REDUCING CONSTRUCTION COST THROUGH EFFICIENT SUPPLY CHAIN

MANAGEMENT: A CASE STUDY OF GHANAS REAL ESTATE INDUSTRY

Background Information
The realization of the importance of supply chain to the construction industry can be largely
associated with the increasing dependence of construction firms on suppliers and subcontractors (Vrijhoef and Kosela, 2000). According to Scholman (1997), labour and material
costs make up about 75% of contractors turnover which therefore implies that an inability to
keep such costs under control can drastically affect the sustainability of such firms. In an
investigation into supply chain management practices in construction industry, Vrijhoef and
Kosela (2000) suggest that construction firms adopt a more traditional way of managing their
supply chain which involves an individualistic approach to managing the supply chain unlike
the holistic approach. This lack of coherence amongst all players in the supply chain makes it
difficult to control various aspects of the chain.

Constructing Excellence (2004) however posit that the best approach to cost management for
construction firms involves building collaborative relationships within the supply chain, and
that best value can be obtained from protecting margins in the supply chain. In this same vein
they reckon that one of the key objectives of supply chain management is managing costs in a
collaborative manner. Aside the issue of cost, OBrien (1999) emphasizes the importance of
construction supply-chain management on speed of completion; he state that SCM offers
different approaches to help reduce costs and speed up facility construction.

In further detail on how supply chain management impacts cost and speed. OBrien (1999)
stresses that the positive impact of SCM comes from its effect on the entire organizational

system which enables firms to focus on understanding production costs and capabilities in
other to develop strategies to control cost and improve efficiency. This study focuses on how
supply chain practices can be applied to enhance the effectiveness of the real estate industry
in Ghana, which remains one of the prominent sub-sectors in the construction industry.

Problem Statement
Various studies have found efficient supply chain management as an essential component of
efficient construction practices (see Vrijhoef and Kosela, 2000). Most of these studies have
however highlighted gaps between the current state of managing construction supply chains
and the more integrative approach of supply chain management. In this regard, they
emphasize that the traditional method of supply chain management focuses on a more
individualistic approach which eventually results in challenges along the supply chain. To
resolve this problem, it has been recommended that supply chain management, which adopts
a more integrative approach, can be helpful in cutting down construction costs and speeding
up completion of projects (Cutting-Decelle et al., 2007).

In Ghanas housing industry, one of the major problems associated with performance of the
industry has been known to be the issue of cost/price. High costs of building materials and
other essential logistics, coupled with high cost of land and an unstable economy has resulted
in excessive costs of housing projects. This has ultimately resulted in a drastic increase in
housing prices and rental charges. The problem is made worse by the fact that not many
construction firms pay particular attention to the impact of stakeholders in the supply chain
on their costs. This study therefore attempts to find out how suitable supply chain
management can be for the Ghanaian real estate industry by attempting to identify how best it
can be used to control costs and with it prices.

Literature Review
According to Vrijhoef and Kosela (2000), the origin of the concept of supply chain
management can be attributed to the Japanese manufacturing industry, primarily Toyota that
developed Just-in-Time delivery mechanism in the 1950s (Shingo, 1988) and lean
manufacturing systems. He argues that the main goal of such systems was to drastically
decrease inventory holdings and improve interactions between suppliers and a firms
production process. Since then, the concept of SCM has evolved and become a critical area of
research and business. Vrijhoef and Kosela (2000) argue that SCM borders on the flow view
of production where there is focus on controlling total production flow (Koskela, 1999).
Luhtala et al. (1994) also relate the concept to developing manufacturing firms by associating
SCM to the concept of logical factory and suggest that SCM can be improved in the same
way as factories are developed.

Supply Chain Management has been defined as the network of organisations that are
involved, through upstream and downstream linkages, in the different processes and activities
that produce value in the form of products and services in the hands of the ultimate customer
(Christopher, 1992).

In the construction industry, typical approaches to supply chain management were used by
Vrijhoef and Kosela (2000) to identify the following specific characteristics:

Convergence: supply chain activities direct all elements to the site for assembly.
Primarily, construction factory is organized around the construction product and are

therefore product-specific.
Temporary: in most cases, supply chain activities for construction firms are of a more
temporal nature meant for the completion of a particular project. This exposes it to

incidents of instability, fragmentation, and separation between design and

construction of the project.

Make-to-order supply chain: Supply chain activities in construction firms are
classified as make-to-order due to the fact that there are few repetitions although
similar processes may be adopted for projects of similar nature.

Given these specific nature, Vrijhoef and Koskela (1999) argue that construction supply chain
is typically bereft with so many challenges. Firstly, there is high level of wastage and
predominance of other problems in the construction supply chain. This has been largely
attributed to the fact that agents (organizational units and employees) seem to focus only on
managing their aspects of the chain in other to secure their businesses with little or no regard
for the overall functionality of the full chain. Secondly, the wastage and problems inherent in
the system have been found to be caused during the early stage (or previous step) of the
supply chain although they are not realized until late. Finally, the waste and concerns have
been largely identified to be related to the refusal of agents to understand the impact of their
actions on other activities further down in the chain. They conclude that this is mainly due to
the fact that the nature of the supply chain management system employed encourages focus
on optimizing individual aspects of the chain without considering the effect on other players
involved in the supply chain.

In attempting to defend the importance of adopting an integrative supply chain approach for
construction firms, Vrijhoef and Kosela (2000) identify four critical roles supply chain
management plays in construction. Of these four he posits that two are directly concerned
with cutting costs. The four roles are:

SCM focuses on impacting supply chain on site activities. This role focuses on
reducing costs associated with on-site activities by ensuring primarily that material
4

and labour flows to site are not disrupted. To this, Wegelius-Lehtonen and Pahkala
(1998) suggests that the clearest initiative of SCM in relation to construction has been

in terms of improvement in logistics management.

