1. Strategic Inventory Positioning in Capital Project Supply Chains
Scott J. Mason, Ph.D.
Fluor Endowed Chair in Supply Chain Optimization and Logistics
Professor of Industrial Engineering

2. Inventory management at a large food-product manufacturer
Overview
Inventory management at a large food-product manufacturer
Increasing market demands necessitate facility expansion and/or addition around the globe
Difficulty in meeting delivery schedules caused need for new supply chain management practices
Primary area of focus is obtaining stainless steel components
As upstream facilities could not sufficiently expedite the company’s request, solution was to acquire and store inventory independent of any order
Paper’s focus: where and how much inventory to store?
Scott J. Mason,

3. Roles of SCM in Construction
Focus on construction site activity cost and duration
Focus on reducing logistics costs, lead time, inventory
Focus on upstream activities to reduce TIC
Focus on integrated management and site production
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4. Commonplace in manufacturing supply chains
Demand Forecasting
Commonplace in manufacturing supply chains
All participants can work to stabilize production
Forecasting demand in capital projects SCs is challenging
Traditional project-based contracting structures influence the degree to which demand information is shared
Especially demand for new or expanded capital facilities
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5. Owner is in the Driver’s Seat
Can and should seek control of upstream SC because
Most familiar with business strategies, results, need for new or expanded capital facilities
Often gets bids from multiple contractors in search of increased competition and lower prices
Maintaining relationship with at least a few contractors will “keep them honest”
As owners work with >1 contractor and contractors work for multiple owners, owners understandably are reluctant to broadcast sensitive business plan information about upcoming capital programs where it may become accessible to competitors
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6. Owner is in the Driver’s Seat (2)
Can take a multi-project view across capital plan that contractors who are selected on a project-by-project basis cannot.
Controls the timing of new projects
Owner chooses the facility design and thereby controls project requirements
Especially in industrial design where reference plant designs exist
Owner knows ahead of time what components will be needed at what point in the construction sequence
This is the situation in this case study
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7. Attempted to achieve earlier delivery of all stainless steel
An Interesting Twist
“The owner’s procurement organization adopted a long-term view across projects, but realized that political factors internal to the company would make it difficult to influence the management of projects at the site.”
Attempted to achieve earlier delivery of all stainless steel
Power to influence management extended only to the project fence
While supporting project managers’ desire to have large quantities of material on site early, also created need to manage substantial inventories on site
Scott J. Mason,

8. Inventory Management Case Studies
Common in manufacturing, focus on optimizing service level and process time by varying either the location or quantity of inventory among several alternatives
Usually involve multiple tiers in the SC
Less frequently studied in construction where traditional focus has been on on-site operations where greater inventory is generally perceived to be better
Mason’s Take: Glad to see the authors disagree with this!
This paper: Forecasting and demand management simulation done to either anticipate or mitigate risk due to consumer behavior
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9. Additional Performance Measures to Consider
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10. Simulation Approach
Examined arrival of material at site vs. time for three different inventory strategies
All inventory held ahead of the mill (upstream supplier)
Inventory prepositioned at a distributor
Multiple holding locations
Table in paper gives three different combinations/scenarios
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11. Simulation Results
Use of prepositioned inventory located at distributor buffered project from long and variable SC upstream of the site
Average time to complete delivery (arrival of 100% of the pipe) reduced 38 weeks to 8 weeks
Variability in complete delivery time is reduced as well
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12. All Three Options Considered
Lines show tradeoff between options considered
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13. What Did They Do?
Company contracted with a single independent distributor to store, handle, and control material
Placed an amount of pipe roughly equivalent to the amount used for one new manufacturing facility into the inventory
Distributor provided tracking information on pipe, fittings, and flanges to the company
Allowed for improved planning and scheduling and the data to evaluate the owner’s capital program
Costs incurred by the company for carrying inventory have been more than offset by price savings achieved through bulk purchases and through commodity savings owing to inflation and market volatility in stainless-steel prices
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