Introduction
According to some estimates, building materials distributed through
intermediaries equate to approximately 65% of all materials sold into
the construction industry and it could be argued that this statistic
alone justifies the involvement of intermediaries in the Accelerating
Change reform agenda. With their influence and control in the market
it is clear that intermediaries are in a position to generate or stimulate
substantial efficiency and value improvements when fully integrated
into the construction supply chain and few doubt that they have a crucial
role to play in the supply chains of tomorrow. While the employment
of intermediaries has traditionally been for many organisations more
of a tactical rather than a strategic move, the advent of fully integrated
supply chains will make their inclusion (or not) one of the core strategic
decisions. This module provides guidance on the benefits available from
using intermediaries and how they might be achieved and improved in
practice. Note that, for the purpose of this module an 'intermediary'
may be a merchant, a stockist or a distributor.
This module explains the added-value that can accrue from the inclusion
of intermediaries as part of fully integrated supply chains and focuses
on both 'upstream' supply chain relationships between intermediaries
and manufacturers and 'downstream' relationships between Intermediaries
and construction procurement teams. It is acknowledged that intermediaries
by definition are already integrated to some extent in the construction
supply chain and that most enjoy long-term relationships with suppliers
and customers. However, this module gives guidance on how these relationships
can be taken forward to a strategic level and how, within the context
of more integrated supply chains, these relationships can be redefined,
strengthened and maintained to the benefit of all concerned.
The benefits
1. To manufacturers
Manufacturers may find that the optimum route to market is via some form
of intermediary stockist for the following reasons:
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Improved logistics. Manufacturers can leave physical distribution
to the experts and focus on production, their core business.
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Superior product availability – nationally, regionally and locally.
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The breaking of bulk and its repackaging into manageable units.
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Reduced credit risk to the manufacturer.
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Improved market access (especially for SMEs) - intermediaries can
provide cost-efficient national distribution.
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Market knowledge. The intermediary is likely to have a good general
understanding of the market, coupled with local knowledge.
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Administrative benefits. The use of intermediaries will almost
certainly reduce the number of transactions. Other administrative
benefits might include the provision of electronic trading options
and the realisation of collaborative promotional campaigns, etc.
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Access to the intermediary's often closer relationship with contractors
and subcontractors and their local knowledge of construction projects/personnel.
Note that, in a properly constituted supply chain, manufacturers
will be able to use intermediaries without losing touch with the
market. It can make it easier for contractors to obtain the goods
(intermediaries may have longer trading hours and open weekends).
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In a properly constituted supply chain, manufacturers can use intermediaries
without losing touch with the market.
2. To construction procurement teams/end users/designers
The construction procurement teams of contractors and subcontractors
might employ intermediaries because it:
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facilitates quick and easy procurement, perhaps with no minimum
order size. Buyers will often have established accounts with Intermediaries
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provides a one-stop-shop for buying disparate requirements and
reduces administration. Single source procurement can have substantial
advantages in the maintenance/FM sector where frequent, small, and
disparate orders may be the norm
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reduces the number of suppliers and can provide improved terms
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can provide SMEs with a means of indirect access to the technical
and other resources of major manufacturers. In a properly constituted
supply chain, purchasers should be able to use intermediaries without
losing support from manufacturers
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can be the most cost-effective procurement solution. Intermediaries
can have enormous buying power and this can lead to additional benefits
that are passed to the customer, such as volume rebates, special
delivery arrangements etc
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suits different purchasing modes (cash/credit card/credit account)
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eases the implementation of just-in-time deliveries for improved
site productivity, better security and greater safety
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offers a high standard of service such as the provision of special
service arrangements on certain projects. For instance, an intermediary
may be prepared to set up a temporary branch on a large site or
set up an outlet to supply an individual customer
Relevance
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Intermediaries (merchants, stockists, distributors, etc) seeking
to develop strategic relationships within integrated supply chains.
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Manufacturers that are seeking to incorporate intermediaries in
their strategic supply arrangements.
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'New generation' construction procurement teams (including contractors,
clients, facilities managers, etc) that might benefit from the value-adding
combination of logistical, procurement and supply chain management
expertise that is available from progressive intermediaries.
