Contractors Can Use Supply Chain to Increase Profits: Study

Special to CONTRACTOR ROCKVILLE, MD. Contractors can be more profitable by streamlining their work methods, improving relationships with key suppliers and using technology, according to a new report from the Mechanical Contractors Association of America and Mechanical Contracting Education and Research Foundation. The study, The Value Chain: Adding Value to the Supply Chain, states that wholesalers

Special to CONTRACTOR

ROCKVILLE, MD. — Contractors can be more profitable by streamlining their work methods, improving relationships with key suppliers and using technology, according to a new report from the Mechanical Contractors Association of America and Mechanical Contracting Education and Research Foundation.

The study, “The Value Chain: Adding Value to the Supply Chain,” states that wholesalers and manufacturers stand to benefit too as a result of better supply chain management. Indeed, two MCAA members worked with a wholesaler and four manufacturers on a task force that developed the report along with a university professor.

In the construction industry’s supply chain, the study states, the fortunes of contractors are linked with those of wholesalers and manufacturers. How one group performs affects everyone.

“Today, supply chain management is a leading process-improvement, cost-saving and revenue-enhancing strategy,” the report states. “Companies not engaging in supply chain management may find themselves falling rapidly behind their supply-chain conscious competitors.”

When manufacturers and wholesalers do their jobs of producing and delivering products efficiently, contractors can expect to receive the following benefits: decreased inventories, reduced labor costs, improved cash flow, reduced financing costs, improved lead times, shortened construction schedules, improved project profitability and a better reputation.

In return, the study states, suppliers can expect the following from efficiently operated mechanical contractors: prompt payment, a significant portion of the contractor’s business, to be evaluated on their total product and service offerings, advance notice of product needs and delivery requirements, a clear statement of service expectations, timely and effective communication, opportunities to develop long-term agreements, no unjustified back charges, and a willingness to use technology and develop electronic commerce.

Although MCAA co-sponsored the study, the “MCA” most frequently mentioned in the report refers to “measured cost by activity.” While many contractors buy on purchase price alone, the report states, they should be looking at other factors as well. MCA is a method for calculating the cost of a task, product or service, and it allows contractors to evaluate suppliers by how efficiently they process orders, deliver products and provide accurate invoices.

A key to streamlining the procurement process is for all members of the supply chain to use technology, which would lead the construction industry to be more proficient in practices such as integrated supply and e-commerce.

“Use of e-commerce prepares your company for increased collaboration and planning with value chain members,” the study states. “In short, e-commerce can help you make money.”

MCAA members will have an opportunity to learn more about the study’s findings during an education session, “Leveraging the Value Chain to Become More Competitive,” in February during MCAA’s annual convention. Bob Looman of Johnson Controls will moderate the workshop with panelists John Martin of Anvil, Tom Mikulina of Trane, Dave Sharkey of Victaulic and MCAA member Tom Williams of McKenney’s in Atlanta. A preview of this session was presented Dec. 1-3, 2004, at the Industry Funds Conference in Longboat Key, Fla.

Trane’s Mikulina worked on the Value Chain Advisory Task Force along with Peter Placko of Ferguson Enterprises, Robert Vick of NIBCO, Mark Wagner of Estimation, Steve Weissenberger of York International and MCAA members Michael Krueger of J.F. Ahern Co. in Fond du Lac, Wis., and Andrew Kruse of L.J. Kruse Co. in Berkeley, Calif. MCERF commissioned Professor Iris Tommelein of the University of California at Berkeley to conduct the study.

For more information on the study, or to obtain a copy, contact Dennis Langley at 800/556-3653 or [email protected].