Abstract 002-0152 Lean Production in the Construction ... · Lean Production in the Construction...
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Abstract 002-0152
Lean Production in the Construction Supply Chain
(Producción ajustada en la Cadena de Suministro de la Construcción)
Second World Conference on POM and 15th Annual POM Conference, Cancun, Mexico,
April 30 - May 3, 2004.
Josep Capó, Francisco C. Lario, Ántonio Hospitaler
Dpto. de Organización de Empresas – Universidad Politécnica de Valencia
Plaza Ferrandiz y Carbonell; 03801 Alcoy (Alicante) Spain
Tel. + 34 96 652 84 66 / Fax: + 34 96 652 84 65
[pepcapo, fclario, ahospitaler]@omp.upv.es
ABSTRACT
The construction sector is undergoing important technological and organizational changes,
and construction companies will have to adapt to these changes in order to survive. For this
to happen, they will need to incorporate and apply production and organizational techniques
from other more advanced sectors.
In this context the application of lean production principles to the construction industry -
known as lean construction - takes on special importance.
This paper will analyze the applicability of lean production to construction and, in particular,
to the supply chain set up for each individual construction project. Its main characteristics
will be studied along with the conditions that must exist in participating companies for lean
production to be feasible, thereby achieving higher levels of quality, a reduction in costs and
completion times, and finally the end customer's satisfaction.
Key words: lean production, supply chain, construction
1. Introduction
These are times of constant technological change. Although the construction sector has not
participated in this to the same extent as other sectors, important changes are taking place
within the sector, and construction companies need to adapt to them if they want to maintain
their competitive positions.
For this to be possible, the transfer of technology towards these companies is essential for the
future of the sector. Technology, information systems and management techniques will all
have to be redesigned in order to shake off the classic image of the construction industry as a
nomadic activity creating low production monotypes and progress to industrialized
construction. This is carried out by companies with advanced technology which participate in
every aspect of the product they sell (Merchán, 2002), i.e. they contribute not only the
construction itself, but also the design, the project, the legal, administrative and financial
management, post-sales guarantees, maintenance and conservation services, etc.
They need to incorporate and apply products and techniques from other sectors on the basis of
rationalizing processes, from the manufacture and assembly of materials to on-site work
processes and component assembly, moving towards the industrialization of the whole
construction process.
Among these techniques stand out the application of lean production criteria to construction
projects, known as lean construction. This paper analyzes the applicability of lean production
to construction and, in particular, to the supply chain set up for each individual construction
project. Its main characteristics will be studied along with the conditions that must exist in
participating companies for this to be feasible.
2. Lean production
Lean production was developed in Toyota as a means for reducing losses and dead time in the
production process.
The term lean was coined by the research team working on international automobile
construction to reflect the nature of the Toyota production system and differentiate it from
handcrafted production and line production.
They focused their attention on the production process as a whole, unlike handcrafted
production, which focuses on worker productivity, and line production, focused on machines.
They continued the work of Henry Ford, further developing the management of production
by flows. However, whereas Ford's work was based on unlimited demand for a standard
product, in Toyota they wanted to make cars in response to orders from customers.
They started by trying to reduce machine preparation times, setting themselves some simple
objectives for the design of their production system, with clear influences from Total Quality
Management (TQM) systems; specifically:
• production of each car on the basis of a specific customer's requirements
• immediate delivery
• no intermediate stores or inventories to be maintained
Automobile plants in the USA were working to the line production method. This implied the
existence of intermediate stores and the production of a defective unit from time to time due
to their obsession for keeping the production line running at any cost.
Whereas the aim of the American systems was to keep the machines running and the line
operating so as to minimize the cost of each part of the car, the design criteria of the Toyota
system sought a high level of perfection, encouraging continuous improvement.
Achieving immediate delivery dates for cars which met the customers' specific requirements
called for very tight coordination between the progress of each car on the line and the arrival
of the different parts from the corresponding supply chains.
