SUPPLY CHAIN MANAGEMENT IN FACILITIES MANAGEMENT USING THE i2i MODEL

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1 SUPPLY CHAIN MANAGEMENT IN FACILITIES MANAGEMENT USING THE i2i MODEL M.L. Nelson, M. Sarshar School of Construction and Property Management, University of Salford, Salford, M7 9NU ABSTRACT: The SPICE (Sarshar et al, 2000) project identified that supply chain management issues were very important in the construction industry. Thus, the SPICE FM project examined supply chain management issues using the Integrate to Innovate (i2i) model developed by Barrett and Sexton (1998). i2i is a five-level model and framework for evaluating supply chain relationships. It operates on the premise that the capacity for innovation increases the higher you go up the levels. Relationships can operate at different levels simultaneously and the aim is to achieve a balanced portfolio of relationships with suppliers. A case study was undertaken at an Acute NHS Hospital Trust in the Northwest of England. This paper presents how the model was applied and the findings of the case study. It discusses the strengths and weaknesses of the model in healthcare FM, and is of interest to facilities managers in general and the healthcare sector in particular. Keywords - Facilities Management, Supply Chain Management, Innovation 1. INTRODUCTION The Structured Process Improvement for Construction Environments Facilities Management (SPICE FM) project is a follow-on to the SPICE (Construction) project, which developed a tool for assessing process capability and a framework to distinguish levels of increasing process capability. SPICE FM took a process view of facilities management. Davenport s (1993) definition that a process is simply a structured, measured set of activities designed to produce a specified output for a particular customer or market is most commonly cited. Process management is important because processes are the backbone of any organisation and the inability of a process to deliver quantifiable, managed and measured performance can have far reaching effect (Sanders, 2000). The SPICE model, (Sarshar et al, 2000) which is based on the Capability Maturity Model (CMM) (Caputo, 1998) used in the IT industry, assumes that process improvement is achieved through small systematic evolutionary steps. Although the SPICE project acknowledged that supply chain management issues were very important in the construction industry, the SPICE model did not address this issue. The Integrate to Innovate (i2i) model was identified as a staged supply chain management model which had been developed for the construction industry by the Salford team of Barrett and Sexton (1998). This was tested in a pilot case study in the healthcare FM market to determine its suitability and applicability. Alexander (1996) stated that Facilities are an organisation s second largest expense and can account for as much as 15% of turnover and they are also the largest item on the balance sheet, typically over 25% of all fixed assets. Research however has shown that very few organisations effectively manage their facilities assets or consider it as part of their overall business strategy. Construction is usually undertaken to meet a business need, whilst facilities Management (FM) is often seen as an overhead. Its contribution to business productivity is often overlooked. In a 1999 BIFM survey of its members (figure 1), just over 13

2 20% believed that their board of directors (or similar) perceived FM to be of high strategic importance, 36% of respondents voted for medium strategic importance, whilst 34% voted modest strategic / operational importance. 7% voted for little or no importance, and 1% actually voted that their board of directors perceived FM to be an unavoidable evil (BIFM, 1999). Level of importance High strategic importance Medium strategic importance Series1 Modest strategic / operational importance Little or no importance Unavoidable evil 0% 5% 10%15%20%25%30%35%40% Fig. 1 Perceived level of importance of FM by Boards of Directors (BIFM, 1999) There has also been very little alignment or integration between construction, facilities management and / or the business needs of organisations. Traditionally, FM has been seen very simply as the management of buildings and building services. However, the growing trend is to view FM as the management of non-core company assets and activities to support and increase the efficiency of the main (core) business of the organisation. This includes the management of buildings and building services as well as management of other support services such as porterage, cleaning, management and maintenance of equipment and furniture, communications systems etc in order to create a working environment that supports the primary objectives of the organisation. 1.1 Supply Chain Management in FM Supply chain has been defined as a system through which organisations deliver their products and services to their customers (Poirier & Reiter, 1996), whilst supply chain management is the explicit creation and systematic management of vital knowledge through the supply chain (Barrett and Sexton, 1998). The historical background to supply chain management (SCM) lies in manufacturing, in particular, logistics management. Supply chain management was seen as the logical customer-focused progression of physical distribution and logistics management (Metz, 1998); and every effort involved in producing and delivering a final product, from the supplier s supplier to the customer s customer (Supply Chain Council, 2000) comprising four basic processes Plan, Source, Make and Deliver. This view could be applied to the holistic provision of services, from conception, through procurement, construction to delivery. Successful supply chain management initiatives have adopted a holistic approach combining both strategic and tactical change, and orchestrate effort so the whole improvement achieved (revenue, costs, and asset utilisation) was greater than the sum of its 14

