Logistics Performance Measurement System for Construction Supply Chains A Case Study at a Large Swedish Construction Company Master’s thesis in Supply Chain Management ANDREAS ZETTERBERG JONAS MINGES Technology Management and Economics CHALMERS UNIVERSITY OF TECHNOLOGY Gothenburg, Sweden 2017 Master’s thesis 2017:014 Logistics performance measurement system for construction supply chains A Case Study at a Large Swedish Construction Company ANDREAS ZETTERBERG JONAS MINGES Department of Technology Management and Economics Division of Service Management and Logistics Chalmers University of Technology Gothenburg, Sweden 2017 Logistics Performance Measurement System for Construction Supply Chains A Case Study at a Large Swedish Construction Company ANDREAS ZETTERBERG JONAS MINGES © ANDREAS ZETTERBERG & JONAS MINGES, 2017. Supervisor: Ahmet Anil Sezer, Dep. of Technology Management and Economics Examiner: Arni Halldorsson, Dep. of Technology Management and Economics Master’s Thesis 2017:014 Department of Technology Management and Economics Division of Service Management and Logistics Chalmers University of Technology SE-412 96 Gothenburg Telephone +46 31 772 1000 Printed by Chalmers Reproservice Gothenburg, Sweden 2017 iii Abstract Logistics management in a construction supply chain can be seen as a key compet- itive factor due to the importance of perfect deliveries towards construction sites. The increased importance of logistics in construction supply chains explains why the evaluation of logistics effectiveness and efficiency is gaining increased attention. Logistics performance management is the key to quantifying the current state and improvement potentials within logistics. In order to ensure that the logistics of a supply chain is performing well, it is crucial that the company measures different aspects of the logistics flow of the supply chain. As stated by Sink and Tuttle (1989): "You cannot manage if you cannot measure. If you do not measure you do not know what you have achieved and where you are headed". This master thesis aims to investigate and give suggestions on how to measure the logistics performance of a construction supply chain. This can also be seen in the research questions of this report, which are "How should a logistics performance mea- surement system for a construction supply chain be designed?” and “Which KPIs should be included in a logistics performance measurement system of a construction supply chain”?. This master thesis is based on a case study at a large Swedish con- struction company. Thereby the key performance indicators (KPIs) related to the logistic processes in a construction supply chain were examined. One of the main findings of this master thesis is the creation of a conceptual frame- work, which focused on the design of a logistics performance measurement system (PMS). The framework takes company, industry, and supply chain characteristics into consideration, and designs the logistics PMS around those findings. The con- ceptual framework made it possible to identify four supply chain dimensions that should be covered when designing a logistics PMS for construction supply chains: supply chain reliability, efficiency, responsiveness, and sustainability. Furthermore, six strategic KPIs were identified that should help construction supply chains to measure their logistics performance. These KPIs were: perfect order fulfillment, fill rate, transportation cost per ton-km, backlog, customer ordering lead time, and CO2 emission per ton-km. Keywords: construction supply chain, construction industry, performance measure- ment system (PMS), logistics performance measurement system, key performance indicator (KPI). iv Acknowledgements This master thesis has been conducted in cooperation with one of the largest con- struction companies within Sweden, in this report called Bygg AB. It lasted between January 2017 and June 2017 at full time. The thesis was the final degree project, 30 credits, in the master program of Supply Chain Management at Chalmers Uni- versity of Technology. It has been an interesting and challenging project, where we have been able to apply the knowledge that we acquired during our education. Furthermore, we have also acquired new knowledge, experience and acquaintances. We would like to thank all the employees at Bygg AB who have been involved and contributed to the result. However, we would like to address a special gratitude to: • Johanna, Our supervisor at Bygg AB and CEO of Inköp AB, who made it possible for us to execute the thesis at Inköp AB. Johanna has been a great help when needed and a source of inspiration through her leadership and driving force for change. We are extremely grateful that we were given the opportunity to conduct the master thesis in cooperation with the company. • Ahmet Anil Sezer, Our supervisor at Chalmers University of Technology at the Division of Service Management and Logistics. We are very grateful for his involvement, input on the thesis, and his advice that he gave throughout the entire process of the thesis. Ahmet has been an important source of inspi- ration for the design of the thesis and, with his guidance, has given us a good prerequisite for the project to be completed. We hope that our master thesis will give Bygg AB and construction industry in gen- eral, insight and inspiration into how to design a logistic performance measurement system and what KPIs to include in it. Andreas Zetterberg & Jonas Minges, Gothenburg, June 2017 v Contents List of Figures ix 1 Introduction 1 1.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Case company - Inköp AB . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2.1 Function and service characteristics . . . . . . . . . . . . . . . 2 1.2.2 Case problem description . . . . . . . . . . . . . . . . . . . . . 3 1.3 Aim and research questions . . . . . . . . . . . . . . . . . . . . . . . 3 1.4 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2 Theoretical framework 5 2.1 Construction industry . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.2 Supply Chain Management . . . . . . . . . . . . . . . . . . . . . . . . 6 2.2.1 Supply Chain Strategy . . . . . . . . . . . . . . . . . . . . . . 7 2.2.2 The uncertainty framework . . . . . . . . . . . . . . . . . . . 7 2.2.3 Construction Supply Chain Management . . . . . . . . . . . . 11 2.3 Performance measurement . . . . . . . . . . . . . . . . . . . . . . . . 12 2.3.1 KPI characteristics . . . . . . . . . . . . . . . . . . . . . . . . 13 2.3.2 Performance measurement system . . . . . . . . . . . . . . . . 13 2.3.3 Design of performance measurement system . . . . . . . . . . 14 2.3.4 Framework for KPIs . . . . . . . . . . . . . . . . . . . . . . . 16 2.4 Logistics performance management in supply chain context . . . . . . 17 2.4.1 Resource, Output and Flexibility . . . . . . . . . . . . . . . . 19 2.4.2 Performance of activity . . . . . . . . . . . . . . . . . . . . . . 20 2.4.3 Supply Chain Operation Reference model . . . . . . . . . . . 21 2.5 Summary of theoretical findings . . . . . . . . . . . . . . . . . . . . . 25 3 Method 26 3.1 Research Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.2 Data Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4 Empirical data 32 4.1 Provided products . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 4.2 Strategic plan and objectives . . . . . . . . . . . . . . . . . . . . . . . 33 4.2.1 Supply chain strategic areas . . . . . . . . . . . . . . . . . . . 33 4.3 Supply chain mapping - processes and actors . . . . . . . . . . . . . . 34 4.3.1 A - Material Suppliers . . . . . . . . . . . . . . . . . . . . . . 34 vii Contents 4.3.2 B - 3PL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4.3.3 C - Inköp AB . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.4 Customer perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.5 Performance measurement system Inköp AB . . . . . . . . . . . . . . 37 4.6 Discussion regarding proposed KPIs . . . . . . . . . . . . . . . . . . . 39 4.6.1 Perfect Order Fulfillment . . . . . . . . . . . . . . . . . . . . . 39 4.6.2 Quality index . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 4.6.3 Fill rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 4.6.4 Transportation cost per ton . . . . . . . . . . . . . . . . . . . 42 4.6.5 Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 4.6.6 Order Fulfillment Cycle Time . . . . . . . . . . . . . . . . . . 43 4.6.7 CO2 emission ton-km / product . . . . . . . . . . . . . . . . . 43 5 Analysis 45 5.1 Business context and supply chain processes . . . . . . . . . . . . . . 45 5.1.1 Business context of a construction company . . . . . . . . . . 46 5.1.2 Processes of a construction supply chain . . . . . . . . . . . . 49 5.2 Supply chain strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 5.2.1 Demand characteristics for construction supply chains . . . . . 52 5.2.2 Supply characteristics of a construction company . . . . . . . 53 5.2.3 Uncertainty framework for a construction supply chain . . . . 55 5.3 Design of KPI scorecard . . . . . . . . . . . . . . . . . . . . . . . . . 56 5.4 Identification and development of KPIs . . . . . . . . . . . . . . . . . 57 5.4.1 Reliability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 5.4.2 Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 5.4.3 Responsiveness . . . . . . . . . . . . . . . . . . . . . . . . . . 67 5.4.4 Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 5.4.5 Interrelations between the KPIs . . . . . . . . . . . . . . . . . 73 6 Conclusion 74 6.1 Answering of research questions . . . . . . . . . . . . . . . . . . . . . 74 6.2 Further research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Bibliography 76 A Appendix - SCOR I B Appendix - Interview questions IV B.1 Supply Chain Mapping . . . . . . . . . . . . . . . . . . . . . . . . . . IV B.2 Input to Inköp AB Supplier . . . . . . . . . . . . . . . . . . . . . . . IV B.3 Inköp AB Supplier performance . . . . . . . . . . . . . . . . . . . . . V B.4 Coordination from Inköp AB . . . . . . . . . . . . . . . . . . . . . . . V C Appendix - Operational KPIs VI viii List of Figures 2.1 Strategies in the Uncertainty Framework (Lee, 2002) . . . . . . . . . 10 2.2 Example of KPI design template (Marr, 2015). . . . . . . . . . . . . . 18 2.3 SCOR model (Zhou et al., 2011) . . . . . . . . . . . . . . . . . . . . . 24 3.1 Flowchart visualizing the research design . . . . . . . . . . . . . . . . 28 4.1 SCOR Model, Core processes - Level 1 . . . . . . . . . . . . . . . . . 35 4.2 Initial list of KPIs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.1 Conceptual Framework - Design of logistics PMS . . . . . . . . . . . 46 5.2 First step in conceptual framework - business context and supply chain processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 5.3 Second step in conceptual framework - supply chain strategy . . . . . 51 5.4 Demand characteristics for construction supply chains . . . . . . . . . 54 5.5 Supply characteristics for construction supply chains . . . . . . . . . 54 5.6 Position of construction supply chains in the Uncertainty Framework 56 5.7 Third step of conceptual framework - Design KPI Scorecard . . . . . 57 5.8 Suggested KPI template with explanations . . . . . . . . . . . . . . . 58 5.9 Fourth step of conceptual framework - Identification and development of KPIs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 5.10 Overview of suggested logistics PMS . . . . . . . . . . . . . . . . . . 59 5.11 Perfect Order Fulfillment . . . . . . . . . . . . . . . . . . . . . . . . . 62 5.12 Fill rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 5.13 Transportation cost per ton-km . . . . . . . . . . . . . . . . . . . . . 66 5.14 Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 5.15 Customer ordering lead time . . . . . . . . . . . . . . . . . . . . . . . 70 5.16 CO2 emission per ton-km . . . . . . . . . . . . . . . . . . . . . . . . 72 6.1 Conceptual Framework - Design of logistics PMS . . . . . . . . . . . 75 6.2 Overview of suggested logistics PMS . . . . . . . . . . . . . . . . . . 