Using this Toolkit module
The guidance shown in the table appears in approximate chronological
order. However, users must adopt a pragmatic approach to its application
with respect to their particular organisation. It should also considered
that the time required to enact the activities and processes shown will
vary from organisation to organisation and must be left to the judgement
of the user. Note also that some of the guidance offered applies to
the intermediary itself, some to its suppliers/customers and some to
both.
Each key step in the development of a formal partnering relationship
between the various supply chain parties is identified in the 'Process'
column. The 'Culture and Activities' column then provides a summary
of the necessary ethos and actions required for their implementation.
The adjacent 'Tools and Techniques' column provides recommendations,
Toolkit cross-references and links to external supporting information.
Note: Users of this Toolkit module are encouraged to explore the other
sections of this Toolkit to determine their position in the overall
construction supply spectrum, to better understand the benefits and
workings of the integration concept and to gain an appreciation of the
need for collective supply chain focus to ensure a satisfactory end
result.
Workbook
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Step
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Process
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Culture and activities
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Tools and techniques
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3.1
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Material suppliers and customers must determine the value of
incorporating an intermediary in the supply chain from both a tactical
and strategic perspective.
Intermediaries must decide if they are prepared to play a more
collaborative role within strategic supply chains.
By pursuing strategic supply chain partnerships, intermediaries
have the potential to move from their traditionally low-level
distribution role to a strategic one where they plan, manage and
support complex supply chain systems as part of multi-tier, integrated
construction solutions.
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Material suppliers and customers must determine:
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Is this form of partnering/integration appropriate? (it does
not have to be your only route to market)
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Is it a good fit with your corporate strategy?
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Will it provide your company with a competitive advantage?
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For which of your products/services/systems is it appropriate?
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The medium-long-term implications of entering strategic partnering
relationships with intermediaries
Intermediaries must determine:
Whether they are prepared to make the cultural, operational and
financial commitment to working in close interaction with suppliers
and customers as part of integrated supply chains. This will necessitate
creating the necessary trust with partners and might, for example,
involve:
i. entering new areas of service
ii. developing expertise in specialist fields of relevance such
as common quality standards and communication systems
iii. taking a more pro-active involvement in product design and
specification.
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Manufacturers
As a manufacturer, an intermediary is worth considering when you
have a standard (non-customised) product but lack:
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sales channels/outlets
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marketing skills
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logistic resources.
i. Determine your market share and research the potential for
growth. If you have a high and profitable market share without
using an intermediary you probably do not need one. (See COMPASS
self selection guide – Manufacturer which will help
you decide if partnering/integration with an intermediary is
right for your business).
ii. Conduct cost/risk/benefit analyses to determine whether an
Intermediary can add value to your business and to the rest of
the supply chain.
Tip: It may be beneficial to conduct this using independent
external expertise.
iii. Review your organisational structure
Where a manufacturer adds an intermediary into the supply chain,
it will often call for an organisational and structural review
of the manufacturer's business.
Construction procurement teams/professionals
Contractors, subcontractors, designers and end-users have traditionally
made extensive use of intermediaries since they offer the only
realistic method of sourcing a wide variety of products in the
volumes/timescales that are required. In the emerging construction
landscape, however, intermediaries will have the potential to
play a much more pivotal supply chain co-ordination role. Construction
procurement teams must therefore consider the usage of intermediaries
when developing their procurement strategy and, where appropriate,
seek to integrate them as early as possible.
Conduct cost/risk/benefit analyses to determine whether an intermediary
might add tactical and strategic value to the procurement and supply
chain process.
Tip: It may be beneficial to conduct this using independent
external expertise.
(see COMPASS Self Selection
Guide – CPT).
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3.2
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Core principles/cultural requirements for partnering with intermediaries
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Construction procurement team
Most contractors and subcontractors use intermediaries, but
few realise the potential capabilities of the intermediary as part
of an integrated procurement chain. This partly due to the fact
that true supply chain integration is still in its infancy and
partly because, historically, the relationship has tended to be
governed by price rather than value.
It is imperative the construction procurement team not only demands
'best value' from their intermediary partners, but also
insists on engaging only with intermediaries that can demonstrate
their commitment to true supply chain integration and the principles
that underlie it. Only by doing so can the collaborative benefits
outlined in this Toolkit be realised.
