Supply Chain Process

The stages of the supply chain that are under review in the construction industry start with the order process and end with invoice generation. Prior to the Order process, there is a purchasing/tendering process which is outside the scope of this document. Similarly after the billing process there is a payment process which is also outside the scope of this document.

Order

Re o ca

ffice

Order Process
In reviewing the order process, the negotiation between supplier and contractor has been excluded from the scope of the work being undertaken. This can involve a formal tender process, or can simply involve buying from a preferred supplier. The contractor and supplier may each create a master order on their systems, although this does not always happen. A master order is like an approved product list, where products to be purchased and their pricing have been agreed. Where a master order is used, a site simply has to create a call off order, i.e. they draw down quantities from the master order. The diagram illustrates the common practice of sites placing orders with suppliers. However, the process of head office placing orders is not substantially different.
Stage
1 2

Owner
Site Site

Activity
Requisition materials Order from supplier

Explanation
When materials are required, a requisition is prepared by the site office. The order is placed with the supplier in a variety of ways: Telephone probably the most common way to place an order Fax used where sites are equipped with fax machines Email normally only used for orders placed by head office The supplier records the order on their computer system, using their experience and knowledge to determine the exact products being requested by the site. It is very common for a site to request a product by their own description of it, and for the supplier to have to guess what the product is. Based on the type of materials requested, the supplier will send the order for picking from a yard/warehouse, or will submit the order for batching in the case of made to order products such as concrete and mortar. After the order has been picked/batched, it is dispatched to the site. Once items are picked/batched, the details have to be updated. Many suppliers generate their invoice at this point. Each site is supposed to advise head office whenever an order has been placed. This is done in a variety of ways such as: Site clerk input the order on the back office system. Lists of purchases are kept on Microsoft Excel spreadsheets and are sent through to head office. Requisition forms are filled out and are faxed to head office or are submitted daily/weekly. When advised correctly by the site, head office inputs the order on the system. In many cases, the call off is treated as an order, although if a master order has been created, head office rarely inputs call offs, preferring instead to record the actual deliveries received.

Supplier

Record order

4 5 6 7

Supplier Supplier Supplier Site

Pick order Dispatch order Update dispatch details Advise head office

Head office

Record order/call off

Issues with this process

There are several ways in which the process can break down: 1. Misinterpretation of requirements. Even with faxed orders, there is room for misinterpretation of what is required. This can arise from orders simply giving a description of what is required, or by specifying an incorrect product code. With phone orders, this issue is more acute. 2. Insufficient stock. It the supplier is out of stock on a specific item but does not realise it until picking time, the site may not receive all of the items ordered. Similarly, the supplier may substitute one product for another, if the one ordered is out of stock. 3. Picking discrepancies. Errors in picking/batching products will only be caught when the items are delivered to the site. 4. Site not advising head office. It is very common for sites to forget to advise head office of orders placed. This

means that head office has no visibility of its exposure to costs on a project until invoices arrive in from suppliers making accurate cost control difficult. 5. Incorrect details recorded on head office system. The order (if recorded on the head office system) and be incorrect due to the same issues faced by suppliers when dealing with site orders, i.e. misinterpretation of sites requirements. This compounds the issue of suppliers misinterpreting requirements.

Proposed Electronic Messages

The XML messages being proposed for the order phase are:
Order Order Confirmation Order messages are created by the contractor and sent to the supplier. On receipt of an order from a contractor, it is created/saved on the suppliers system. Confirmation of the details recorded/received is transmitted back to the supplier. This can include out of stock notifications. This message can also be used to create an order on the contractors system if it has not been recorded there previously. Used to cancel an order that had previously been sent through from the contractor. This lists the items that are going to be delivered to the site.

Order Cancellation Shipping Notice

Delivery
The delivery process is an area that creates excessive administration work in the construction industry. This is due to the nature of the industry itself where materials can be delivered to a site. Unlike other industries, materials can be delivered to one or more locations on a site.
Stage
1