3 parts, thereby contributing to profitable growth, whilst unsuccessful efforts tended to be functionally defined and narrowly focused and lacked sustaining infrastructure (Anderson et al, 2000). Supply chain integration is achieved through aligning strategies, structures and which innovation is severely limited (Barrett & Sexton, 1998). This highlights the need for the integration of both the construction and FM supply chains to be managed as one seamless process. 2. INTEGRATE TO INNOVATE (i2i) The i2i model is a five-level model (fig. 2) and framework (fig. 3) (Barrett & Sexton, 1998) for evaluating supply chain partners. It operates on the premise that the higher up you go, the levels of the model, the more strategic the relationship, and the higher the capacity for innovation. Relationships can operate at different levels simultaneously and the aim is to achieve a balanced portfolio of relationships. At level a of the model, there is a one-way flow of information, and the level of innovation is minimal. This level consists of the most basic activities such as materials requisition. Level b knowledge exchange involves a two-way flow of information, but this remains at enquiry level. At level c the two-way exchange becomes knowledge collaboration and involves problem solving. Level d innovation chain involves the supply chain partners working together to innovate their processes, services or products. At level e innovation network, innovation is on an industry wide basis, with members of the industry benefiting from the generic innovation and tailoring it to their needs. Level e: Innovation network Level of innovation through the supply chain Level d: Innovation chain Level c: Knowledge collaboration Level b: Knowledge exchange Level a: Information transfer Fig. 2. i2i model (Barrett & Sexton, 1998) There are very few examples of this level of integration. The pharmaceutical industry does collaborate on this level in some ways in the development of new drugs. Closer to home, the steel construction industry have also collaborated at this level, whilst the Salford based Centre for Facilities Management (CFM) is a network of organisations collaborating on innovative FM projects at industry level. Innovation is defined by Barrett & Sexton (1998) as the effective generation and implementation of a new idea which enhances overall organisational performance. i2i views 15

4 innovation in knowledge management terms across the supply chain(s), and uses a portfolio approach, i.e. innovation can be located at different levels depending on the nature of the relationship, and achieving the right balance should be the key objective in supply chain relationships, rather than developing all supply chain links to the top level. An example is that the development of a long-term, strategically important relationship would warrant the resource investment to develop an innovation network, but a one off purchase would not (Barrett & Sexton, 1998). The framework (fig.3) comprises a series of questions flowing from left to right, each question being dependent on the answer to the previous question. The questions investigate the supply chain relationships in three areas: Could we work together? Should we work together? How do we work together? Objectives complimentary High strategic importance / compatibility Level 5: Innovation network Culture match Information Level of Trust Shared Measurement System Strategic importance of supply chain partner Continuum Low strategic importance / compatibility Level 1: Information transfer Q1 - Could we work together? Q2 - Should we work together? Q3 - How do we work together? Fig. 3. i2i framework (Barrett & Sexton, 1998) The logic behind this framework is simple. If organisations do not have complimentary objectives, share trust and measurement systems, or their cultures clash, then could they or should they work together? The criteria listed under the first question are essential ingredients in the effective management of supply chain relationships. 3. CASE STUDY The objectives for the case study were to Consider the appropriateness of the i2i Model Find appropriate tools for carrying out an i2i assessment The pilot case study was undertaken at the FM department of a NHS hospital trust in the North-West of England, which by NHS standards, is a large acute (accident and emergency and surgical services) trust, and involved the management of new and old facilities. Its core business is the provision of clinical services, and its facility management function is classified under support services. The facilities function is further sub-divided into estate services, hotel services and design and projects. The electronics & bio-medical engineering (EBME) department within the estate services department was nominated for the assessment exercise, and its relationships with two units, hotel services (an internal value chain partner) and an external contractor (which provided outsourced porterage services to the hotel services 16