76 A.1 Material supplier processes . . . . . . . . . . . . . . . . . . . . . . . . I A.2 3PL processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II A.3 Inköp AB processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . II A.4 Project site processes . . . . . . . . . . . . . . . . . . . . . . . . . . . III C.1 Material supplier ready at ATP check . . . . . . . . . . . . . . . . . . VI C.2 3PL ready at ATP check . . . . . . . . . . . . . . . . . . . . . . . . . VII ix List of Figures C.3 Successful delivery at project . . . . . . . . . . . . . . . . . . . . . . . VIII C.4 Backorder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX C.5 Unbooked backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X x 1 Introduction This chapter gives a short introduction into the background of this thesis and the case company that will be studied. Also, a summarized description of the problems that this thesis will focus on will be provided, as well as an introduction to a number of research questions. Furthermore, the aim of the thesis is stated in order to describe the content of the project and to explain what the objective is. Finally, a section about limitations will illustrate what the report focuses on, and which areas will not be covered. 1.1 Background Construction companies face an increase in competition and have experienced for several years that the customers today require lower cost, higher quality, shorter execution duration’s, and more reliable schedules (Azambuja and O’Brien, 2009). At the same time, the combination of the characteristics of a supply chain and the construction industry, is usually described as both fragmented and temporary (Thunberg and Persson, 2014). This is explained by the project based environment, making every supply chain setup unique. However, this has also led to arms-length relationships, lack of coordination and poor communication between participants (Roberti et al., 2013). Logistics management in a construction supply chain is thus seen as a key competitive factor due to the importance of perfect deliveries towards construction sites. The aim of logistics management can be said to be more efficient and to increase the cost efficiency in the whole supply chain. If materials are not delivered to the construction site in the correct amounts, at the correct time and without any deficiencies, the construction site’s production process will likely be af- fected due to potential delays and consequently the quality to customers (Thunberg and Persson, 2014). With the increased importance of logistics in construction, the evaluation of logis- tics effectiveness and efficiency is gaining increased attention. Logistics performance management is the key to quantifying the current state and improvement potentials within logistics. A PMS, consisting of several KPIs, is seen as a key for creating transparency and a trigger for improvement ideas (Dörnhöfer et al., 2016). In the context of the construction industry, managing the communication and relationship with subcontractors will lead to less fragmented supply chains, greater control and focus on quality (Karim et al., 2006). 1 1. Introduction The design of a proper logistics PMS requires consideration of several aspects. En- suring that the PMS is in line with the company objectives and strategy will enhance strategy fulfillment by lower level management (Dörnhöfer et al., 2016). The selec- tion of KPIs and the setting of targets of these measures should be seen as concrete formulations of the firm’ strategic targets (Lohman et al., 2004). A holistic view is important to consider when looking at material flows in construction industry (Thunberg and Persson, 2014). As companies across several industries move to- wards a more integrated operations management function across the supply chain, it becomes necessary to measure the logistics performance of the different parts of the supply chain on various dimensions. Furthermore, in order to understand causes of deviations of actual performance from targeted performance, each KPI should be able to be drilled down to different measures and levels of detail (Lohman et al., 2004). 1.2 Case company - Inköp AB This master thesis is based on a case company, which will be anonymous due to existing compliance agreements. Hence, from here on out the case company will be referred to as "Inköp AB" and can be described as an import company within a large Swedish construction company. The primarily objective for "Inköp AB" is to act as an purchasing organization which sources certain product segments from low cost countries within Europe. The large actor which owns Inköp AB will also be anonymous, and is therefore referred to as "Bygg AB" in this report. The case company, Inköp AB, in this study was founded in 1995 after an initiative from “Central Purchasing” at one of the largest construction companies in Swe- den, Bygg AB. When Bygg AB company’s structure in Sweden was divided into regional companies, there was a need for an entity that could handle the year-end bonuses in an efficient way, as well as a company that could represent Bygg AB in Sweden at joint procurement initiatives. Such close-to operational tasks should and could not be handled under the construction company, hence Inköp AB was created. Today, Inköp AB is a strategic tool which is used in order to enable international procurement in a more efficient manner than what project based procurement can achieve. The company is part of Bygg AB’s Nordic procurement function. It is con- sidered as an import company which mainly sources from low-cost countries. Bygg AB intend to use it in selected areas where they need leverage to put pressure on the domestic market, promote technical development in a certain direction, achieve economies of scale or where they see other added values gained compared with the regular sourcing process. 1.2.1 Function and service characteristics The function of Inköp AB is to mainly be world class purchasing department which help projects to source certain product categories for a lower price through import from low cost countries within Europe. The company works as an interface between 2 1. Introduction the construction projects and the suppliers. Instead of the projects handling all communication with different suppliers, Inköp AB can approach the supplier mar- ket with one interface, setup of routines and focal points of contacts. Hence, there is a possibility for bundling volumes and administration costs for procurement can be kept at a low level. Inköp AB has a local presence in one of the countries in which they source from, where the material is bought in local currency to domestic prices. Thus, they can also run efficient work with audits of sustainability, safety, quality. The projects can focus on their task since they need little administration in communication, follow-up and risk management among others. Since Inköp AB is a focal point for the projects they are also responsible for setting up the transportation of the sourced material to the project site. The logistics for the products that Inköp AB are purchasing, is outsourced and handled by a large 3PL which operates internationally. The logistics is an important part in the Inköp AB model. 1.2.2 Case problem description Inköp AB has experienced problems in their logistics performance towards con- struction sites, where the efficiency, reliability and safety has been insufficient. Late deliveries towards the construction site often stalls the entire construction project, which can lead to operational and expensive delays for Bygg AB. The reason for this is that Bygg AB is Inköp AB’s customer. Therefore, it is of highest importance that Inköp AB can deliver in the right time, quantity and quality. Furthermore, some of the conducted transports have not been economically justifiable. This could be an indication of low fill rate in the transports, operational to unnecessary high costs. Another problem regards the deliveries of Inköp AB goods, where some customers have experienced safety issues when unloading goods. The safety performance is something that directly affects the brands of both Inköp AB and Bygg AB. The rea- son for the perceived safety issues, are believed to mainly origin from poor loading, which is executed by the truck driver and the material supplier . The transportation of goods is currently outsourced to a large 3PL, although Inköp AB is still responsible for planning and consolidating the orders. Thus, it needs to be ensured that the agreements with the 3PL and the material suppliers contain appropriate information and clearly states who is responsible for what. Accord- ingly, Inköp AB need to have well developed agreements which include the right performance indicators in order to control and improve their performance. 1.3 Aim and research questions The aim of this master thesis is to investigate and give suggestions how to measure the logistics performance of a construction supply chain. This will be done by con- 3 1. Introduction ducting a case study at Inköp AB, and thereby examining the KPIs related to the logistics processes in a construction supply chain. Finding appropriate KPIs should help improve or design a logistics PMS of a supply chain. Dörnhöfer et al. (2016) define logistics performance management as the key to quantifying the current state and improvement potentials within logistics. The research questions for this master thesis are expressed as follows: RQ1. How should a logistics performance measurement system for a construction supply chain be designed? • This refers to the process of developing a performance measurement system and how the process should be structured. RQ2. Which KPIs should be included in a logistics performance mea- surement system of a construction supply chain? • Refers to a set of KPIs that should measure how well the logistics in construc- tion supply chains performs. 1.4 Limitations The thesis focuses on the supply chain processes between Inköp ABs supplier and the construction site. Therefore the KPIs that are being studied in this report will be related only to the logistics processes of Inköp ABs supply chain. Furthermore, the focus of this master thesis is only on Inköp AB’s largest product group in terms of turnover, reinforcement. A supply chain mapping is conducted by using the supply chain operations reference (SCOR) model as a framework. The SCOR model is not used in order to improve the internal processes on a detailed level, instead it only seeks to visualize the cur- rent state and give control to the management. In order to create a new logistics PMS, the most suitable KPIs from existing theory are "cherry picked", thereby not limiting the findings of this report to only one type of source or specific framework. "Cherry picked" means that research in the litera- ture was made, were the best parts were identified and applied. Instead PMS are thoroughly examined in order to identify the best way of measuring and controlling a construction supply chain under complexity. The findings of this report are well motivated, and give the board of Inköp AB valuable suggestions to how the output can be used. However, this master thesis will not implement these, leaving to the case company to decide upon what and how much of the findings that will be chosen to adapt. 4 2 Theoretical framework This chapter starts by explaining the construction industry and its characteristics. Secondly, supply chain management is described, where the concepts of supply chain performance and strategy is explained, as well as providing some theory regarding the uncertainty framework. The next section is about performance measurement, which aims to explain how to design a PMS, and how it can be used in order to achieve increased control in a company. In the same section a template for how to design KPIs is described, there stating general KPI characteristics. Thereafter, logistics performance management in supply chain context is presented. 