Re-processes due to errors were not allowed since they reduced manufacturing times. They
went as far as to insist that the workers themselves should stop the line personally if they
received any defective assembly or product (in American plants only the Plant Director was
allowed to stop the line), thereby decentralizing the decision-making process.
This was taken still further by substituting the centralized inventory controls for simple card-
operated systems which showed each work station what the one immediately following
wanted. This was a change from a “push” to a “pull” system, thereby achieving a reduction in
work in process (WIP).
This reduction in WIP meant a reduction in work capital and in the costs implied by the
appearance of changes during manufacture, since only the few parts that were at that moment
in process needed to be changed (in a “push” system large inventories are needed to cover
uncertainty in the production process, and this rebounds in higher costs if there is a change in
any component during the manufacturing process).
Toyota also decentralized plant management, making information regarding the production
system accessible to everyone involved in it. This transparency enabled people to make
decisions directly on the basis of production system objectives, reducing the need for larger
central management.
Once the new production system was running smoothly, Toyota went beyond the frontiers of
the plant itself, towards its supply chain. Seeking to reduce the time it takes to design and
deliver a new model, production process design was considered and studied in parallel with
car design. They established new commercial contracts with the suppliers, offering them
incentives to reduce the cost of their components, making them participate in product
development and the delivery process, and offering them continuous support for the
improvement.
Lean production has continued to evolve, but its main lines remain:
• To identify and deliver value to the customer, eliminating everything that does not add
value
• To organize production as a continuous flow
• To perfect the product and create a reliable flow through line stoppages, “pull” type
inventories and the decentralization of information and decision making
• To seek perfection; deliver a product on time, meeting the customer's specifications
with nothing in the inventory
Lean production can be understood as a way of designing and making things, unlike line
production, which seeks to optimize the performance of the production system as a whole.
3. Applicability of lean production to construction
3.1. General information
The application of lean production to the construction industry is known as lean construction
(Howe, 1999).
Lean construction takes on the design criteria of the Toyota production systems as a standard
of perfection. The problem is that designing and constructing a single complex project in a
turbulent environment under the pressure of deadlines and scheduling is very different from
manufacturing cars.
In principle the idea of delivering a project that meets the customer's specific requirements
and calls for immediate delivery seems to coincide with the ideal objective of any project, but
managing a construction project on the basis of “lean” criteria implies a lot of changes to the
traditional way, since the following points must be adhered to:
• To have clear objectives as to delivery times
• To seek to maximize performance for the customer at project level
• To design the product and the construction process concurrently
• To apply production control systems throughout the life cycle of the project
On the contrary, the usual way of managing construction projects derives from the same
focus as line production, i.e.:
• Product optimization is sought activity by activity, assuming that the customer's
requirements have already been identified in the initial design stage
• Construction is managed by dividing the project into different activities or stages
(design, construction, etc.), then ordering them into a logical sequence and estimating
the times and resources necessary for each to be completed, thereby obtaining the
totals for the project
• Each activity is then broken down until it is assigned to someone
• Control is carried out on each activity by simply checking that it is being carried out
within schedule and budget
• Forecasts are checked in periodic reports. If the activity in progress at any time is
delayed, efforts are made to reduce the costs and time taken on subsequent activities
or the sequence of the work is changed
• If these actions do not solve the problem, then cost will need to be sacrificed in favor
of scheduling, working to a non-optimal sequence in order to save time
• Concentrating on activities hides the losses generated in the “connections” between
them arising from waiting for materials, the arrival of resources, etc.
To summarize, the traditional way of managing construction projects focuses on activities
and ignores the total flow of the project and fails to consider the value flow (Koskela, 1992),
(Koskela and Huovila, 1997).
Reading the above it becomes clear that, to enable us to apply the principles of lean
production to construction effectively, we have to concentrate on managing the interaction
between the different activities of the construction project as well as the combined effect of
the dependency and variations between them, in an attempt to minimize them.
This is essential if projects are to be delivered in the shortest possible time, and calls for new
planning and control systems - which must originate in the company itself - in order to cover
the whole supply chain.