5 department) were assessed. Only senior management staff were involved in the assessment, as i2i dealt with strategic issues which could only be addressed by policy / decision makers. 3.1 Methodology A combination of structured and semi-structured interviews and questionnaire were utilised in carrying out the i2i assessment. The case study investigated the questions 2 and 3 of the i2i framework. Question 2 was analysed with the aid of the interaction type diagnostic checklist (a questionnaire type document), whilst question 3 was analysed with the i2i assessment test (through interviews). Question 1 was not analysed in this case study as it would have involved a detailed study of the organisations and their relationships which was outside the remit and time scale of the pilot study. However, some related issues such as information and shared measurement systems were addressed with the parties in the course of the interviews. The steps involved in the case study were: i) Obtaining senior management commitment ii) Understanding the i2i model iii) Interviews to identify supply chain parties iv) Identification of current and desired levels of operation with supply chain parties on the i2i model v) Questionnaire survey using the interaction type diagnostic checklist vi) Analysis of results The supply chain parties were identified as follows: Table 1. EBME supply chain Customers Collaboration for Suppliers Manufacturers Service Provision Theatres / ICU Estate Services Company A Company C Wards Hotel Services Company B Company D Other departments Working with Gases Company E Other trusts The relationship with hotel services was broken down into two; working with and without gases. This was essential as higher standards were required and stringent health & safety measures were to be met where gases were employed or being moved. It is important to note here that the external contractor was not one of the companies listed as a supplier. Only providers of parts and components were listed under suppliers and it did not include those that provided services. 4. RESEARCH FINDINGS The case study focused on the two objectives earlier identified, appropriateness of the model in FM, and identification of appropriate tools to carry out an assessment and analysis of results. The findings are as follows: 17

6 4.1 Appropriateness of the i2i model The model was found to be generic and applicable in the FM industry in terms of identifying the appropriate ideal relationship with supply chain partners. However, it was deemed not to have added value in the NHS market, as there were a number of barriers and constraints beyond the control of the FM or Trust organisation, which influenced decision making in this market. FM supply chain issues in the NHS market were found to be more relevant in the PFI sector. Further research is required into the added value of the model in both the public PFI and Corporate PFI markets. 4.2 The Assessment Tools The i2i assessment was developed by the SPICE FM research team in response to the need for a tool(s) to carry out an i2i assessment and analyse the results. The two methods employed were the use of interviews and questionnaire survey Interviews This was a quick and graphic way of determining the current and the desired levels of the supply chain relationships, and its strengths included: Highlighted the areas where there was disparity between the current and desired levels in the relationships, and showed at a glance, areas where a gap analysis was required, and areas for further improvements. Generated discussion on supply chain management issues. It raised a lot of issues, some of which although previously known were not highlighted. It particularly generated discussion on what the organisation was doing right and areas that required change or improvements. Highlighted the differences in service delivery objectives between supply chain partners. It also showed a clear picture of how strategic or important supply chain partners viewed each other. Where there was disparity in views, it showed that there were no clear standards or specifications in place for what needed to be done, nor for roles and responsibilities to get the work done right. Prioritised areas for improvement by highlighting those areas where there was the most disparity. Its main weaknesses however were that it did not Prioritise improvements according to their importance to the organisation Show how to go about achieving improvements and moving from one level to the next, and It was subjective and very difficult to quantify The Interaction Type Diagnostic Checklist The diagnostic checklist was used to determine the strategic importance of the supply chain partners, and hence address the second question Should we work together. The original checklist was found to be inappropriate with regard to the rating system and was modified by the project team. 18