Manufacturer
It is important the company personnel pull together to achieve
the partnering objectives. Change management will be necessary
if the manufacturer has not used an intermediary network before
and must not be underestimated. Failure to deal with this aspect
may have negative repercussions on the business.
In all cases, to ensure the full benefits from integration are
realised, a clearly defined strategy must be established that sets
out the aims, objectives and long-term goals of the relationship
and generates:
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constructive communications between all parties
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an environment of continuous learning and improvement
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mutual trust amongst all participants
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genuine commitment from top management of the partnering organisations
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a partnering vision throughout the supply chain
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understanding and commitment to integrated working throughout
the supply chain, providing benefits to all parties.
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The Construction Manufacturers Partnering Association (COMPASS),
through its member activities and its Charter scheme provides a
mechanism for establishing a cultural framework for the pursuit
of supply chain integration. Membership of COMPASS is available
to all participants in the construction supply chain.
It is advisable to set up an in-house steering committee to oversee
the change in culture required. Expect a significant change in
culture to take at least 12 months to drive through the business.
Each company must put in place an education/training programme
designed to explain the rationale behind the partnering programme
and instil the necessary cultural values. It may be necessary
to engage the expertise of external consultants or agencies to
realise this. For details of suitable organisations refer to the
A-Z section on the Construction
Best Practice website.
Tip: Chief Executive of the company concerned, or other
individual with the authority to commit the organisation and lead
the necessary cultural change, to set up and lead a series of
in-house seminar/workshops covering the rationale behind the
partnering model, the objectives and the cultural/organisational
changes necessary. These to be positive, interactive, informative
sessions with the aim of securing 100% staff commitment to the
partnering philosophy.
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3.3
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Planning stage (detailed review of operational changes needed
to achieve this state)
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Having made the decision to use intermediaries, both manufacturers
and construction procurement teams must:
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identify the products/systems covered by the arrangements
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consider any re-organisation necessary to facilitate
and progress partnering principles
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examine the marketing implications – cost, competitor
reaction, customer perceptions
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review the implications and determine strategy for the target
market and project type:
(i) Public and Private sector/utility construction and term
maintenance/Facility Management, etc.
(ii) New Build /Refurbishment/ re-active maintenance.
(iii) PFI/PPP/Design and Build/traditional tendered contracts
Review the number of intermediaries required:
(i) Do you want a choice?
(ii) Can the intermediary offer the required service?
(iii) Will an exclusive Intermediary offer advantages or disadvantages?
(iv) Flexibility to expand or reduce the number of intermediaries.
Define the desired functional characteristics of the ideal intermediary
partner:
e.g.
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technical/service attributes
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management strength
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cultural 'fit'
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operational efficiency
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strategic sourcing expertise and supplier contacts
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transportation/storage facilities
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inventory management competence
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IT capabilities
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customer focus
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staff quality including training and development
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receptivity to innovation and ideas
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long-term planning perspective
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flexibility and focus
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market penetration/strengths
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value-added services (e.g. hire services, processing, fabrication,
etc.)
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financial strength
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marketing resources and expertise
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Manufacturers
As a manufacturer seeking to establish a partnering relationship
with an Intermediary you need all available marketing analysis information
to hand & should complete a SWOT analysis covering the following
issues.
Product analysis
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Product type sold.
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Market sector at which product is aimed.
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Product life cycle.
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Breath of product range.
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Product R&D.
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Competitor alternatives.
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Trends.
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Market share.
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Customer profile analysis.
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Size.
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Location.
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Order size (small orders are tailor made for intermediary).
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Service requirements.
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Number of customers.
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Market sector targeted by customer.
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Risk.
Competitor analysis
Construction procurement teams
As a contractor, subcontractor, designer or end-user you may already
have experience of sourcing through Intermediary channels. However,
if you are now setting up, or participating in, fully integrated
supply chains you will need to satisfy yourself that your existing
or prospective intermediary partners have the requisite skills,
resources, cultural philosophy and commitment to meet the challenges
presented.