2.1 Construction industry This section will give a short introduction about the construction industry and its characteristics, thereby giving important input to the analysis in regard to how the construction industry differentiates itself from other industries. The construction industry is a project based environment, where the industry is characterized by having the production site being built up around the building that is going to be produced (Persson et al., 2009). This is also stated by Baccarini (1996) and Ekeskär and Rudberg (2016), who also describe the construction industry as highly complex. According to Fernández-Solís (2008) the construction industry has 3 specific peculiarities: 1. Each project is unique 2. Each project is carried out on a production site, which means it will be exposed to weather and specific site conditions 3. Each project has a new customer and thereby a different team Fernández-Solís (2008) furthermore discusses that there is a gap between the con- struction industry and the traditional manufacturing industries. The gap refers to the fact that the efficiency in those manufacturing industries is far superior com- pared to the construction industry, which according to Fernández-Solís (2008) can be attributed to the lack of theory in the construction industry. The construction industry does not behave like a normal industry, and is too different for being able to directly translating past behaviour of specific industries toward itself. Due to the differences in scale and domains, the construction industry can not easily adapt theories from manufacturing companies (Fernández-Solís, 2008). 5 2. Theoretical framework Azambuja and O’Brien (2009) also describe the product demand to be less uncertain in the construction industry (compared to manufacturing industries), due to that the amount of material normally is known some time in advance. However, there are also a number of issues regarding the production variability. Here Azambuja and O’Brien (2009) state that the project site is dependent on labor availability and productivity, the use of certain tools, and how it is also being affected by the open environment (weather). Furthermore, the project sites have a lack of standardiza- tion and tolerance management, and often have problems with no space availability on site. Also, the material and trade flows can be seen as more complex, thereby leading to higher variability (Azambuja and O’Brien, 2009). According to Ortiz et al. (2009), the construction industry has during the past proven to be a big part of the social and economic sustainability in our society, where they employ millions of people and are a huge part of the economic sustain- ability of various countries. Sustainability most often is associated with three main areas; social, economic, and environmental sustainability. However, the construction industry has its problems with the environmental sustainability, where the sector is among others responsible for high-energy consumption, solid waste generation, global greenhouse gas emissions, and much more. Since there is a recognized prob- lem in environmental sustainability, governments and environmental agencies are suggested to apply certain construction codes and environmental policies in order to improve the sustainability in construction. Ortiz et al. (2009) claim that for this reason, the construction industry should proactively create environmental, social, and economic indicators which promotes sustainable construction practices. This connects to one of the research questions of this report: "Which KPIs should be included in a logistics PMS of a construction supply chain?", where the suggestion about proactively working towards sustainability should be kept in mind. 2.2 Supply Chain Management In order to design a PMS and select its KPIs, it is extremely important to consider the context and strategy of the company that is used. Therefore this chapter will be about supply chain management and strategy which give the right tools to choose the appropriate strategy a company should use. Hence, the appropriate KPIs can be selected which is aligned with the supply chain strategy. Furthermore, since this thesis focus on construction industry there is also a section about construction sup- ply chain management. Supply chain management is a concept that was developed in the 1980s for managing the relationship between supply chain members in order to cope with the increased globalization of manufacturing (Houlihan, 1985). As Thunberg and Persson (2014) mention, supply chain management emphasizes the possibility of viewing companies within the supply chain as a collective entity rather than independent units. Ballou et al. (2000) further describe supply chain management as a term that refers to all 6 2. Theoretical framework the activities that are associated with the transformation and flow of goods and ser- vices, which also includes the attendant information flows, from the sources of raw materials to the end users. The word "management" there refers to the integration of all the activities, both internal and external to the company. Lee (2002) describes supply chain management as one of the major areas for companies to achieve the possibility of gaining a competitive edge. Probably the most accepted definition of supply chain management was given by the Global Supply Chain Forum, which defines it as: "Supply Chain Management is the integration of key business processes from end user through original suppliers that provides products, services and information that add value for customers and other stakeholders” (Lambert and Cooper, 2000). 2.2.1 Supply Chain Strategy According to Chopra and Meindl (2016), a supply chain’s competitive strategy can be defined by the set of customer needs which the company is trying to satisfy through the products or services that the company is offering. Furthermore, the supply chain strategy is considered to affect several factors. The supply chain strat- egy determines the nature of procurement of raw materials, the logistics of the material flow in the supply chain and the manufacturing of the product or providing of the service. Moreover, it also affects the distribution to the customer, as well as the possible follow-up services and a specification regarding if the processes will be performed in-house or if they should be outsourced (Chopra and Meindl, 2016). There are several indicators that can signal if a supply chain is out of control. Such indicators could for example be a company that faces pressure of excessive inventory, has degraded its customer service, has escalating costs and declining profits or has a poor return on assets (Lee, 2002). In order to counter these challenges and to be prepared for new markets and technologies, a company should prepare and adapt their supply chain strategy to their context, since one-size-fits-all mentality will fail. A similar claim is also made by Chopra and Meindl (2016) who state the importance of aligning the company’s context and objectives to the supply chain strategy. Lee (2002) furthermore states that the right supply chain strategy to use for companies is determined by a number of different factors. First, the strategy should be tailored towards the supply chain, and the specific needs of the customers. Second, the products with stable demand and reliable supply should be managed differently than a source of supply with unpredictable demand. 2.2.2 The uncertainty framework In order to know which supply chain strategy to choose, Fisher (1997) developed a framework where the main objective was to help managers understand the na- ture of the demand for the products which the company supplies. This should help the company to understand how the supply chain should be structured and what 7 2. Theoretical framework strategy to use in order to satisfy the demand of the products. The first step for an effective supply chain strategy is to understand the nature of the demand for the products, which the author divides in two main categories: Functional products and Innovative products. Functional products are products which aims to satisfy basic needs of the customers, with stable and predictable demand. However, Fisher (1997) claims that due to the stability, there is a big competition which leads to lower profit margins. Examples of functional products is e.g. a stapler, which can be bought at different retail stores across the country. The other category mentioned by Fisher (1997) is innovative products, which among others can be characterized by more variety than functional products. Innovative products have the advantage that they often have a very high profit margin. However, innovative products are also considered to be volatile, with an unpredictable demand and short life cycles. Due to the differences between functional and innovative products, Fisher (1997) strongly recommends companies to use supply chains that fit each context. In Table 2.1 a comparison between functional and innovative products is presented. Functional products Innovative products Low demand uncertainties High demand uncertainty More predictable demand Difficult to forecast Stable demand Variable demand Long product life cycle Short selling season Low inventory cost High inventory cost Low profit margins High profit margins Low product variety High product variety Higher volumes per SKU Low volumes per SKU Low stockout cost High stockout cost Low obsolence High obsolence Table 2.1: Demand Characteristics (Lee, 2002). The framework by Fisher (1997) could be considered to be inconclusive, since it does not take into account other factors than the demand uncertainty for a product. For this reason, Lee (2002) extended the framework and added an extra dimension when selecting strategy: the supply uncertainty. The framework which Lee (2002) developed is called the uncertainty framework, where the initial description of Fisher (1997) is used, which claims that the supply chain strategy should be selected de- pending on the characterization of their products. According to Lee (2002), the uncertainties revolving around the supply side of the product are equally important as the demand, which led to the development of the earlier work done by Fisher (1997). The supply uncertainty is divided into two groups, stable- and evolving supply. Sta- ble supply processes refers to a situation where the manufacturing processes and the underlying technology of the supply base is well established. Evolving supply processes are on the other hand referring to manufacturing processes and underly- ing technology which are still in an early development phase and where the supplier 8 2. Theoretical framework base is still limited in both size and experience (Lee, 2002). The differences between these two groups can also be seen in Table 2.2. Stable Supply Process Evolving Supply Process Less breakdowns Vulnerable to breakdowns Stable and higher yields Variable and lower yields Less quality problems Potential quality problems More supply sources Limited supply sources Reliable suppliers Unreliable suppliers Less process changes More process changes Less capacity constraint Potential capacity constrained Easier to changeover Difficult to changeover Flexible Inflexible Dependable lead time Variable lead time Table 2.2: Supply Characteristics (Lee, 2002). As mentioned before, Lee (2002) added supply uncertainty to the work conducted by Fisher (1997). Lee (2002) continued by creating a table which combined both demand- and supply uncertainty, which is displayed in figure 2.1, where one axis shows supply uncertainty, and the other axis presents demand uncertainty. It is more challenging for a company to operate its supply chain in the right and bot- tom column of the uncertainty framework (referring to high demand and supply uncertainty). According to Lee (2002) a company should therefore aim to reduce both types of uncertainties, meaning that a company should ideally try to move into the top left box. Doing so should improve the supply chain performance. In order to move away from the right or bottom column in the uncertainty framework, Lee (2002) suggest the use of uncertainty reduction strategies. One of these strategies is the reduction of demand uncertainty. This could be done by for example achieve an increase in information sharing or closer collaboration in the supply chain. Another strategy that is suggested is to reduce the supply uncertainty, which according to Lee (2002) and Skjott-Larsen (2007) can be achieved by e.g. changing sourcing strategy from single to dual sourcing, involving suppliers in new product development, or by sharing safety stocks or critical items with the suppliers. According to Fisher (1997) and Skjott-Larsen (2007), a supply chain can be either an efficient supply chain, or a responsive supply