7 The main strength of the checklist was that it prioritised the supply chain by ranking the organisations in order of strategic importance to the department. It also showed that all the customer relationships, with the exception of other departments, were strategic. Company D was shown to have the most strategic relationship with the department. Theatres/ICU and Other Trusts were the most strategic customers to the department, and Company B was shown to be more strategic to the department than Company A. However, the following weaknesses were highlighted: Prioritising suppliers was time consuming and generated too much data to make it any more than an academic exercise at this point in time. In its current state of development, it is not an efficient procurement decision-making tool. Terminology was difficult to understand. On initially going through the interaction type diagnostic checklist, it was felt that some questions were rather abstract and similar. The major problem however was in the way the answers were rated. Despite the fact that this was changed from the abstract to specific terms in the boxes, replies came back that the meaning of the terms were not very clear. Also the wide variation in some replies, as well as some obvious answers, which were not picked up, suggests that the terminology still needs to be addressed. As there were only two senior members of staff involved in this study, the wide differences in replies in certain cases made it difficult to adequately analyse the results of the assessment. Difficulty in translating checklist The checklist was devised to differentiate between strategic and operational dimensions and thereby be in a better position to locate them at a suitable knowledge management level. However although overall results show strategic relationships, which are a fair reflection of the situation, the method of assessment needs to be more clearly defined and precise. Difficulty in putting checklist in a format to compare with desired levels The researcher encountered some difficulty in translating the results from the interaction type diagnostic checklist into a format to enable comparison with the current and desired levels. It was the intention of the research team to use the results of the model assessment as the desired level and the result of the checklist as the required level. More work still needs to be done in this area. It did not assist in prioritising or positioning the organisation s objectives, and Results are inconclusive. 5. CONCLUSIONS There is a gap for a model to be adopted for use in addressing supply chain management issues in facilities management. Integrate to Innovate (i2i) is a model for evaluating the relationships between supply chain partners, and is essentially looking at the soft issues involved in managing a supply chain. These include cultural issues within the organisation, shared objectives, trust and the strategic importance of relationships. A Construction Industry Council backed initiative, i2i was initially tested by six industrial project partners across the supply chain, but had not been extensively tested nor fully developed for use in industry. i2i is primarily a theoretical model and not viable for implementation in its present format. As such, it does not tell you what to do next, and who should do it. There was no methodology for moving up or down levels, or achieving the right balance of relationships, although the interaction type diagnostic checklist was referred to in the project. An assessment tool was required to test the issues raised by the framework. The accuracy of the results should therefore be viewed in that context. 19

8 The case study identified the supply chain relationships, and the current and desired i2i levels. It also identified the priority areas for improvement (highest gaps in current versus desired levels) and the strategic importance of partners. It prioritised areas for improvement by highlighting those areas where there was the most disparity. It however did not prioritise according to its importance to the organisation. This finding further highlighted the requirement for a means of bridging the gap between FM processes and business strategy and productivity. The assessment test using the i2i model was a quick way of determining the current and the desired levels of the supply chain relationships. The disparity between the current and desired levels of the relationships could then be measured against how strategic the relationship was, from the results of the diagnostic checklist in order to prioritise areas for improvement. This however was not followed through to its conclusion, as this area was not considered a priority with the trust. The result of the checklist assessment was also slightly different from the result of the supporting interview. The former identified Company A as the most strategic partner, whilst the latter identified Company B. This difference could only be partly explained by the constraints and barriers identified in the organisation. One of the most important benefits perceived from the assessment was the generation of discussion on supply chain management issues. It brought to the forefront issues that would otherwise not be highlighted and a better understanding of how they collaborate with their suppliers, and their suppliers impact on their service delivery standards. These issues are some of the benefits to be derived from reengineering the supply chain (Hammer, 1998). Facilities management is a service focused, predominantly customer demand-led industry. A faster response time to changing customer demands is therefore a real issue, as is bringing the service element into focus. Suppliers impact on service delivery standards cannot be overemphasized. Oftentimes delays and problems are caused not within the service organisation but within the suppliers organisations. For example, one of the issues highlighted in the case study was that of medical equipment. In some cases there was only one or a handful of manufacturers in the UK, and delays of up to nine months have been registered in parts delivery, where there have been breakdowns. This ultimately affected both the trust s facilities and medical services delivery standards as that piece of equipment was taken out of commission for almost a year for repairs. This highlights a wider issue which supply chain management is seeking to address, i.e. taking a holistic view to improvement initiatives, as suppliers performance directly or indirectly affects the business performance and productivity of the client organisation. Other issues identified from the study were that the i2i model did not give guidelines on implementation. This is an area for future research, and there is a need to address the issue of how to move up or down levels to attain the right balance in a supply chain relationship. The link between procurement strategies and business objectives is also obscure. It does not state whether all or a number of criteria have to be met in the first question in the framework in order to move on to the next question, neither does it give a comprehensive list of criteria. Assessments were subjective and not a very good measure for benchmarking. There were also a number of constraints, which made the assessment inappropriate in this case study. Firstly, there were in-built government regulations and directives, which were a barrier to change. Another was the organisational structure of the organisation, which meant that before any major improvements could be carried out, some reengineering of the structure of the organisation and its business processes was required. This was outside the remit of the study. Lastly, political decisions and media hype tended to prioritise the business areas in the NHS. 20

