You Can Change the Value of Your Business

IVE BEEN A MECHANICAL contractor for more than 30 years and I love the business. The planning and building process itself is absorbing and can be exciting. The end product whether its a shopping mall, a hospital, a hotel, an arena or a pharmaceutical plant can leave everyone involved feeling proud and satisfied. On the other hand, anyone whos been in construction for a while can tell you that its

I’VE BEEN A MECHANICAL contractor for more than 30 years and I love the business. The planning and building process itself is absorbing — and can be exciting. The end product — whether it’s a shopping mall, a hospital, a hotel, an arena or a pharmaceutical plant — can leave everyone involved feeling proud and satisfied. On the other hand, anyone who’s been in construction for a while can tell you that it’s also a business that can have you pulling out what hair you have left over all the elements you can’t control.

During my long career, I’ve found a continuing source of education, advocacy and networking through my active membership in the Mechanical Contractors Association of America. I mention this here because my association with MCAA led me to become involved over the past year with a group of construction professionals whose purpose was to examine the construction supply chain — the companies that buy and sell services from one another and with which we’re all involved every day on every job — with an eye toward how all members of that chain could add value to the construction process.

In other words, are there ways in which supply chain members can identify those negative processes and activities that add costs, but not value, to our daily operations? Can we actually become better customers and suppliers to each other by reducing our costs and improving our provided value? Can we create a value chain?

Research brings results

Curiosity about these questions led the Mechanical Contracting Education & Research Foundation to fund a project that would examine whether the ways in which we use our supply chains could add value to our work and, in December 2004, MCERF published “The Value Chain: Adding Value to the Supply Chain,” a document that addresses the question of how construction industry professionals can change their business-as-usual supply chains into value chains.

The publication grew out of extensive research by Professor Iris D. Tommelein of the University of California at Berkeley’s Civil and Environmental Engineering Department and the hard work of contractor and manufacturer/ supplier members of the Value Chain Advisory Task Force. It sets out to inform contractors how “increasing value and reducing waste in the supply chain can impact a mechanical contractor’s bottom line.” Along the way, it also defines and explains critical components of the supply chain process, components which, if refined and implemented, can transform the ways in which business is conducted.

Near the beginning of the document’s first chapter is a simple statement: “By streamlining work processes, developing stronger relationships with suppliers, and using technology, you can significantly increase your company’s profitability.”

What follows in subsequent chapters is a detailed examination of how each of these elements can be achieved. Space does not allow me here to reproduce all the details, but I can give you an idea of how useful the concept can be.

Supply chain to value chain

All successful contractors constantly evaluate how they can improve their own business operations to enhance profitability, but most of us don’t expand that same evaluation to our supply chain. What happens when we do? One thing that happens is the simple but profound realization that a contractor’s performance depends not only on his own expertise but also on that of all the companies that supply him. As the MCERF publication asserts: “Companies no longer compete one-on-one; their supply chains do. To compete successfully, all members of your supply chain must add value to the supply chain, thus creating a ‘value chain.’”

In other words, you can’t go it alone in the construction business. When you ally yourself with other companies that put exceptional care and effort into providing value to their direct and indirect customers — and into removing waste from the project delivery system — you’ve put yourself ahead of the game.

Of course, this isn’t as simple as it sounds because it involves perhaps the hardest thing any of us is called upon to do: change our mind-set. In the construction industry, we’re always talking about cost when what we should be talking about is what we get for the price we pay. For instance, when we think only about the stated cost of a product or service, we neglect the value inherent in things that are not usually thought about as cost-related — things such as quality, reliability and performance.

Start the transformation

Once we get our minds around the value chain concept, we can take steps to evaluate the current members of — or if we’re like most contractors, the constantly changing cast of characters that make up — our supply chain. The MCERF publication spells out these steps — quantifying reliability and performance, measuring cost by activity, identifying preferred customers and suppliers, evaluating integrated supply and the magic that comes with e-commerce. We can’t control some things in this business, but much of what is covered in the value study involves things we can change to some degree. They are things that we’ve just written off as “business as usual,” “overhead” or “just the cost of doing business.”

By improving the relationship with your key suppliers, using the principles outlined in the value chain study, you’ll find that nothing could be further from the truth.

Thomas L. Williams is president/construction of McKenney’s Inc. in Atlanta and former president of the MCAA. “The Value Chain: Adding Value to the Supply Chain” is available from MCAA. To order copies, contact Linda Burke at 301/990-2200 or e-mail [email protected].