chain. Skjott-Larsen (2007) claims that the supply chains for innovative products should be responsive, while functional products should use an efficient supply chain. This is true, however Lee (2002) con- cludes that there are four appropriate strategies to choose between, depending on the supply- and the demand characteristics of a company’s products. In the un- certainty framework, all four boxes (possible scenarios) are connected to different strategies, as can be seen in figure 2.1. The four strategies that are mentioned in the uncertainty framework will here be more thoroughly explained: 9 2. Theoretical framework Figure 2.1: Strategies in the Uncertainty Framework (Lee, 2002) • Efficient Supply Chains - These supply chains are constantly aiming for creating a cost efficient structure, mainly by eliminating non-value adding ac- tivities pursuing economies of scale and by deploying optimization techniques in order to achieve a high capacity utilization in production and distribution. Furthermore, efficient supply chains look to establish information linkages in order to achieve the best possible transmission of information across the orga- nization (Lee, 2002). • Risk-hedging Supply Chains - This strategy is well suited for supply chains that aims to share resources so that the risks in supply disruption is also being shared. Lee (2002) explains that this kind of risk-hedging strategy decreases the risk of supply disruptions by sourcing from more than one supply source. Other ways of reducing supply risk is to increase the safety stock of key com- ponents, and to keep this stock together with other companies to share the risk with each other (Lee, 2002). As can be seen in figure 2.1, the risk-hedging strategy is best suited for supply chains with high supply uncertainty (evolving process) and low demand uncertainty (functional products). • Responsive Supply Chains - Having a responsive supply chain refers to the aim to be flexible and ready when having to fulfill customer needs. This strategy is proposed for innovative products with a stable process (high de- mand uncertainty and low supply uncertainty). According to Lee (2002), build to-order processes and mass customization are means to use in order for the company to meet requirements from the customer. Lee (2002) claims that the key to mass customization is the order accuracy, meaning accurate specifica- tion of customer requirements). • Agile Supply Chains - The most challenging position for a supply chain is according to Lee (2002) when both the demand- and the supply uncertainty is high. In that case the supply chain needs to be agile, meaning there is an 10 2. Theoretical framework aim to being responsive and flexible in regard to customers. At the same time risks of shortages or disruptions in the supply should be hedged by pooling inventory or by using capacity resources. Lee (2002) states that these kind of agile supply chains need to be responsive towards the demands of the cus- tomers and at the same time minimize the risks of supply disruptions. This uncertainty framework should also be adapted to Inköp ABs context in the analysis of this report. By analyzing the supply- and demand uncertainty, this framework gives a suggestion to what type of strategy to use. Doing so and finding a suggestion for which strategy to use should facilitate the answer to the research question "How should a logistics performance measurement system for a construction supply chain be designed?". 2.2.3 Construction Supply Chain Management The combination of the characteristics of a supply chain and the construction in- dustry, can usually be described as both fragmented and temporary (Thunberg and Persson, 2014). Azambuja and O’Brien (2009) have compared supply chains from the construction industry to supply chains from manufacturing industries, and high- lights the differences. The structure of the construction industry can be described as highly fragmented, with low barriers of entry, transient locations, low interde- pendence and is predominantly used in local markets. This view is supported by Ekeskär and Rudberg (2016) who state that since construction work is carried out in temporary organizations, their supply chains are also temporary. Roberti et al. (2013) mention that a number of different studies have noticed the fragmented na- ture of the industry, relationships by arms-length, the lack of coordination and the poor communication between participants. The fragmented nature could accord- ing Roberti et al. (2013) be the reason why the industry is suffering from poor performance, e.g. by time and schedule overruns, quality defects, and poor safety performances, leading to increasing production costs. The construction companies face an increase in competition and have experienced that the customers today require lower cost, higher quality, shorter execution dura- tion’s, and more reliable schedules. Azambuja and O’Brien (2009) also claim that the construction supply chain thereby can be seen as both complex and ineffective. The complexity partly origins from the fact that 60-80 % of the gross work done in construction projects involves the buying of materials and services from suppliers and subcontractors. In other words, these supply chain actors have a huge impact on the performance of the construction projects (Ekeskär and Rudberg, 2016). Accord- ing Thunberg and Persson (2014) construction industry performance could benefit from greater attention to supply chain management. If materials are not delivered to the construction site in the correct amounts, at the correct times and without any deficiencies, the construction site’s production process will likely be affected due to potential delays and quality issues (Jang et al., 2003). Ekeskär and Rudberg (2016) conclude that many of the issues have their origin upstream in the supply chain but their effects propagate to the construction site. Thunberg and Persson (2014) also 11 2. Theoretical framework highlight the poor delivery service in the construction industry, indicating that less than 40 % of deliveries are delivered in full (right, amount, right time and location, damage free and right documentation). A more holistic view is important to con- sider when looking at material flows. Flaws in the sourcing process, from material suppliers to construction site affect the production process in many ways and con- sequently the quality to customers (Thunberg and Persson, 2014). According to Pan et al. (2010), implementing supply chain management in construc- tion could lead to improved time performance, cost control and quality. Further- more, the construction industry is considered to have some issues in the information flow, where Azambuja and O’Brien (2009) claim that the information flow needs to be recreated several times between trades. The authors go on and describe how the construction industry appears to be slow and describes a lack of sharing across firms, and also that there is a lack of IT tools for support of the supply chain. The relationship with the subcontractors is of utmost importance since much of the work is performed by them. Managing the communication and relationship with subcontractors will lead to less fragmented supply chains, greater control and focus on quality (Karim et al., 2006). 2.3 Performance measurement The research questions of this master thesis are "How should a logistics performance measurement system for a construction supply chain be designed?" and "Which KPIs should be included in a logistics performance measurement system of a construction supply chain?". Since a main part of this report is to design a PMS, the following section will be a guidance of how PMS are created and designed, will present differ- ent measurement systems, and will describe what characteristics a KPI should have. The importance of measuring performance in any business is widely accepted. Neely et al. (2000), define performance measurement as: “As the process of quantifying the efficiency and effectiveness of action”, and performance measure as a “metric used to quantify the efficiency and/or effectiveness of an action”. The terminology dif- fers between authors where Marr (2012) uses the terms performance indicator or KPI as a substitute to performance measure. Both Cox et al. (2003) and Lohman et al. (2004) further state that the use of performance measures is a way for the management to evaluate employee performance of some sort of task or operation. It compares the actual and the estimated performance in terms of effectiveness, ef- ficiency, and quality in terms of both workmanship and product. This can also be seen in a quote about performance measures, made by Sink and Tuttle (1989): "You cannot manage if you cannot measure. If you do not measure you do not know what you have achieved and where you are headed" Thunberg and Persson (2014) claim that the use of KPIs can be used for assessing how well a company is achieving its strategic goals. This is also confirmed by Lohman et al. (2004) who highlight the importance to connect the KPIs to the firm’s strategy. 12 2. Theoretical framework The selection of KPIs and the setting of targets of these measures should be seen as concrete formulations of the firms strategic targets. If there is a gap between the actual level of the performance and the desired goal, appropriate actions should be initiated based on the knowledge gathered by the performance indicator (Lohman et al., 2004). 2.3.1 KPI characteristics When selecting appropriate KPIs for supplier evaluation, it is important to choose KPIs that possess the right attributes. According to Gordon (2008), a good measure- ment for supplier performance should include a number of different characteristics. First, it should be meaningful and valuable, meaning that the measures should be directly connected to the organization’s strategies and goals, and be measuring the most important activities of the supplier in regard to both the customer require- ment and their own business success factors. Furthermore, the measures should be balanced, referring to that they should contain several types of measures, both internal processes and external outcomes. Gordon (2008) continues and states that a good measure for supplier performance should be linked and practical, meaning that the measure should be connected to the customer firm and that the capturing and retrieving of data should be quite easy and affordable. Another aspect stated by Gordon (2008) is that the measures should be comparable, credible and timely. Finally, the measurement should be pretty simple but at the same time robust, meaning that it is well proven. Gordon (2008) moreover states that one should not measure too many things, instead focusing on measuring so many that it is still possible to manage them. Strategic and Operational KPIs KPIs can be either strategic or operational. According to Marr (2015), the strate- gic KPIs are indicators that monitor the current state in comparison to where the company wants to be in the future. Operational KPIs on the other hand are measur- ing on a daily basis, and try to achieve real-time measurements. Operational KPIs thereby allow the company to adjust faults, and improve directly, before a full-blown escalation has appeared. Strategic KPIs are on the contrary only measured on a longer time horizon, there to visualize where the company currently is on its way towards its strategic objectives (Marr, 2015). 