An effective tool for this is strategic vertical alliances (throughout the supply chain), since
they facilitate a “collaborative” redesign of planning systems in such a way as to bring about
greater coordination and a true flow of work throughout the chain. These alliances must take
into account the supply chain as a whole and not as a collection of sequential activities. In
other words there must be true management of the supply chain, a concept we will look at
in more detail later.
These alliances along with the practices of the "lean" way of thinking itself will make it
possible to implement these objectives. The alliances will encourage trust between members
of the chain, and applying "lean" concepts will bring about trust in the chain as a whole.
In the context above, lean construction must focus on the way the work as a whole is planned
and managed. Planning will be the basis for making the transfers of work between the
different members of the chain more predictable, controlling the variations that may come
about in the process and not the speed of the activities.
The key to success in managing construction projects will be measuring performance and
improving the way projects are planned.
The first objective must be to create a true flow of work throughout the supply chain and put
it under control. This will imply changes in the way the work is structured and how the
project is planned as a whole. It will be the first step to enable lean construction to be applied
successfully, but it must be followed by changes in other systems, such as design, logistics,
etc.
It will be absolutely necessary to change the organizational structures of construction
companies to enable them to support these redesigned systems and successfully adopt this
philosophy. Organizational systems will be needed that consider all components of the supply
chain to be of equal importance, substituting classic centralized control. In other words it will
be necessary to speak of Supply Chain Management (SCM).
The following sections show the main characteristics of the construction supply chain as set
up for each construction project, and also the basic conditions that must exist in the supply
chain in order for lean production criteria to be applied successfully.
3.2. The construction supply chain
3.2.1. General information
The supply chain can be defined as a “network of organizations connected by strong links in
both directions to the various processes and activities that produce value in the form of
products and/or services for delivery to the end customer” (Cuesta, 1998).
It can be seen from this definition that the traditional idea of customer-supplier based on a
simple business operation has changed to become the concept of the customer-supplier chain
belonging to Total Quality.
To be more precise, it is possible to speak of a chain where everyone is a customer of the
previous link and supplier to the next, and where every time someone is the supplier they
have to meet the customer's requirements, and for this to happen the customer needs to have
made it clear to the supplier precisely what these requirements are.
As mentioned in the previous section, to make it possible for lean production criteria to be
applied to construction projects, the companies participating in the projects have to concern
themselves with managing the supply chain as a whole. In other words, managers should not
concern themselves only with the design and management of their own logistics chain, but
also design and manage relations with the suppliers and distributors involved in the
construction project and the actual service supplied to the customer.
The management system cannot be organized along traditional authoritarian lines. Instead it
must be based on involvement and the commitment of all the chain's components to a
common project: achieving the end customer's satisfaction.
The objective must be to seek what is to the benefit of the chain as a whole, then go from the
whole to arrive at the individual benefits of each link rather than follow the traditional model
where each component looked to benefit on an individual basis.
3.2.2. The origins and characteristics of supply chain management (SCM)
As far as its origins are concerned, SCM has evolved from logistics following to these four
phases (Lario and Pérez, 2001):
• Management: logistics was perceived initially as a tactical function formed by a
decentralized group of the company's operational activities, associated primarily with
storage and transport
• Conscious centralization of all logistics functions
• The third phase comprises two management concepts: the integration of fundamental
logistics functions with inventory planning, order processing, production planning
and purchasing; and the extension of logistics integration outside the organization so
as to cover the whole supply chain, beginning with the supplier and ending with
delivery to the customer
• The fourth and final phase is the emergence of SCM itself
This management model is based on the following elements (Lario and Pérez, 2001):
• An expanded vision of logistics operations management. SCM requires that
companies move beyond simply concentrating on perfecting logistics activities alone
and move towards a situation where all the company's functions are closely
integrated
• The extension of integrated logistics management to cover opportunities in order to
obtain competitive advantages outside the limits of the company itself. Companies
must focus on external integration, which will allow business functions within and
through companies, in order to seek productivity and new competitive areas through
the development of innovative relationships with their suppliers and customers, as
well as alliances with third parties
• A new strategic vision of chain and logistics management. Outwards orientation and
the capacity for working together enable companies to manage complex relationships
throughout the chain, channeling the main direction of the market, generating new
business associations and exploring new opportunities
All in all we will find alliances being used in the supply chain with the customer participating
in product design, the production process and logistics subjects, and along with the
application of ICT, it will be possible for lean production criteria to be applied to the whole
construction process.
