Canadian Construction Supply Chain Analysis

1
Canadian Construction Supply Chain Analysis

• Canadian Construction Association Manufacturers
  and Suppliers Committee Meeting
• March 11, 2009

2
Objectives Methodology

• Objectives
• Enhancing Canadian, sector-specific supply chain
  knowledge
• Opportunity identification
• Methodology
• ICI market focused
• Qualitative, interview-based
• Aug. to Dec. 2008
• Target senior supply chain and financial
  decision-makers

3
Areas of Investigation

• General observations
• Supply chain structure
• Trading dynamics
• Supply chain operations
• Financial supply chain
• Gaps
• Opportunities

4
General Observations

• Key firm characteristics
• Fragmented industry Local / Regional focus
  dominates
• Decentralized larger firms
• Asset light vs. Asset intensive
• Scale-driven innovation
• Skills issues dominate
• Relationship-oriented
• Cost management driven
• Culture risk management highly entrenched
• Resistance to change

5
Supply Chain Structure
6
Relative Power Structure
Power Seller
Hybrid
Sellers Market
Few to many
Specialty Trade Contractors
C2
C3
C1
Commodities / Raw Materials
C2
Manufacturer / Distributor
Power Buyer
C1
GC / Heavy Construction Contractors
Market Transactions
Many to many
Many to Few
C1 control C2 cooperation C3 collaboration
Buyers Market
7
Supply Chain Management Model
8
Trading Dynamics

• Exporting
• Three models
• Professional services, contractor services,
  building materials
• Differentiation and value-added
• US market dominated
• GCC, Latin America and Caribbean
• Importing
• Goods imports critical due to limited domestic
  supply
• Distributors play key role
• Large GCs increasingly active in LCCS
• Labour imports
• CDIA
• Replication vs. acquisition models

9
Supply Chain Operations

• Upstream
• Procurement delegated to Trade Contractors Key
  SC attribute
• Area code supply chain prevalent
• Risk transfer represents a key practice
• Tender management and CCDC contracts unique
• Downstream
• Selectivity in choosing clients
• Contractor focus on customer value and quality
• Warranties and penalties increasingly enforced
• Technology Adoption
• High propensity to invest in internal IT
  management systems
• Limited inter-enterprise investment
• Compliance
• Labour mobility issues most significant
• Standards an issue in goods

10
Financial Supply Chain

• Payment risk contentious
• GCs focus on supporting the supply chain
• Financial bull-whip effect of payment delays
  impacts manufacturers and distributors
• Work Capital
• GCs and Trade contractors report robust liquidity
• Distributors and Manufacturers very focused on
  managing W/C
• Limited knowledge of use of Standby L/Cs as tool
  to manage W/C and supplier performance risk

11
Gap Analysis
Buyer Supply Chain
Project Execution
Plan / Invest (Long-term Capital)
Supply Chain Risk Mgmt.
Invoice Processing
Inbound Logistics
Source Procure
Payment
Financing (Inventory Financing for Dist Mfg.,
CDIA capital, cash flow accelerators, technology
investment)
Risk Management (supply chain disruption risk
mitigation, S L/Cs, 3P projects, managing foreign
projects)
Cash Working Capital Mgmt.
Compliance Management (certification of products
for other jurisdictions)
Connectivity (Low level of cross-enterprise
integration)
Information Value-added services (export
propensity, sourcing support, procurement skills)
Outbound Logistics
Sell Negotiate
Supply Chain Risk Mgmt.
Project Execution
Plan / Invest (Long-term Capital)
Collection
Invoicing
Supplier Supply Chain
12
Opportunity Portfolio Summary