2.3.2 Performance measurement system In the upcoming section, the concept regarding PMS will be thoroughly explained, which is closely connected to the research question and aim of this master the- sis. A general PMS has an important role in operations and in business strategy implementation. For operations management it provides requisite information for monitoring, controlling, evaluation and feedback functions (Olsen et al., 2007). In addition, Tonchia and Quagini (2010) present a bullet list of seven components de- 13 2. Theoretical framework scribing the purpose of a PMS: • Translation and verification of corporate strategic plans and support for inter- vention/improvement programs. • Comparison with the performance of its best competitors • Control/monitoring of operational activities • Coordination of activities • Evaluation of human resources • Involvement and motivation of human resources • Individual and organizational learning (“learning-by measure” and “learning by error”) Neely et al. (2000) and Tonchia and Quagini (2010) describe that the PMS can be viewed at three different levels or layers; elements, architecture and interfaces. The individual performance measures are the first level in a PMS and is labeled as elements. According Lohman et al. (2004), a PMS includes the set of metrics used to quantify the efficiency and effectiveness of actions, as well as the procedures associated with the data collection, as those described in section 2.3. The second level, the so called architecture layer, is divided between three architec- tural features. The first feature, vertical, has the purpose of dividing the indicators in accordance to where they fit in the organization where Tonchia and Quagini (2010) differ between strategic, tactical or operational. The second feature has the purpose to define what indicators that are suitable for the different organizational units and how these are shared and compared with different functions. The last feature defines what indicators are actually able to measure and monitor organi- zational processes (Tonchia and Quagini, 2010). In addition, Neely et al. (2000) mention that this level should also include how the indicators relate to each other and how well they cover business and improvement objectives. According Neely et al. (2000), the integration of a PMS into the organization is a part of the interface layer and the environment surrounding the PMS is taken into consideration. It is important that the PMS is aligned with the business goal and strategy. Tonchia and Quagini (2010) furthermore state that the PMS should be put in a broader context with other systems within a company such as the enterprise resource planning (ERP) system etc. 2.3.3 Design of performance measurement system The following section describes the design of PMS. This should be critical to the outcome of this thesis, since one of the research questions is strongly connected to this: How should a logistics PMS for a construction supply chain be designed?. The design of a PMS is mainly about identifying key objectives and designing mea- sures (Bourne et al., 2000). According Lohman et al. (2004), this step involves a clear definition of the firms mission statement and to identity the firm’s strategic 14 2. Theoretical framework objectives, using the mission statement as a guide. Furthermore, it is important to develop an understanding of each functional area’s role in achieving the various strategic objectives (Lohman et al., 2004). This is also highlighted by Andersen and Fagerhaug (2002) who mention the importance to understand and map the current business structures and processes. Hence, the design of the PMS will con- sider the organization, its competitive position, the environment it exists in and its business. The next step is to develop the elements of the PMS, the perfor- mance indicators which is considered to be the most critical aspect. According to Andersen and Fagerhaug (2002), the purpose of this step is to develop the PMS with an appropriate number of relevant and precise performance indicators. Senior Lecturer Ola Hultkrantz (Lecture on performance measurement, 28th September 2015) recommend to carefully choose one’s KPIs since people can only retain 3 to 7 concepts in short-term memory. Thus, it is recommended to apply the 5 +/-2 rule. Marr (2015) have developed a ten-step performance indicator decision framework in order to decide on the right KPIs. 1. Linking KPIs to Strategic Objectives - The strategic objectives of the business should lay as a foundation when developing new KPIs. Marr (2015) mention that when KPIs are tightly linked to objectives, they provide relevant information that can be used to monitor progress and show the right direction. 2. Identifying the Unanswered Questions - A KPI should answer important and relevant questions that are currently unanswered. Here it is important to identify the right KPQs (Marr, 2015). 3. Isolating the Decisions to Take - The identification of the KPQs could give a number of KPIs to use. Although, Marr (2015) suggest to reduce this list by isolate the decisions you could take as a result of the KPI information. 4. Checking for Existing Data and Methods - Existing data and data col- lection methods should be investigated so that time isn’t wasted on designing something that is already existing (Marr, 2015). This is also something that is mentioned by Andersen and Fagerhaug (2002) who emphasize the importance of early address how and from where data is supposed to be collected. 5. Collecting Meaningful Data in Time - The quality of the data, the right format and that it is possible to collect the data at required frequency should be assured (Marr, 2015). 6. Assessing the Usefulness to Answering the Question - The developed KPIs needs to be assured that they can be used to make better informed decisions. If no decisions can be made as a result of the data, then the KPI is worthless and should either be left or be replaced by an alternative (Marr, 2015). 7. Creating Awareness of Cheating - The possibility of people manipulating the KPIs needs to be evaluated. Since KPIs have targets, it can affect how data is collected and reported in favour for a higher value (Marr, 2015). 8. Are the costs and efforts justified? - According to Marr (2015) if the KPI is expensive, time-consuming or if there is a problem in justifying it then one should go back to step four and consider if the same information can be 15 2. Theoretical framework retrieved more efficiently. 9. Collecting the Data - If the KPI has reached this stage then data should be collected in order to use the KPI (Marr, 2015). 2.3.4 Framework for KPIs According to Andersen and Fagerhaug (2002), designing reporting and performance data presentation formats is the next step in the developing phase of the PMS. In order to eradicate the ambiguity, ambivalence, and inconsistency which often is the issue with data collection and KPI reporting, Marr (2015) has developed a KPI design template, see figure 2.2. It contains of several elements, where the first part addresses the basics of each KPI and help to put it in context. The second part covers the more technical aspects of the data collection. The third part review how good is the indicator (Marr, 2015). Lohman et al. (2004) have developed a similar template for performance indicators reporting which supports and can be compared with the template from Marr (2015). The basic of each KPI should cover five different elements. In order to understand the relevance of the KPI, Marr (2015) and Lohman et al. (2004) highlight the im- portance of clearly stating which strategic objective the KPI relates to. Marr (2015) furthermore states that it might be appropriate to also define the person(s) which are responsible for the management and the delivery of the strategic objective. The second element cover the audience and access rights. Here the primary audience of the KPI is defined. Basically this clarifies who will see the data and who will have access to it. When implementing KPIs, it is important that they give information and answers to what is needed to know. Therefore KPQs are needed, which captures what exactly managers need to know and is therefor perceived as the third element. Marr (2015) explains that the key performance questions (KPQ) are supposed to shift focus towards what is actually important to know, thereby being a guidance when selecting the appropriate KPIs to use. This element can be compared with Lohman et al. (2004) who mention this as the scope of the KPI. How the KPI should be used should be clearly communicated so that everyone who uses the KPI under- stand how it contributes and what it measures (Marr, 2015). According to Marr (2015), this is especially important if a new set of KPIs are introduced. Lastly, the framework should also include the factors that influence the performance, i.e. organizational units, events, etc (Lohman et al., 2004). The technical aspects of the data collection should cover eleven elements: • Indicator name - The indicator name should clearly state what the indicator is about. Therefore, the name should be able to be discussed collectively without causing any misunderstanding (Marr, 2015; Lohman et al., 2004). • Data collection method - The data collection method should be identified and described for each KPI. This could include surveys, questionnaires, inter- views, focus groups and collection of archival data. Here it is important to keep the strategic objective and KPQ in mind (Marr, 2015). 16 2. Theoretical framework • Targets and performance threshold - A target should be defined for each metric as well as performance thresholds where performance levels are judged to be good or bad (Marr, 2015; Lohman et al., 2004). • Formulas, scales and assessment criteria - In order to create uniformity around the data, the formula, scale or assessment criteria that will be used for the KPI should be specified. Depending on the what data is available and the purpose of the KPI there are several options. It could be a aggregated KPI, using a specific formula, index or a scale (Marr, 2015; Lohman et al., 2004). • Source of the data - Where the data has it origins should be specified in order to assure of its reliability and validity (Marr, 2015; Lohman et al., 2004). • Data collection frequency - The frequency of the data collection should be specified and thereby coordinate the dates when data is collected. According to Marr (2015) it is important know why the certain frequency is chosen in order to make sure that the data is only collected as often as it is actually needed. • Data reporting frequency - The frequency of the data reporting should be specified and set. Furthermore, the data collection should be coordinated with the data reporting so that the data is as current and up-to-date as possible (Marr, 2015; Lohman et al., 2004). • Who measures and reviews the data - The framework should specify one resource responsible for the data collection and updates, either a specific individual or a job title (Marr, 2015; Lohman et al., 2004). • Expiry and revision dates - Each KPI should always include an expiry or revision date. Without it, KPIs can continue indefinitely and causing unnec- essary work (Marr, 2015). The last part, the validity of each KPI contains three elements. The first element refers how much the KPI will cost. Introducing and maintaining a KPI can be expensive and thus there needs to be an estimation of the cost to make sure that the added value is greater. Cost can include administrative or outsourcing costs for collecting data as well as analyzing it (Marr, 2015). The second element has the purpose to determine the confidence level in the KPI and therefore think of if it actually measure what is was designed to measure. The last element try to highlight the awareness of unintended consequences. Mapping of possible ways of manipulate the KPI which will allow the people using the KPI to consider better ways of collecting and assessing performance (Marr, 2015). 