3.2.3. The supply chain in the construction industry
Research into the construction supply chain is relatively new, dating only from the 1990s
when it became a specific research area (London and Kenley, 2000). It has evolved with clear
influences from the fields of logistics, systems engineering and other management theories.
Many of the most significant contributions to the construction supply chain come precisely
from lean construction philosophy. Work following this school of thought originates from
production philosophy, with clear influences from systems engineering methodologies, as has
already been seen in previous sections.
Some studies relating to the construction supply chain have focused on establishing the
relationship between productivity and the flows of materials (Akintoye, 1995) (O’Brien,
1995).
A number of contributions have been made along the lines of strategic management in
construction:
Cox and Townsend (1998) propose a model for chain supply management in the construction
sector in which it is the customers (promoters/owners) that control the supply chain. The
authors argue the need for customers to understand the structural characteristics of their own
supply chain in order for it to be managed properly.
Cardoso (1999) puts forward a model for new ways of rationalizing production based on two
strategies: leadership in costs and differentiation.
Other studies introduce elements of industrial organization, such as vertical integration
(Clausen, 1995) (Tommelein and Yi, 1999) and the customer concentration (Taylor and
Bjornsson, 1999).
Although some authors suggest it is important to consider the entire supply chain (Taylor and
Bjornsson, 1999), the construction supply chain is normally perceived as belonging to the
main contractor. London and Kenley (1999) propose that management of the construction
supply chain should be centred on the customer and not on the main contractor,
understanding the customer to be the promoter/owner.
Given the particular production characteristics of the sector, the supply chain will be different
for each construction project.
London and Kenley (2000) put forward a method for describing construction supply chains,
considering them in terms of the companies involved, their characteristics and structural and
behavioural relationships. The main criterion for establishing relationships and structure is to
first identify each particular project. The three key features of the model are project,
participating companies and the relationships between them.
Each project involves demand from the customer's organization for an infrastructure or
specific construction element. Figure 1 shows the structure of a construction supply chain in
which the client is considered to be the central or demand organization following the model
put forward by Lambert et al.(1998), the customer as always being understood to be the
promoter or owner.
Production Suppliers
HORIZONTAL STRUCTURE
In use Suppliers
Subcontractors Contractors / Consultants
Central Organization
Contractors / Consultants
Components Subcontractors
Spare parts suppliers
VERTICAL STRUCTURE
Manufacturer Components / materials suppliers
Figure 1: Structure of a supply chain in the construction industry (London and Kenley, 2000)
According to the model developed by London and Kenley (2000), the customer, being the
central organization, is equivalent to the main manufacturer in traditional supply chain
models in the automotive sector. In this way the idea assumed by many authors that the main
contractor is equivalent to the main manufacturer is changed.
This new model is more logical because, in terms of longevity, financial risk, and the origin
and potential control of the construction supply chain, the customer is the key member.
Given this sector's characteristics and culture, the central organization normally exercises
little control or overall management of the project. Each level of the chain controls the
immediately preceding level. Problems of integration between specialist companies at each
level are very common; therefore Enterprise Integration methodologies will be essential in
order to obtain good configuration, coordination and management of the supply chain in
each construction project.
The components of the model put forward by London and Kenley (2000) are explained in
more detail below.
Horizontal structure:
As can be seen in Figure 1, the components of the horizontal structure of the chain they
supply have been grouped together to produce the infrastructure or construction element
(production suppliers), the central or focal organization (promoter/owner) and the suppliers
who play a role once the construction project has been completed (in-use suppliers).
The first link of production suppliers tends to be formed by either the main contractor or the
main consultants or advisors.
The second is usually the subcontractors or secondary consultants or advisors. This second
link usually has more problems because there may be a large number of subcontractors or
secondary consultants within it, depending on the type of construction project.