Consider what contractual arrangements you will want to have in
place with your intermediary partners. In many cases this will
take the form of a partnering charter. Many partners find that
the real value in drawing up this document rests in the process
itself and that it forms a visible expression of mutual commitment
to the aims and aspirations of the relationship. A 'Service Level
Agreement' defining the expected standards of service may form
part of, or run parallel, to the Charter document.
A typical partnering charter might include:
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mission statement
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objectives including target cost, time and quality criteria
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dispute resolution
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agreed procedures and processes
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agreed measures of progress
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structure for monitoring and review
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contractual arrangements.
For an example of a summary Partnering Charter showing a mission
statement and mutual objectives suitable for display purposes
see
Strategic Partnering
Charter
For further guidance on the content of such an agreement see Module
4: Supply chain framework module.
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3.4
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Selecting intermediary partners
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When selecting intermediary partners manufacturers and construction
procurement teams must review and select candidates with respect
to the criteria mentioned in the introduction above.
Note that manufacturers and construction procurement teams may
have to sell the business case for integrated supply chains to
prospective partners, e.g. strategic advantage, profit opportunities,
increase sales, margin, exclusivity, support, long-term relationship,
cost savings, etc.
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Whether you are a manufacturer or a construction procurement team,
the selection of the right intermediary partner(s) is absolutely
fundamental to the success of the exercise. While it may be prove
possible to retrospectively embed and cultivate the necessary
cultural characteristics in an otherwise suitable intermediary
partner, there is no guarantee this will happen. Mistakes at this
stage might prove commercially disastrous.
Tip: If you are unfamiliar with intermediaries and intermediary
distribution it might prove advantageous to invite prospective
intermediary partners to introductory, no obligation seminars
or one-to-one meetings to discuss the possibilities and gauge
their abilities and commitment.
Assess candidate using a rigorous quality-based selection system
covering both quantitative and qualitative criteria. See Resources
for partner selection guidance.
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3.5
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Address relational/process interface issues
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In most construction procurement scenarios, transactional and
process-related improvements offer huge scope for cost/efficiency
gains. In some cases involving intermediaries, where mutually
beneficial relationships are well established, the necessary systems
and procedures are already in place. In new partnering relationships
these must be developed but have the advantage of being able to
embrace the latest technological developments and build on existing
experience.
Intermediaries have been quick to embrace Information Technology,
allowing suppliers and customers to reduce their supplier base
and providing the opportunity to develop:
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e-business
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consolidated invoicing
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on-line ordering
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paperless transactions
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supplier base reduction
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EDI invoicing/inventory management
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automatic stock replenishment
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consignment stocking deals.
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For details on how to achieve savings through transactional efficiency
see Module 1: Customer/supplier
procurement integration
Tip: The construction procurement team should ensure their
intermediary offers them a personal contact (account manager),
who works along with them to develop and monitor the Partnering
and Service Level Agreements between the two parties.
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3.6
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Agreeing measurable objectives
(determination of Key Performance Indicators)
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Establish short- medium- and long-term targets distinguishing
between global supply chain objectives and company-specific objectives
that are mutually agreed, measurable and realistic.
Targets might include:
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turnover
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stock Levels
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cost and profitability
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technical and quality
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commercial
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cultural
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service levels, response times and complaint handling
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waste reduction
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safety
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staff training goals
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reduced environmental impacts
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meeting of client objectives
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clear, measurable, value-for-money benefits for all parties
Intermediaries should be able to offer specific KPI data to their
customers:
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deliveries supplied in full and on time
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credit note analysis
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response time for enquiries
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response time for answering telephones
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number of visits to site per month.
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Adopt the COMPASS Key Performance Indicators or similar as a straightforward
means of monitoring and measuring continuous improvment. Note
that the COMPASS KPIs meet the market monitoring requirements
of ISO 9000: 2000, saving unnecessary duplication of work.
Ensure that all parties are an integral part of the benchmarking
process, measuring as well as being measured.
Publicise the benchmark results and discuss with your partners.
Use these results to strive for continuous improvements in the
process.
Tip: Hold regular operational-level workshops to review
progress against KPI objectives and obtain feedback on lessons learned.
In addition, ensure, through regular communications such as face-to-face
meetings, conferences and newsletters, that everyone involved in
the manufacturing organisation and its distribution network are
fully aware of the KPIs and their significance.
For information on generic construction KPIs see the KPI
Zone website.