Owner
Site

Activity
Unload materials

Explanation
Materials can be unloaded in many different ways such as: Site staff can offload materials. Delivery drivers can offload materials. Drivers can hand materials over to site staff. If the delivery is checked at point of unload, the docket may be checked to verify that the materials delivered correspond to the items listed on the delivery docket. If there are any discrepancies, these are noted on the delivery docket itself. A very significant issue for suppliers is locating an authorised signatory and getting them to sign the delivery docket. If there is an authorised signatory available, the docket is signed. In the ideal scenario, the supplier receives a correctly signed docket for each delivery made. However, there are many cases where dockets are not signed, and in most cases these are given to a sales rep to visit the site and try to get them signed at a later date. Each docket has to be checked for handwritten adjustments. If these are identified, they have to be recorded on the system to ensure that invoices are issued correctly. If the invoices have already been generated, a credit note has to be prepared. If they have not already done so, invoices for deliveries made have to be generated. The supplier may also scan all of their delivery dockets into a scanning system at this point. All signed delivery dockets should be returned to head office. While some contractors will file dockets locally on site, most get them returned to head office. A GRN (Goods Received Note) is simply the delivery docket from the supplier input on the contractors system. This is frequently done in head office, although on some larger sites, it may be done by a site clerk. The delivery details may not correspond to the order that exists on the contractors back office system. This can arise for a number of reasons: The wrong product was shipped by the supplier and signed for on site. Site requested a different product from the one agreed on the master order. The master order may have been recorded incorrectly on the contractors back office system. A new product was ordered from the supplier that had not been ordered previously. Handwritten adjustments may be interpreted incorrectly. If there is an issue with the delivery not matching the order, the contractor has to raise this with the supplier and get it resolved. The delivery docket (GRN) updates the quantity of materials received and it is used to match against the invoice when it is received.

Site

Delivery matches docket? Signatory available? Sign docket Receive signed docket

3 4 5

Site Site Supplier

Supplier

Quantity changed

Supplier

Create invoices

8 9 10

Site Head office Head office

Send to head office Record GRN Products match order?

11

Head office

Update quantity received

Issues with this process

There are several ways in which the process can break down: 1. Handwritten adjustments on delivery dockets. Every docket has to be examined by the supplier for handwritten changes. This is prone to error, both in terms of missing changes that were made, and in interpreting the handwritten changes on a docket.

2. Unsigned dockets. The difficulty locating an authorised signatory often means that deliveries remain unsigned. In addition, some items such as trowel ready mortar are delivered to sites when there is nobody on-site. These unattended delivery dockets often have to be signed at a later time by a site foreman/site manager. 3. Unauthorised people signing dockets. It is often a problem for a driver to locate an authorised signatory. Drivers can often get a docket signed believing that the person is authorised to do so only for the supplier to discover later that the signature is from a sub-contractor not authorised to sign for the delivery. 4. Delivery dockets not being sent to head office. Missing delivery dockets is a very significant issue for most sites. On average, almost 25% of dockets on construction sites go missing. 5. Interpretation of items on delivery docket. Quite often, the staff inputting delivery dockets are not familiar with the details of the products delivered. Therefore, it is a very difficult task for them to correctly select the appropriate cost codes for the items delivered. 6. Administration effort. Contractors have administration resources tied up with inputting supplier delivery information, while suppliers have administration staff checking dockets for manual adjustments, and in some cases, administration staff involved in scanning the original delivery dockets.

Proposed Electronic Messages

The XML messages being proposed for the order phase are:
POD GRN Signed delivery docket delivered back to the supplier. Goods Received Note used to list items received on the delivery.

Billing
Invoices are currently sent by post in the construction industry. Some companies may send invoices by email, but this does not satisfy Revenue Commissioner requirements, and there may be VAT implications for companies sending and accepting invoices sent by email.
Stage
1 2 3 4 5

Owner
Supplier Head office Head office Head office Site

Activity
Send invoice Record invoice Delivery received? Products match delivery? Confirm receipt

Explanation
Invoices are generally sent out by post by suppliers. Each invoice is recorded by the contractor on their back office system. The first check that is done is to make sure that deliveries listed on the invoice actually took place. If they dont exist on the system, head office may check with site to see if the delivery was actually received. The second check is to make sure that the items on the delivery docket were received. Again if the detail is not on the contractors back office system, the delivery details have to be checked with the site. The site may be asked to sign off on invoices to confirm that items were delivered as specified. If the site cannot confirm the details, head office may have to request copies of the delivery dockets from the supplier. If the pricing on the invoice matches the pricing recorded on the order by the contractor, the invoice can then be passed for approval. If the pricing does not match, this has to be queried with the supplier. If there is a price discrepancy, this may necessitate a credit being raised by the supplier. Once all of the checks have passed successfully, and credits raised (if any by the supplier), the invoice can be approved for payment.

6 7 8

Head office Supplier Head office

Prices match? Credit request Approve invoice for payment

Issues with this process

There are several ways in which the process can break down: 1. Missing delivery dockets Many of the issues raised earlier in the supply chain come to a head when an invoice is received. A key issue is missing delivery dockets against which to reconcile the invoice. This involves administration effort requesting copies of delivery dockets and then matching them to invoices. 2. Lack of visibility. When an invoice arrives in, it can be the first indication head office have of an issue in the supply chain. For example an incorrect product may have been supplied that is now incorporated into the framework of a building and cannot be rectified without significant cost. 3. Cost overruns. Site may have ordered products which are more expensive than planned, with a knock-on impact on the cost of the project.

Proposed Electronic Messages

The XML messages being proposed for the order phase are:
Invoice Credit Note Invoice from contractor to supplier. This is just the reverse of an invoice.