2.4 Logistics performance management in supply chain context In previous sections, the concepts of performance measurement, PMS and KPIs in general was covered. This section here focuses on how the PMS should be adapted to the supply chain context in order to measure logistics performance, from various types of approaches. Narrowing it down into this is necessary, since the aim of this thesis was to investigate and give suggestions how to measure the logistics perfor- 17 2. Theoretical framework Figure 2.2: Example of KPI design template (Marr, 2015). mance of a construction supply chain. For a company that aims for a competitive position, it is critical to improve the logistics performance in its supply chain. Furthermore, the evaluation of logistics effectiveness and efficiency is gaining increased attention. By using performance measures, it helps managers to evaluate and develop the operations in the supply chain (Pettersson and Segerstedt, 2011). Dörnhöfer et al. (2016) define logistics performance management as the key to quantifying the current state and improve- ment potentials within logistics. Furthermore, a supply chain perspective needs to be included in today logistics PMS whose function is the provision of the physical link between companies within the supply chain. Although, except the importance of measuring the material flow, a monitoring of information process is perceived as significant, as the importance of information processes is rising, e.g. with shorter customer lead times (Dörnhöfer et al., 2016). Senior Lecturer Ola Hultkrantz (Lecture on performance measurement, 28th Septem- ber 2015) mention eight functions of performance measurements systems in the sup- 18 2. Theoretical framework ply chain context. • Translate supply chain strategy into operational objectives • Provide supply chain managers with information and hence giving them the opportunity to react on identified performance gaps • Communicate performance expectations across company boarders • Clarify responsibilities and objectives between supply chain partners • Support strategic decision making and prioritization in the supply chain • Align objectives across the supply chain • Motivate suppliers/partners • Improve understanding of supply chain processes and how these processes are connected in a complex network of activities As companies move towards a more integrated operations management function across the supply chain, it becomes necessary to measure the logistics performance of the different parts of the supply chain on various dimensions (Lohman et al., 2004). Logistics performance measurement should start at the supplier and reach until at least the assembly line of the original equipment manufacturer (Dörnhöfer et al., 2016). According (Lohman et al., 2004) the measurements should define and measure the performance of the supply chain as a whole. In order to understand causes of deviations of actual performance from targeted performance, each measure should be able to be drilled down to different measures and levels of detail (Lohman et al., 2004). In order to measure logistics performance there are several views on how to structure the PMS in a supply chain context. 2.4.1 Resource, Output and Flexibility Lohman et al. (2004) and Beamon (1999) suggest that PMS in a supply chain con- text should focus on three different types of measures in order to be sufficient. Each measure type has its goal and purpose connected to different crucial parts of the supply chain, see table 2.3 (Beamon, 1999). Efficiency measures are connected to the performance measure type resources, i.e. to what degree the resources are utilized in the supply chain. These measures are often quantified as minimum requirement of resources needed. The output measures can visualize how well a company perform in terms of meeting customer demands. It could be number of defects, right quality and time etc. Although, there are some attributes that are hard to quantify in output which are of more qualitative nature, such as customer satisfaction. According to Beamon (1999), output performance measures must not only correspond to the organization’s strategic goals, but must also correspond to the customers’ goals and values. The flexibility measures should be able to measure a system’s ability to cope with volume and schedule fluctuations from suppliers, manufacturers and customers. Although, flexibility is a measure of 19 2. Theoretical framework potential performance which derives from the other measures such as volume and delivery. All measures in the model corresponds and affect each other. Thus, it is important to have balance between them in order to achieve strategic goals of the company (Beamon, 1999). Performance mea- sure type Goal Purpose Example of perfor- mance measures Resources High level of efficiency Efficient resources management is criti- cal to profitability (1) Total cost (2) Distribution cost (3) Manufacturing cost (4) Inventory (5) Return on investment Output High level of cus- tomer service Without acceptable output, customers will turn to other supply chains (1) Sales (2) Profit (3) Fill rate of order (4) On-time deliveries (5) Backorder/stock- out (6) Customer re- sponse time (7) Man- ufacturing lead time (8) Shipping errors (9) Customer complaints Flexibility Ability to respond to a changing environ- ment In an uncertain environment, supply chains must be able to respond to change No examples provided Table 2.3: Key elements related to strategic goals (Beamon, 1999). 2.4.2 Performance of activity Chan and Qi (2003) present a process-based model of supply chains, by which the supply chains are analyzed and measured, called performance of activity (POA). The supply chain should be viewed as one single entity and managed as a whole. Therefore, Chan and Qi (2003) suggest that the PMS should have a holistic view since not doing so might lead to local optimization instead of optimization of the whole chain. In order to create the PMS, Chan and Qi (2003) suggest that the supply chain first should be analyzed according the process based approach. This means that the relationships and structures between the different actors should be mapped. The supply chain which is mapped, is viewed as one entity which consists of core- processes. That supply chain is then divided into several sub-processes, consisting of several activities (Chan and Qi, 2003). 20 2. Theoretical framework When activities have been broken down and analyzed, performance measures should be assigned according the POA approach with aid of an proposed measurement board (Chan and Qi, 2003). Each measurement represents one dimension of ac- tivity or performance measurement type, see table 2.4. According Chan and Qi (2003) the performance measures dimension can be used to either categorize exist- ing measure or function as a reference when creating new measures. Although, not all dimensions have to be included depending on what is suitable. 2.4.3 Supply Chain Operation Reference model The SCOR model was developed by the Supply Chain Council in 1996 (Zhou et al., 2011). The SCOR model itself focuses on supply chain function from operational process perspective and includes customer-, market- and physical interactions (Zhou et al., 2011; Li et al., 2011). According to Zhou et al. (2011) and Thunberg and Pers- son (2014), the SCOR model is a powerful tool which is used in order to describe, analyze and improve a supply chain. Furthermore, it is proven to be applicable within several industries. However, Johansson and Persson (2011) claim that the SCOR model has to be adapted to the context where it will be used, in order to better embrace the characteristics of the construction industry. Some of the perceived benefits with the model that has been documented within the manufacturing industry are faster cycle times, less inventories, improved visibility of the supply chain and access to important customer information in a timely fashion (Zhou et al., 2011). Based on surveys made by Huan et al. (2004), the SCOR model is considered to be the most promising model for supply chain strategic decision making. The first step in the model is to map the current state and then introduce perfor- mance metrics. Thereafter, the model suggest to measure and analyze the current performance (Bolstorff and Rosenbaum, 2012). This means that the metrics that have been chosen should be calculated and evaluated. It is suggested to then try to improve the results from the current levels, and try to come up with target levels of the performance metrics. Furthermore it should be possible to estimate the value from such improvement. In order to improve the supply chain, the SCOR model suggests to investigate pos- sible best practices (Stephens, 2001). This step is described as a possibility to in- vestigate these kind of best practices from other successful examples, thereby taking advantage of representative lists and candidate options for supply chain improve- ment (Stephens, 2001) . Mapping of processes Bolstorff and Rosenbaum (2012) describe the SCOR model by dividing it into three levels of process details. There is also a fourth level that is not contained in the 21 2. Theoretical framework Performance measure type Description 1. Cost The financial expense to carry out one event or activity 2. Time The time between the beginning and comple- tion of one specific event or activity. Time is an important resource in modern busi- ness environments, especially where JIT and quick response prevails. 3. Capacity The ability of one specific activity to fulfill a task or perform a required function 4. Capability Ability of one activity to be used, treated, or developed for the specific purposes and required functions. Here four dimensions, which are most often used, can be identified with the purpose of covering the most impor- tant aspects of an activity’s capability. 4.1 Effectiveness The ability of one specific event or activity to achieve an intended or desired effect in per- forming the functions or taking the responsi- bilities 4.2 Reliability The ability of one specific event or activity to perform a required function under stated conditions for a stated period of time 4.3 Availability The ability to bring about effective or benefi- cial results or the degree to which one specific functional activity is ready when needed 4.4 Flexibility The ability of one specific activity to adapt to the varying functional requirements or re- spond to the changes 5. Productivity The rate at which one specific event or activ- ity adds value at the cost of resources 6. Utilization The utilizing rate of the resources to carry out one specific activity 7. Outcome The results or value added of one specific ac- tivity and event Table 2.4: The POA Metrics Board (Chan and Qi, 2003). 22 2. Theoretical framework SCOR model, however it is necessary in order to implement improvements and man- aging the processes (Bolstorff and Rosenbaum, 2012). The first level in the SCOR model defines the number of supply chains, how they are measured, and also the necessary competitive requirements for this. Huan et al. (2004) state that level 1 is the top level of the model, and that it mainly deals with process types. The level is defined by the use of five supply chain processes, which are Plan, Source, Make, Deliver and Return (Bolstorff and Rosenbaum, 2012; Zhou et al., 2011). The second level of the SCOR model is the configuration level, which deals with the different process categories and the core processes (Huan et al., 2004; Zhou et al., 2011). According to Bolstorff and Rosenbaum (2012), the second level uses the terms such as make-to-stock, make-to-order, and engineer-to-order to describe the processes. Level 3 is the deepest process level, which defines the best prac- tices of each process (Zhou et al., 2011), but also the business processes and system functionality that is used in order to transact sales different kinds of orders, return authorizations and forecasts (Bolstorff and Rosenbaum, 2012). • Plan - These types of processes include the supply resources that are being assessed, the demand requirements that are aggregated and prioritized, and the planning of inventory for distribution, production, and material require- ments. Furthermore rough-cut capacity plans for all products and channels should be included in these kinds of processes (Bolstorff and Rosenbaum, 2012) • Source - Sourcing processes contain the obtaining, receiving, inspecting, hold- ing, issuing, and authorization of payments for raw materials and purchased finished goods (Bolstorff and Rosenbaum, 2012). Zhou et al. (2011) claim that the sourcing phase could be described as to where the manufacturer connects to the supplier. • Make - Contains processes of requesting and receiving material, manufactur- ing and testing products, as well as packaging, holding and releasing products (Bolstorff and Rosenbaum, 2012). Zhou et al. (2011) state that this process includes the transformation of raw materials into finished goods, thereby meet- ing the supply chain demand in time. • Deliver - This step includes the execution of the order management processes, as to where a customer- and product/price databases need to exist. Further- more this step also consist of invoicing, warehouse processes, packaging in- structions from customer specifications, consolidation of orders etc. (Bolstorff and Rosenbaum, 2012). • Return - This process describes the products with defects are returned. This step also includes tasks as for example authorization, scheduling, inspection, verification of defective products and more (Bolstorff and Rosenbaum, 2012). SCOR metrics 23 2. Theoretical framework Figure 2.3: SCOR model (Zhou et al., 2011) These metrics are split into two groups, customer-facing and internal-facing perfor- mance attributes. Customer facing attributes are then divided into supply chain- reliability, responsiveness and flexibility while internal attributes are divided into supply chain- cost and asset management efficiency (Persson and Araldi, 2009). • Supply chain reliability - Measure the performance of the supply chain in delivering; the correct product, to the correct place, at the correct time, in the correct condition and packaging, in the correct quantity, with the correct documentation, to the correct customer (Bolstorff and Rosenbaum, 2012). • Supply chain responsiveness - Measure the speed at which a supply chain provides products to the customer (Bolstorff and Rosenbaum, 2012). • Supply chain agility - Measure the agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage (Bolstorff 24 2. Theoretical framework Performance attribute Level 1 Strategic Metric Supply Chain Reliability (1) Perfect Order Fulfillment Supply Chain Responsive- ness (1) Order Fulfillment Cycle Time Supply Chain Agility (1) Upside Supply Chain Flexibility (2) Up- side Supply Chain adaptability (3) Downside Supply chain adaptability (4) Overall Value at Risk Supply Chain Costs (1) Supply Chain Management Cost (2) Cost of Goods Sold Supply Chain Asset Man- agement (1) Cash-to-Cash Cycle time (2) Return on Supply Chain Fixed assets (3) Return on Working capital Table 2.5: SCOR metrics (Bolstorff and Rosenbaum, 2012). and Rosenbaum, 2012). • Supply chain cost - Measure the costs associated with operating the supply chain (Bolstorff and Rosenbaum, 2012). • Supply chain asset management efficiency - Measure the effectiveness of an organization in managing its assets to support demand satisfaction. Both fixed and working capital is included (Bolstorff and Rosenbaum, 2012). 2.5 Summary of theoretical findings This chapter has provided the required theoretical findings in order to help to answer the research questions. First, the literature connected to the construction industry and supply chain management was reviewed. Thereby a foundation of knowledge about the construction industry was created, which was essential to answer both research questions in this report due to the construction and supply chain context. Furthermore, it was important to review literature regarding performance measure- ment and logistics performance management in supply chain context. Doing so, provided the necessary tools to create a conceptual framework (presented in chap- ter 5). The framework is based on a combination of literature recommendations, regarding what to consider and to include while developing a logistics PMS. Hence, it is connected to the first research question, How should a logistics performance measurement system for a construction supply chain be designed?. The logistics performance management along with the characteristics of the construction indus- try also gave the necessary foundation for identifying the right KPIs to include in the logistics development system. Thus, it’s connected to the second research question, Which KPIs should be included in a logistics performance measurement system of a construction supply chain? 25 3 Method This chapter describes in which way the research has been conducted, starting by explaining the research approach. The research approach describes step-by-step how this thesis was carried out. Next, an explanation of how data was collected and which sources of information that were used is provided. 3.1 Research Approach The aim of this master thesis was to investigate and give suggestions on how to mea- sure the logistics performance of a construction supply chain. In order to achieve this, the thesis should answer the two research questions: How should a logistics performance measurement system for a construction supply chain be designed? and Which KPIs should be included in a logistics performance measurement system of a construction supply chain?. Following these research questions led to the research approach that can be seen in figure 3.1. There a flowchart is presented of how the research was performed, and describing the different steps of this thesis. In order to design a logistics PMS for a construction supply chain, a case study was conducted at Inköp AB. That case study worked as a practical validity of the literature findings (Yin, 2003). As can be seen in the flowchart in figure 3.1, the case study was performed in parallel with a literature study. The literature study was conducted in order to ascertain a basic approach and was carried out by gathering previous research contribution and potential approaches. Thereby, it was aimed to identify the most appropriate ways of measuring the logistics performance in supply chains. The literature study covered several different areas, e.g. the construction industry, supply chain management, and performance measurement systems. The literature study was done in order to gain deeper knowledge within the chosen area of research. A majority of existing theories have their starting point from the man- ufacturing industry. In order to create a valid foundation for this research, these types of theories were combined with research covering construction industry char- acteristics. Since the aim and research questions of this master thesis mainly concerned the development of a logistics PMS, a qualitative research approach was chosen as the most suitable option. Using qualitative research in this master thesis was deemed suitable since access to human resources with the appropriate knowledge was given. 26 3. Method As already mentioned, the case study was conducted in parallel with the literature study. One of the reasons why Inköp AB was chosen as a case company was its connection to one of the largest construction companies in Sweden, in this report called Bygg AB. Another aspect that made Inköp AB interesting was the fact that it sourced products from abroad. In case studies, the interest in what is happening in the environment is considered, but also the explanations why these events occur (Denscombe, 2014). The single case study in this thesis was conducted during 20 weeks. According to Bryman and Bell (2015), there are mostly some clear restric- tions regarding both time and opportunity for collecting data. A case study is by Merriam and Tisdell (2015) described as an "in depth description and analysis of a bounded system". Some advantages when conducting case studies are the pos- sibilities to investigate problems that appeared in a real life situation at the case study. However, Merriam and Tisdell (2015) state that one of the main limits to the quality of a case-study is the characteristics of the researchers. This means that the researcher is seen as the tool for collection and analysis of data. Another point is that with single case studies, it is difficult to generalize findings since the study only has been applied to one specific context. Furthermore, single case studies can not use comparisons in the same way as multiple case studies. On the other hand, Merriam and Tisdell (2015) indicate that results still can be used for further re- search within a topic, and claims that the impact of single case studies are widely underestimated. Merriam and Tisdell (2015) also state that one advantage in single case studies is the possibility to gather in-depth data. The case company that was examined in this master thesis should be considered as a typical actor in a construction supply chain. However, the case company also had some unusual characteristics. For example, the company was a purchasing depart- ment within a large actor of the construction industry. The case company was there responsible for sourcing different types of product categories solely from low-cost countries. As can be seen in figure 3.1, the case study consisted of first conducting some interviews, where mainly knowledgeable people within the industry and the case company were interviewed. By analyzing the gathered data from the interviews, a supply chain mapping could be conducted. This was done in order to understand the context of the case company Inköp AB, and clarify possible problem areas. Further- more, by conducting a supply chain mapping it gave an overview and understanding of the supply chain and the business processes of Inköp AB. In this step, the current PMS and KPIs that were used at Inköp AB were also identified, including their definition, and their actual and targeted levels. The supply chain mapping followed the SCOR model, which was one of the early literature findings. The SCOR model was conducted at a higher level of details, meaning it only mapped out which actors and processes that the supply chain contained. The next step that can be seen in figure 3.1 was to connect the literature findings and the empirical data that was collected in the context of the case study. There an initial list of suitable KPIs that should be the foundation of the logistics PMS were 27 3. Method "cherry picked" from literature. "Cherry picked" means that research in the litera- ture was made, were the best parts were identified and applied to the framework of this thesis. However, the KPIs were also chosen in consensus of the output of the interviews and supply chain mapping that made up parts of the empirical findings. Next, a conceptual framework was created, which focused on the design of a logistics PMS and tried to answer the research question "How should a logistics performance measurement system for a construction supply chain be designed?". The framework was developed by conducting an intense literature study, and was based on a com- bination of literature recommendations of what to consider and to include when designing a logistics PMS. The final step of the flowchart that is presented in figure 3.1 was initiated by the validation of the findings that had been made up to that point. This was done by interviewing a group of knowledgeable people within the organization of the case company. The interviews with this group were semi-structured, with a lot of pos- sibilities for free discussions. By analyzing the output of the interviews with the reference group, it was possible to identify what a construction supply chain should focus on. The input of the second interview round then led to the designing of a logistics PMS for construction supply chains. Thereby it was possible to answer the research question: "Which KPIs should be included in a logistics PMS of a construc- tion supply chain?". Figure 3.1: Flowchart visualizing the research design 3.2 Data Collection A number of different methods and sources were used for collecting data. In order to find relevant literature for this thesis, keywords related to the research question were used in common scientific portals and journals such as ScienceDirect, Elsevier, and Emerald Insight. Some of the used keywords were: construction industry, supply chain management, construction supply chain management, performance measure- ment systems, and SCOR model. 