. Design for Fabrication: Butler has integrated and streamlined its processes for order taking,
design, and fabrication. For example, its design computer program is tailored to each plant’s
fabrication capabilities, and design specifications are generated to match plant capabilities and
outsource requirements.
b. Design for Constructability: Butler has developed several products for the explicit purpose
of improving safety and ease of construction. Examples are:
b.1. Fall protection and insulation support system: Butler developed a system to offer
construction workers protection from falls and provide continuing support for roof insulation
(after http://www.butlermfg.com/ products/roof/skyweb.asp). Greater safety benefits all in the
SC. This system consists of an open mesh fastened around the perimeter of the building. It
protects workers from falling off the leading edge of the roof during construction but does not
eliminate the fall hazard from the remaining perimeter of the roof. The mesh remains a part of
the roof system and supports roof insulation.
b.2. Sealant that mistake-proofs the installation process: Due to fabrication and shipping
constraints, roof panels are necessarily limited in length. To cover a large span, panels therefore
have to overlap and sealant must be applied in-between them to make the connection watertight.
Construction workers may find it difficult to know how tightly to secure the panels: the panels
must be close enough together for the sealant to be effective but not too close for the sealant to
be squeezed out and thereby rendered useless. To remedy this problem, Butler worked with a
supplier to engineer a new kind of sealant (a putty-like material with tiny, hard cubes dispersed
in it) that a construction worker cannot compress too much during installation. This sealant
comes in a roll with layers separated by removable, non-tear plastic strips, one side of the strip
being precut lengthwise to allow for positioning of a screw through it.
c. Design for Lifecycle Performance: Butler extends performance warranties, and to ensure
these can be met, it is building the appropriate degree of quality into its products. The
aforementioned sealant helps not only with constructability but also with long-term performance
6
for the facility owner/operator.
Develop Products Jointly with Suppliers: The sealant supplier’s involvement in Butler’s
design of watertight roofing system is an example of joint product development between seller
and buyer.
Multi-project Sourcing, Pre-project Sourcing, and Centralized Sourcing: Butler’s raw
materials include steel, aluminum, and wood. Steel is the company’s largest purchased
commodity. It constitutes 70 to 80% of Butler’s fabricated product cost. To buffer against
potential price fluctuations, Butler annually enters into national agreements for steel purchases.
Cost increases are generally recaptured in product sales prices (Butler 2000). Typically, the
Building Division centrally establishes one contract with each supplier based on the material
requirements for its product forecast. The mills then quote annual pricing based on these
forecasts. We speculate that if Butler were able to reduce the seasonal variability of its demand
for steel, or shift the timing of peak demand, steel mills might provide even better pricing.
License Patented or Proprietary Products to/from Third Parties: Butler has licensing
agreements with companies it does not own. One example is the agreement in place with
suppliers of coil metal for wall and roof panels that is delivered coated. The coating should not
crack, peel, or otherwise deteriorate in Butler’s cold-forming process, as any of these would
jeopardize long-term performance. The coating process relies on proprietary knowledge and
Butler shares it only with a select few, strategic suppliers. To assess performance, Butler
systematically samples and tests product coupons of each and every coil received at any of its
plants. Another example is the agreement Butler has with the Swedish company that makes the
tool needed to field-fabricate the Butler standing roof seam, which Butler rents to its customers.
Invest Equity in Suppliers of Related Products: Butler aims to increase the attractiveness of
its buildings as compared to non-Butler alternatives by packaging the sale of the structure with
the sale of other building components. This should help Builders to be more competitive in the
market. Depending on the project, in addition to the building structure, Butler may supply wall
panels, doors, windows, ventilators, and rainwater drainage systems.
In effect, Butler has expanded its core competencies by buying suppliers of related products.
In 1984 it acquired the firm that helped to found VISTAWALL, which today offers a “broad line
of engineered aluminum framed curtain wall, windows, storefronts, entrances and skylights”
(from http://www.butlermfg.com/companyinfo/history.asp). Butler became even more vertically
integrated by acquiring door and window suppliers. In March 1997, it acquired certain assets of
Rebco West, Inc., a west-coast manufacturer and distributor of entrance doors and storefront
products. In June 1997, it acquired Moduline Windows, Inc., a manufacturer of architectural
windows for the nonresidential buildings market (Butler 2000). Most recently, the company
“formed a strategic alliance to market the… patented Acsys Panel System [which] is an energy
efficient and cost effective substitute for insulated metal stud wall assemblies… This alliance is
consistent with our objective of giving our builders a competitive edge in the commercial
market” (from http://www.butlermfg.com/ media/files/200209a.asp visited 9/10/02).