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3.7
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Management and communications throughout the supply chain
(controls that will ensure this partnership is working for you)
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Manufacturers and construction procurement teams must ensure the
intermediary plays its full part in an integrated supply chain
and the full benefits are realised.
Ensure that an open management process is in place to engender
trust, commitment, enthusiasm and network 'ownership'.
Establish a mechanism for driving the partnering relationship
and the maintenance of good communication throughout all links
in the supply chain. The aim is to oversee the integration strategy
with your partners, and to guide and monitor implementation.
Ensure cultural transformation through ongoing training programmes
aimed at different levels of staff within the participating companies.
Risk management
Establishing partnering relationships is not about risk transferral;
it is about risk management and removal. At this stage, the parties
to the relationship should set out the basis for sharing risks.
The correct management, monitoring and measurement systems will
ensure that risk is identified, minimised and shared equitably.
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It is vitally important that regular review meetings between the
intermediary and its supply chain partners take place.
Tip: Manufacturers and construction procurement teams should
establish, or facilitate the establishment of a joint review
team to review compliance with both the Partnering Charter and
the Service Level Agreement. This will also assess progress against
the agreed objectives and KPIs, determine new objectives and resolve
contentious issues as they arise.
Prepare a joint training programme in accordance with the commercial,
technical and cultural aspects of the programme and in line with
the agreed KPIs. It is essential that a mutual understanding of
each partner's business and technical capabilities developed.
Tip: Hold regular, at least annual, network conferences
to foster team spirit and trust, share knowledge, exchange information,
educate and motivate.
Tip: Encourage network social and team-building events.
Tip: Give consideration to an awards scheme to honour best
performance; celebrate success and foster competition amongst
the intermediary network.
Tip: Consider introducing a self-financing incentive scheme
tied to:
i. achievement of business targets, and
ii. exceeding KPI targets.
Continuously review and audit supply chain performance. Don't
compromise on quality or commitment. If an intermediary consistently
fails to deliver against its agreed objectives then:
a. reconsider the objectives to determine their validity/attainability.
Adjust if necessary
b. discuss the requirements with the intermediary in question
with a view to rectification
c. if all else fails, terminate the relationship in accordance
with the termination terms contained within the contractual
agreement or Partnering Charter.
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3.8
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STEPS FORWARD
Product co-development and innovation
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Product development
There is a lot to be gained in terms of cost savings, speed to
market, efficient resource allocation and effective risk sharing
by pooling expertise in the generation of creative yet workable
solutions. A mature supply chain will develop the trust, confidence,
mutual respect and interdependence to allow collaborative improvements
to processes as well as product development programmes, e.g:
- packaging
- storage requirements
- training
- market sector targeting
- value-added processing.
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As the link between the Manufacturer and the rest of the supply
chain, intermediaries can play an important role in product development
programmes.
Tip: Consider regular development workshops with the aim
of reducing waste, improving quality, simplifying interfaces and
producing value-engineered solutions.
Start small and concentrate on easy-to-implement and cost-efficient
product/process enhancements rather than long-term R&D programmes.
Design for installability, manufacturability, sustainability, rationalisation,
standardisation, simplification and safety
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3.9
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Collaborative marketing
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Manufacturers in particular can collaborate with intermediaries
in promoting their combined 'competitive advantages' to clients
and the rest of the supply chain.
In an integrated supply chain scenario, the intermediary can beneficially
join forces with its supply chain partners in jointly promoting
the benefits of the integrated team to clients, lead contractors
and others.
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Collaborative marketing is a key benefit that can be developed
with any intermediary outlet. Indeed this aspect will often be
a deciding issue at the strategy stage.
Joint promotional programmes might include:
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literature
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trade shows
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exhibitions
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open days
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training events
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dedicated display zones
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product demonstrations and trials
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presentations
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incentive/loyalty schemes
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joint Sales calls
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mail shots
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trade Counter display
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trade Journals
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promotions
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cross reference between websites
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use of CD-ROM and other digital media for the dissemination
of up-to-date information.
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3.10
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Refine, improve and develop
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Continually apply the lessons learned from feedback, reviews,
successes and failures. Improve, improve, and improve! Integrated
supply chains are an evolutionary species!
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