The third link is normally made up of the suppliers of specific products (construction
materials, auxiliary material, etc.).
The fourth link would be the manufacturers of the specific products mentioned above.
The model can become even more complicated when there are multiple suppliers for each
company at each level.
Vertical structure:
The vertical structure of each link reflects the level of competition between suppliers. The
initial impression is that the sector is dominated by a great number of small companies, but
the normal situation is for a small number of large companies to control many of the links in
construction supply chains.
It is important when analyzing the vertical structure of a supply chain to take into account
only those companies that offer the same product or service.
In each link we can find different types of suppliers offering similar products or services. In
the first link belonging to the production suppliers, for example, we can find architects,
engineers, construction project managers, etc.
On this level the relationships between companies make them one of the critical parts of the
model.
Types of relationship:
The types of both competitive and collaborative relationship that are available to bring the
companies together range from acquisition to transactions of any type.
Strategic alliances are very common in the sector. The most usual ones are made for specific
projects between clients (promoters) and main contractors. Subcontractors or specialist
suppliers may sometimes be included in the alliance.
It is normal, especially in the building sub-sector, for there to be long-term contracts or
alliances (for various construction projects) between some of the contractors and suppliers
because it is a way of obtaining better prices and completion times.
The equivalent to these cases in the automotive sector would to some extent be the
relationships between the main manufacturer and first-level suppliers.
Extended company/virtual company type alliances between supply chain components are also
beginning to show up in the sector
Finally, any construction supply chain will have a series of structural and behavioral
properties. Each company in the chain can be defined by its horizontal and vertical position.
The main features of any construction supply chain (London and Kenley, 2000) are
summarized in the table below:
ATTRIBUTES
Horizontal attributes:
- Number of companies and links in the chain
- Position of each company relative to the central one
- Relative size of each company in the chain
- Location and number of grouped companies
STRUCTURAL Vertical attributes:
- Location and categorization of markets and differentiation
between products/services
- Number of companies in each market
- Distribution by size of the companies
- Level of vertical integration
- Level of horizontal integration
BEHAVIORAL
Attributes of contractual relationships:
- Purpose: service, product,…
- Duration
- Location and number of each type of relationship
- Location and number of each contracting strategy
- Number of relationships between companies
Table 1: Descriptors of a construction supply chain (London and Kenley, 2000)
All these descriptors will give an idea of the main characteristics of each supply chain in
question, as well as its competitiveness, distribution power, innovation, effectiveness and
efficiency.
3.3. Basic conditions for applying lean production in construction
There are three basic conditions that must exist for lean production concepts to be applied in
the construction sector supply chain (Hong et al., 1999):
• A change in mindset: a typical feature of construction culture is the presence of very
poor relationships or even rivalry between each of the main parts of the chain, such
as between the customer or promoter, the architects, the main contractors, and the
subcontractors. These poor relationships can deteriorate even more when there is
little trust between them
• Orientation towards management by processes: the construction industry, especially
where small and medium-sized businesses are concerned, is very much arranged
along departmental lines. This is a problem for companies as it makes it impossible to
focus on the customer
• Exchange of staff and knowledge: unfortunately there are very few construction
companies willing to exchange staff, information, and knowledge about their “good
practices”. This makes them incapable of benefiting by learning from the experiences
of others
Change in mindset:
Relationships between the different supply chain components on a particular construction
project cannot often be qualified as very good. Relationships are more likely to resemble
those between opponents or rivals in which there is little trust.
The main problems to be solved in this phase are:
• Communication and information management: as there is not complete trust between
the parties, the exchange of information is very limited. This means low levels of
coordination as the information available is very often incorrect or insufficient. Work
in which each is dependent upon the other could therefore be affected
• Competitive relationships: each company works for its own benefit, and this could
lead to problems in the relationships between them
• Low quality and late completion: because there is a lack of understanding between
different parts of the chain, work is often of low quality and/or not completed to
schedule
To solve these problems, alliances must be forged between the members of the chain in a way
that seeks the end customer's satisfaction. For this to come about, companies must coordinate
their efforts and work together within the framework of their supply chain.
