Civil Engineering Reference
In-Depth Information
any one time. In any case, in the public sector, contracts must be
awarded to the supplier providing the most economically advantageous
tender (MEAT).
This condition may place the buyer and supplier in any one of the
quadrants of the matrix in Figure 9.1. Using this theoretical framework
to understand power relationships between buyers and sellers is useful
for assessing where relative power resides. Moreover, by modelling sup-
plier utilisation the programme supply chain manager can avoid sur-
prises by asking pertinent questions at the appropriate time during
procurement rather than during delivery, when it may be too late.
Awareness of supplier utilisation allows the proactive management of
risk. While it may be possible to avoid a supply risk during procurement,
after a contract has been awarded it is possible only to mitigate the
impact of that risk.
However, the utilisation ratio of future output should be viewed in
the context of the economy as a whole. For example, using this ratio to
model exposure during a period of economic growth immediately after
a recession could indicate falsely that a supplier was overexposed. This
misinterpretation of the ratio could be due to an earlier contraction of
the wider economy and a deliberate commercial decision to downsize
activities of the fi rm in line with falling demand. That decision could
have been part of a corporate strategy of a well-run company to conserve
resources in readiness for future activity. Therefore, in this situation, it
may be prudent to review the supplier's turnover prior to the economic
contraction, using the turnover of at least the three previous years. The
utilisation ratio could then be calculated using the peak year or the
average of those three previous years. At the same time questions need
to be asked regarding capacity, whether it had been lost or whether it
could be remobilised. These are important issues, particularly when the
organisation in question provides physical production assets - such as
plant and manufacturing equipment - rather than labour, which can be
more easily mobilised in a shorter period whenever increases in demand
occur.
The following table and diagrams set out a scenario where four con-
tractors respond to fi ve projects in a hypothetical programme with
several large projects to be delivered over a period of years. Table 9.1
sets out the data related to their capacity and the demand to which they
are responding. The graphs that follow show how the supplier utilisation
data might be modelled and interpreted.