28 3. Method For the case study, data was collected through interviews and through accessing various databases at Inköp AB. These databases consisted of all types of data, in- cluding order lists and information about incoterm agreements, as well as business plan and strategies. The interviews were conducted with employees from Inköp AB and from the logistics and supplier management department of Bygg AB, as can be seen in table 3.1. Saunders et al. (2016) describe three different ways that an inter- view can be structured, which are: structured, semi-structured and unstructured. The interviews for this report were generally semi-structured in depth interviews, thereby enabling focus on the topic of this research. The interviews were prepared by having a set of questions which were used as guidelines through the interview, see appendix B. Conducting semi-structured interviews also allowed for possibilities in the conversation to learn more about experiences and opinions of the interviewee, and helped amplifying the boundaries of questions, depending on the participants answers. Data based on interviews can be influenced by personal opinions, inter- ests and different backgrounds. Semi-structured interviews help to cover as many relevant aspects as possible, since it is difficult to map and replicate whole inter- view discussions and impressions. Nevertheless, the level of research was kept as detailed as possible. This was done by following the questions in the appendix and by attempting to reproduce main statements, basic impressions, opinions and con- clusions within the empirical study. To further improve the reliability and prevent the loss of information, the interviews were often structured in a way that one of the interviewers was writing while the other was asking questions. In some cases the interviews were recorded, thereby allowing both interviewers to fully focus on the interview process. Role Actor Responsible for framework agreement with the 3PL Inköp AB Analyst from the logistics group Bygg AB Handling orders from Sweden, Norway and Fin- land, selects the right supplier for the right rein- forcement type Bygg AB Order management International office of Inköp AB Supplier Management International office of Inköp AB Business analyst for reinforcement Inköp AB CEO Inköp AB Table 3.1: Interviewees for the first round of interviews The people that were chosen for the interviews can be seen in table 3.1 and 3.2, and consists of employees from Inköp AB and Bygg AB. The interviewees could be seen as experts in their different areas of expertise, and should be considered as well in- formed about the construction industry in general. Roles and number of interviews was decided together with Inköp AB’s management in order to get enough expertise 29 3. Method covered. Furthermore, at each conducted interview, the interviewees were consulted regarding the chosen people for the reference group. The conceptual framework in this report was used as a foundation for how to design a logistics PMS, thereby also influencing the interview questions that were chosen. Before most of the interviews, information was sent out in order to prepare the interviewees and give them an indi- cation on what to expect. Interviews were conducted both face-to-face and through Skype, with a varying length between 30-60 minutes. The number of interviews conducted with every interviewee was between one to two occasions. Table 3.1 shows the group of people which were used in the first interviewees, in order to map the supply chain and understand the context of Inköp AB and Bygg AB. On the other hand, table 3.2 presents the interviewees that were used in order to validate the findings after the case and literature study had been conducted. The interviews with the reference group generally were a little longer since more content was covered. Furthermore, the interviews with the reference group did generally contain more freedom, meaning that there was a little more room for discussions. During the interviews with the reference groups, theoretical definitions of KPIs were described by using applicable examples. Thereby it became easier to relate it for the interviewees. Following this procedure should facilitate the comparisons of data, since it ensures that the circumstances during the interviews were similar for several interviews. Role Actor Head of supplier management Inköp AB Purchasing leader Bygg AB Category manager transports Bygg AB Project manager supplier development Bygg AB Business solution manager procurement and logis- tics supplier management Bygg AB Green business developer Bygg AB Category manager Inköp AB Partnering leading supplier Bygg AB CEO Inköp AB Table 3.2: Interviewees, second round - reference group to validate KPIs In order to answer the research question, the data which was gathered from inter- views, literature, and from the case study at Inköp AB, was compared and ana- lyzed. The starting point for this master thesis was given by conducting interviews and understanding the main problems of Inköp AB. Furthermore, the conceptual framework that was created from theory, was used as a foundation for the analysis. The conceptual framework clearly shows how the findings from the case study and the literature should be used in order to draw conclusions for the analysis. Another aspect of the data analysis was the possibility to test the validity of the findings. Yin (2003) describes and divides validity into construct, internal, and ex- 30 3. Method ternal validity. Construct validity considers the correctness of the data for the study. Unclear information or data that seemed incomplete was sent to the respondents in order to validate and cover information gaps. External validity is described as the possibility to generalize findings, thereby ensuring that outcomes can be applied to other contexts. The data that was analyzed in this master thesis was mainly based on one company, but also included a wider view of the industry by gathering theoretical findings. Thus, the study aimed to develop a framework that was appli- cable for other companies within the construction industry as well. Internal validity is stated as the evidence of inferences made from primary data as interviews. To approve this aspect, interviews were conducted in order to understand the situation and to prove the applicability of theoretical findings. 31 4 Empirical data This chapter primarily seeks to introduce the context of the case company which was used for this report. The company will be thoroughly introduced and described, thereby providing the foundation for the analysis together with the theoretical find- ings from the previous chapter. The empirical data will also contain the case com- pany’s structure, their strategic objectives, as well as giving an explanation of the current KPIs that were suggested, and how the PMS is structured. Furthermore, a supply chain mapping of the company will be presented, where the main implications and problems of the case company are described. 4.1 Provided products As it is today, Inköp AB offers four type of product categories to their customers. • Reinforcement • Natural stone • Tarpaulins • Cabinets Reinforcement as a product category stand for the majority of the turn-over within Inköp AB, and is divided into five product groups. The product groups differ in terms of added production cost at the material supplier, meaning that some require more prefabrication than others. Recently, the trend has been to increase the vol- umes of the prefabricated products, since this puts more work in low-cost countries and thereby decreases the total production costs. However, as stated in interviews, the physical characteristics of these products has affected the transport efficiency negatively, since they are more difficult to consolidate and load into a truck. In the end this means that the fill rate with prefabricated products is lower, leading to less tonnage per transport and a higher transportation cost. Overall, importing reinforcement products via Inköp AB has had a great effect on changing the Nordic market of Bygg AB’s projects and pushing the competitors to lowering their prices. A couple of years ago, the price differences were huge between the market in low cost countries and the Swedish market. However, they have nowadays decreased because of different reasons, e.g. lower prices from Swedish competitors and inflation and taxation’s etc. Since this has happened reinforcement can be considered to be mature. 32 4. Empirical data 4.2 Strategic plan and objectives Bygg AB’s recently updated business plan had the overall theme, "profit with pur- pose". Since Bygg AB has identified purchasing as a function with great potential and implications on the profit, it is of highest importance to realize this potential from a strategic point of view. Part of this potential lays in international purchasing and challenging supplier structures within the Nordic countries. Inköp AB plays an important role when it comes to realizing this potential and reaching the results stated in the overall business plan from Bygg AB but also for purchasing as a func- tion. Therefore, Inköp AB also need further development. Bygg AB has a strategic objective to create sustainability in the supplier base. This has also influenced Inköp AB to become "greener" and to become more sustainable, since they also are part of Bygg AB. To reach the expected results, a strategic plan was created. The purpose of Inköp AB’s strategic objectives is to clarify what the targets for the future are, and by stating the objectives also aligning these with the process of achieving these goals. For Inköp AB, the main ambition is to become a world class purchasing department and at the same time maintain a cost efficient purchasing function. There are cur- rently nine different strategic areas at Inköp AB, where they have been divided and grouped into different segments. The nine different areas is based on the overall goal of increased efficiency which is stated as; "Through clear responsibilities, goals, measures and follow ups the efficiency shall increase. There is a clear need to be more visible in projects, market products more and spread more knowledge. This will be part of the ambition for 2020." Three of the identified strategic areas had connection to the supply chain topic and was labeled as "Suppliers", "Logistics" and "Products". 4.2.1 Supply chain strategic areas For Logistics there are strategic objectives regarding the logistics, where two goals for 2020 have been stated: • Achieve a delivery precision of 99 % • Have an average weight of at least 20 tonnes per truck, maximum is 24 ton Furthermore, Inköp AB have identified a couple of improvement areas or way for- ward for Logistics in order to reach the ambition for 2020. • Reduce risk of delays from manufactures. For some suppliers there must exist routines/procedures how to handle/avoid delays. • Establish structured way of working with supplier development to increase performance in quality and delivery 33 4. Empirical data • Investigate how to consolidate volumes in a different way to get up tonnage as well as efficiency • Closer cooperation with manufacturer regarding material loading plan and truck amount. Continuous dialog with projects and suppliers concerning cir- cumstances of delivery and needs. For Products the goal for 2020 is to increase the amount of different products within Inköp AB to get a greater width and increase the competitiveness for Bygg AB. As mentioned before, Inköp AB has the ambition to increase volumes of prefabricated products since the total cost for the projects within Bygg AB would decrease. Since the product variety and volumes has the goal to increase, this also necessitates a broader supplier base and at least dual sourcing setups for each new product. Furthermore, the products that are bought shall to the largest extent be bought from companies that have the lowest total cost including freight. 4.3 Supply chain mapping - processes and actors A supply chain mapping was conducted in order to create an overview of Inköp AB’s supply chain. The mapping had a number of uses. First, it should help clarify what the current state of the company looks like, how the different processes of the different actors are designed, and help explaining where and what the main prob- lem areas are. The mapping which is presented below, was developed by following the SCOR model, which means that the processes were divided into three levels of detail. As described in the theory, the top level consists of four possible types of processes (Make, Deliver, Plan, Source and Return), which are more broken down into more detail processes in level 2 and level 3. In figure 4.1 the four different actors are presented. The material supplier is re- sponsible for producing the reinforcement in accordance to technical specifications. These technical specifications are first discussed between the project site and Inköp AB, and then later communicated to the supplier. There are currently five different types of reinforcement, which all can be further modified according to the project site’s wishes. The other actors in figure 4.1 are a 3PL which is responsible for the transportation of