Develop Customer Relationships: Butler is attuned to providing value to its customers, which
include owner-operators as well as Builders. The company conducts research and development
in order to make its products more appreciated by customers in terms of the delivery process
(e.g., ease of order pricing, delivery lead time) as well as lifecycle performance (e.g., quality
products with long-term performance warranty). By distributing design and fabrication
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capabilities around the country to be close to delivery locations (limit shipping cost, localized
design specialization), the company can be responsive to Builder needs.
Obtain Performance Feedback: Butler meets with its Builders to understand the business
challenges they face. It also hears their constructability problems, and it may subsequently tackle
them in research and development efforts.
Invest in Customers: An obvious example of Butler investing in a customer is the creation of its
construction subsidiary BUCON, which therefore is an in-house customer.
Improve Product Demand Forecasts: In order to provide a single point of contact with large
corporate owners, Butler has established a Corporate Alliance group. Because these owners have
facilities around the country, sometimes even around the world, no single Builder is in a position
to serve them consistently. In developing close relationships with such owners, Butler can
promote the use of its products and improve its ability to forecast demand, which are valuable to
sourcing, production, etc.
Lease Build-to-suit Facilities: Butler’s Real Estate subsidiary works as a build-to-suit
developer. It provides financing backed up by its parent organization and, by working through its
Builders or BUCON, delivers a turnkey project for lease back to the customer.
Related business models such as build-own-operate[-transfer] (BOO[T]) or variants thereof,
have been successful in other sectors of the construction industry, such as the privatization of
road construction. The use of such delivery models creates opportunities for improving SC
performance and should be considered by engineering and construction firms, for instance those
involved in power plant delivery.
Butler management must have considered other SC tactics but not all are feasible to implement.
An example is pooled procurement. While investigating how to further enhance its buying
power, Butler—a significant purchaser of steel—has found that the needs of its building business
do not support the idea of pooling steel purchases with buyers from other industries. Steel mills
are typically configured to support the construction market—not the construction market and
another market segment. In other words, pre-engineered metal building manufacturers buy from
different mills than do automobile manufacturers or appliance manufacturers.
Lessons Learned
SCM is being practiced in the engineering and construction industry today. The Butler case study
exemplified how SCs for the delivery of capital projects may get configured to suit project
requirements. It illustrated that organizations may change over time to expand and exploit their
core competencies in order to be more competitive and provide greater value to customers. The
case made clear that suppliers, such as Butler, play an important role in the capital projects SC.
Few research reports have been written on SC configuration to meet project requirements;
more are needed. The delivery of capital projects poses interesting questions regarding SCM.
These questions differ significantly from questions tackled in manufacturing settings, in which
SC relationships typically are more stable and longer lasting.
To generalize the lessons learned from this case, note that many of Butler’s SC tactics are
also being implemented by competitors striving to gain market share in the pre-engineered metal
buildings industry. One may argue that the effective use of many of these SC tactics is
characteristic for companies in this industry sector. This effectiveness is explained, by Butler’s
market dominance and success that creates an example for others to follow, but conversely, it
8
also may be explained by the nature of the product that appears to lend itself well to the
application of SCM. SCM practices are drivers of industrial organization, and vice versa,
industrial organization serves as an enabler to SCM.
Conclusions
This paper has presented a range of SC tactics available to engineering and construction firms
that wish to increase the competitiveness of their business. These tactics all are used in practice
today, not only in the pre-engineered metal buildings industry. The intent of the paper was to
inform industry practitioners of opportunities provided by SCM. Recognizing the business value
of the application of SCM, practitioners in all sectors of the engineering and construction
industry may want to study this paper and assess under what circumstances various SC tactics
apply to their business. This may lead them to rethink their practices and business opportunities.
Acknowledgments
This case study was funded by a grant for Project Team 172 ‘Improving Construction Supply
Chain Performance’ from the Construction Industry Institute (CII) whose support is gratefully
acknowledged. Any opinions, findings, conclusions, or recommendations expressed in this paper
are those of the authors and do not necessarily reflect the views of CII.
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