They must begin by defining the needs of the customer, then transform these needs into
product requirements so as to finally define how the final product (building, infrastructure,
etc.) should be delivered to the customer, defining all the construction stages on the way.
Relationships between members of the chain must be based on trust, mutual understanding,
knowing and accepting the particular expectations of each member, and a frank exchange of
information.
In this way they will ensure that the product is delivered on time and that it will be of the
correct quality. The end customer will therefore be satisfied and, equally important, this will
have been achieved with high levels of satisfaction among staff, few conflicts, etc.
Orientation towards management by processes:
Most small and medium-sized construction companies work along departmental lines,
thereby creating their own internal barriers. This prevents them from having a clear vision of
their own processes, and therefore they cannot concentrate on the needs and requirements of
their customers.
This type of organization is too rigid, since all activities are carried out sequentially by one
department after another along hierarchical lines, and so decision-making is made slower and
more complicated.
Management by processes is a tool for directing the provision of the product or service
towards the end customer. Although the idea of focusing on the customer's requirements is
not a new concept for construction companies, they do not usually place as much value as
they should on the customer within their processes.
Management by processes focuses on those activities that really add value to the product or
service, always in line with the following principles (Hammer and Champy, 1993):
• Processes always have a customer, whether internal or external
• Processes can extend beyond the limits of the company
• Processes must be evaluated from the customer's point of view
Orientation by processes will improve the company's performance and achieve greater
customer satisfaction, a reduction in delivery time and high levels of quality.
The main objective must be the end customer, and ways must be sought to provide the
greatest possible value to him, not only in terms of price but also in terms of quality and time.
If the whole company has the same objective (customer satisfaction), it is much easier to
work than in a situation where there are different departments or sections with different
objectives.
Once the company has managed to work in this way, it will be much easier for it to
incorporate suppliers and customers into its supply chain, in order to work together with
them. If the departmental structure remains in place it will be much more difficult for them to
be able to carry out vertical integration throughout the chain.
Exchange of staff and knowledge:
The exchange of staff between companies is a sign of good relationships and orientation by
processes. It helps generate trust between a company and its suppliers, its customer and other
companies, and at the same time shows that the company wants to learn from others and is
willing to share knowledge and technology.
The exchange of staff must come about, particularly, when a new product is being jointly
developed so that human resources, experience and knowledge can be shared.
It has the effect of ensuring that companies do not focus only on their own processes, but see
the entire process of their supply chain in such a way that they function as a single body,
competing with other supply chains and satisfying the customer's needs.
With this exchange of staff there is personal and physical communication between the people
of the different companies in the chain, thus creating a “social network”. A high level of
interaction will be achieved and hence tacit knowledge will be communicated between
companies (Nonaka, 1994).
To summarize, it can be said that if companies enter the dynamic shown in Figure 2, then a
true team spirit will be created in the supply chain, where each participant will know and
understand himself and the others, and then it really will be possible to use lean production
criteria efficiently and effectively in the construction supply chain.
BETTER
RELATIONSHIPS (COLLABORATIVE ALLIANCES)
EXCHANGE OF STAFF
(LEARNING)
ORIENTATION BY PROCESSES
(CUSTOMER CENTRED)
Figure 2: Dynamic cycle in the construction supply chain
4. Conclusions
This paper has analyzed whether lean production philosophy can be applied to the
construction sector. It has shown that it is possible as long as a number of conditions exist.
Specifically, the entire supply chain for each construction project needs to be managed in
such a way that alliances are formed within it, with knowledge and experience being shared
and with everyone working towards a single common goal: customer satisfaction.
In this way it will be possible to shorten delivery times on the project, reduce costs and
increase quality, thereby increasing the satisfaction of both internal and external customers
and improving the effectiveness and efficiency of the process as a whole.
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Acknowledgements
We would like to thank the Foreign Language Co-ordination Office at the Polytechnic
University of Valencia for their help in translating this paper.