SCM also seeks to improve a firms supply chain. This involves adopting of specific
practices aimed at analysing elements of cost and time in order to keep them under

control.
SCM also enhances transfer of items from the site to the supply chain.
Focus may also be on integrated management and overall improvement of the supply
chain and site production.

These roles clearly highlight the importance of SCM in controlling costs in the construction
industry. However, in considering the problems encountered in managing supply chain in
construction firms, Cutting-Decelle et al. (2007) advances that communication issues remain
a hugely significant challenge, amongst other things including poor planning and design.
Placing this in perspective, DBIS (2013) asserts that evidence of cost reduction in
construction have been largely based on price cuts not on a structured approach to managing
the supply chain to achieve the same results. Thus, they conclude that such approaches are
unsustainable. This highlights the importance of adopting efficient supply chain management
practices in construction in order to cut down costs and ensure sustainability of operations.

Research objectives
The main objective of the study is to determine how SCM can be used to reduce construction
costs in Ghanas real estate industry. Specific objectives are:

To identify the major aspects of effective construction supply chain management

To identify the strengths and weaknesses of current SC practices in Ghanas real estate
industry.

To compare current practices with the ideal to determine grey areas for improvement
to supply chain management in Ghanas real estate industry in order to enhance
reduction of costs.

Research Questions
To meet stated objectives, the following questions will be answered by the study:

What are the major areas for developing an effective construction supply chain

management?
What are the strengths and weaknesses of present supply chain management practices

in the real estate industry in Ghana?

What improvements can be made to current practices in order to ensure effective and
sustainable cost reduction?

Methodology
The study will make use of both primary and secondary data. Primary data will be obtained
from the administration of thirty (30) questionnaires to selected contractors and owners in
Ghanas real estate industry. To ensure that responses are concrete, only contractors and real
estate operators registered with Ghana Real Estate Developers Association (GREDA) will be
selected. Convenience sampling technique will be employed to select respondents. This
method is used due to the limited budget and time for the study.
Secondary data will be obtained from journals, articles, text books and online sources; these
will basically be used to review literature and identify the elements of an effective
construction supply chain management.

Significance of the Study

The study focuses on the Ghanaian real estate industry with implications for cost control in
the industry. The study further has implications for productivity, competitiveness and
attractiveness of the industry in the future to new operators. Present outlook of the Ghanaian
real estate industry suggests that prices are too high and mainly affordable by people on the
high-end income bracket. However, Ghanas social stratification is such that over 80% of
people live within or below the middle income bracket. High estate costs are therefore not
suitable for them. This study will enlighten real estate owners on measures to take to cut
down overall costs and with it reduce prices of estate houses to make them affordable to the
middle and low income segment that constitutes an even larger market than that which is
currently covered.

Reduction in prices will enable more Ghanaians own houses whereas demand and market
size of the real estate industry will rise significantly. Suppliers of building materials would
equally benefit from high demand for their materials occasioned by the rise in demand for
estate houses. A research of this nature and magnitude is therefore crucial for the
sustainability of Ghanas real estate industry. If such research is not undertaken, the real
estate industry will continue to suffer from limited demand, whereas more and more
Ghanaians will struggle for affordable accommodations for themselves and their family. The
situation can explode into a national headache for Governments of the country where not
properly addressed.
Given that the researcher is in the real estate business, the study has significant implications
for the performance of real estate businesses and the overall industry; hence, the priority
placed on the study.

References
Christopher, M. (1992), Logistics and Supply Chain Management: Strategies for Reducing
Costs and Improving Service, Pitman Publishing, London.
Constructing Excellence (2004), Supply Chain Management, Constructing Excellence.

Cutting-Decelle, A-F, Young, BI, Das, B. P., Case, K., Rahimifard, S., Anumba, C. J. and
Bouchlaghem, D. M. (2007), A Review of Approaches to Supply Chain
Communications: From Manufacturing to Construction. Retrieved 18th September, 2014
at http://itcn.org/2007/5/
Department for Business Innovation and Skills (2013), Supply Chain Analysis into the
Construction Industry: A report for the construction industrial strategy, BIS Research
Paper No. 145.
Koskela, L. (1999), Management of production in construction: a theoretical view.
Proceedings of the Seventh Annual Conference of the International Group for Lean
Construction IGLC-7, Berkeley, July 26-28, pp. 241-252.
Luhtala, M., Kilpinen, E., and Anttila, P. (1994), LOGI: Managing Make-To-Order Supply
Chains, Helsinki University of Technology, Espoo.
OBrien, W. J. (1999), Construction Supply-Chain Management: A vision for advanced
coordination, costing and control, Department of Civil Engineering, University of
Florida.
Scholman, H.S.A. (1997). Subcontracting by main contractors. Economisch Instituut voor de
Bouwnijverheid, Amsterdam.
Shingo, S. (1988), Non-Stock Production, Productivity Press, Cambridge.
Vrijhoef, R. and Koskela, L. (1999), Roles of Supply Chain Management in Construction,
Proceedings IGLC-7, pp. 133-146, University of California, Berkeley, CA..
Vrijhoef, R. and Koskela, L. (2000), The four roles of supply chain management in
construction, European Journal of Purchasing & Supply Management, vol. 6: 169-178.
Wegelius-Lehtonen, T. and Pahkala, S. (1998), Developing material delivery processes in
cooperation: an application example of the construction industry, International Journal
of Production Economics, vol. 56-57; 689-698.

10