9 i2i sees integration and knowledge management across the whole spectrum of the supply chain as crucial to its effectiveness, and to increasing the capacity for innovation across the supply chain. However, integration if not properly managed can inhibit the natural development of innovation. The Honda / Rover alliance which ended in 1994 with the acquisition of Rover by BMW, highlighted the fact that reluctance and nervousness to pass on information from both sides, unless within the boundaries of the project, inhibited the natural development of informal communication networks and the discovery of unplanned for learning and knowledge acquisition (Perks, 2000). Empirical research in collaborative New Product Development (NPD) also point to the danger of managerial effort being focused on making the relationship work at the expense of market focus (Perks, 2000); (Littler & Leverick, 1995); (Piercy & Cravens, 1995). The case study highlighted this danger as the areas identified as priority areas for improvement were not the business priority areas. The major issue with the use of the model however was the business value of carrying out an i2i evaluation test. As it stands it requires the commitment of a high level of resources, which is not practical. The value added has not been quantified, and as such cannot be justified. Currently, therefore it fails to meet the gap for an FM toolkit for supply chain management. It however has the potential to be further developed as a supply chain process improvement tool, and also a tool for making supplier procurement decisions, including rationalisation or consolidation of the supply chain. 6. REFERENCES Alexander, K., 1996, Value Management, In Alexander, K. (Ed)., 1996, Facilities Management - Theory and Practice, E & FN Spon, New York, 1996 Anderson, D.L., Britt, F.E. and Favre, D.J., 2000, The Seven Principles of Supply Chain Management, Supply Chain Management Review, (Cited June 2000), Available from the World Wide Web: URL: Barrett, P. and Sexton, M., 1998, Integrating to Innovate Report for the Construction Industry Council, Report for Construction Industry Council, Construction Industry Council, London, 1998 BIFM, 1999, Survey of Facilities Manager s Responsibilities, BIFM Members Survey, British Institute of Facilities Management, September 1999 Caputo, K., 1998, CMM Implementation Guide Choreographing Software Process Improvement, Addison Wesley Longman Inc., Reading, Massachusetts, 1998 Davenport, T., 1993, Process Innovation: Re-engineering Work through Information Technology, Harvard Business School Press, Boston, Massachusetts, 1993 Hammer, M., 1998, Reengineering the Supply Chain: An Interview with Michael Hammer, Supply Chain Management Review, (Cited June 2000), Available from the World Wide Web: URL Littler, L. and Leverick, F., 1995, Joint Ventures for Product Development: Learning from Experience, Long Range Planning, 1995, 28 (3), pp Metz, P.J., 1998, Demystifying Supply Chain Management, Supply Chain Management Review, (Cited in September 2000), Also available from the World Wide Web: URL and Perks, H., 2000, Marketing information Exchange Mechanisms in Collaborative New Product Development The Influence of Resource Balance and Competitiveness, Industrial Marketing Management, March 2000, 29, pp

10 Piercy, N. F. and Cravens, D. W., 1995, The Network Paradigm and the Marketing Organisation Developing a New Management Agenda, European Journal of Marketing, 1995, 29 (3), pp 7-34 Poirier, C.C. and Reiter, S.E., 1996, Supply Chain Optimization: Building the Strongest Total Business Network, Berrett-Koehler Publishers, Inc., San Francisco, 1996 Porter, M.E., 1985, Competitive Advantage Creating and Sustaining Superior Performance, The Free Press, New York, 1985 Sanders, C., 2000, Determining and Adding Value through Process Management, (Cited September 2000), Also available from the World Wide Web: URL Sarshar, M., Finnemore, M. and Haigh, R., 2000, " SPICE: A Business Process Diagnostics Tool for Construction Projects", Engineering, Construction & Architectural Management, June 2000 Supply Chain Council, Frequently Asked Questions, (Cited April 2000), Available from the World Wide Web: URL: