Supply Chain planning

Making the most of storage facilities in large construction projects

Large construction projects have a huge logistics component often requiring equipment from all over the globe to be brought together through a complex supply chain. In an ideal world, our suppliers would produce items on time and they would be transported to our construction contractors just as they needed them.

Unfortunately, we don’t work in an ideal world – suppliers can fail to produce on time, problems can occur in transit, and external forces outside our control can interrupt the construction schedule. For this reason, we want a contingency plan – usually in the form of a storage facility where we can hold spare or excess items if our supply and demand schedules don’t match up.

These facilities are used heavily over a short period of time, meaning that any inefficiencies quickly add up to large, unnecessary costs. However, given the size of these projects, identifying and fixing these issues is far from easy or intuitive. It is through analytics that you can drive quantitative answers and support effective decisions in your logistics and facility planning.

What makes facility planning complex?

Even when planning facilities for a single large project, there are several important questions that need to be answered, each with their own complications:

Where should my facility be?

Conventional wisdom for a construction project is to conduct a basic “centre of gravity” analysis and place a logistics warehouse smack-bang in the middle of everything, with the assumption that it is the best solution. However, a large construction project has many moving parts, which can drive the total complexity much higher and render this basic solution inefficient.

Firstly, it is important that you understand how the facility will be used – whether it is only for construction materials or for operational items later, and whether it is only useful for this project, or if it can also be used for other work occurring in the area.
For operational items, particularly spare parts, the main requirement is to locate the facility close to work sites to reduce any downtime. However, this may result in a longer total travel distance or a doubling-back effect (when the whole supply chain from supplier-warehouse-work site is taken into consideration).

Minimum total distance.

Minimum total distance.

Minimum last mile distance.

Minimum last mile distance.

For construction items, the last mile may be less significant compared to reducing the overall travel distance, especially for oversized items that can be very expensive to move. This difference is shown in the pictures above, where the yellow triangle represents the storage facility.

Both of the above solutions could be the optimal facility placement, as the optimal solution stems from the specific requirements of the project.

Should I have more than one facility?

Facility location addresses some issues, but in reality the problem has an additional dimension. It may be wiser to construct additional facilities to bring all items closer to their final destination. It may also be inevitable – the last mile may be limited to a certain distance due to rules and regulations. This will require multiple facilities as it is guaranteed that constructing facilities closer to the project will reduce the driving distance required by staff.

However, I want to discuss the case where one facility is still feasible, but having two may be optimal. This adds complexity to the problem and we need more information to make the correct decision. In this case, we need to make sure that we can accurately weigh up the costs of one facility vs two. Then, we can calculate the transportation cost savings with two facilities, and compare this to the additional cost of set up and operation.

The difference in transport requirements can be quite significant, as shown in the diagrams below:

Single facility minimum distance

Single facility minimum distance

Reduced distance from second facility

Reduced distance from second facility

This may be further complicated if there is an option to rent land or a facility for a short time period (eg <2 years), which means that one of our additional facilities could have a much smaller cost of set up and operation, but only if we use it for a short period of time. This can be a useful solution in large projects that contain both a construction and an operations phase, where we may want a single large facility to support the bulk of construction and all of operations, then a single smaller, temporary facility to just support the construction of the facility.

What size should my facility be?

Once we know the number of facilities we need, and where they are, we can understand the areas they will each be servicing. This then lets us figure out how much material will be passing through each location.

However, it is not immediately obvious how to translate this amount of material into the total size of the facility required. We can’t just add up all of the material and use that as the total size because not everything will need to be stored at the same time. Even if we know the number of items that will need to be stored at a certain time, the actual amount of space required may still be unintuitive.

Take for example, storage of high-density polyethylene (HDPE) pipe. HDPE comes in various thicknesses, each with different rules for stacking height to maintain product quality and safety for handlers. Using the safety information from the Plastics Pipe Institute, we can see that storing 1,000 pipes of 160mm diameter would require ~300m2. If we want to store pipes that are 10x bigger (1600mm), intuition would dictate that we would need 10x as much space, but actually we would need ~30,000m2 – 100x bigger – due to our inability to stack. Without taking the time to do the initial analysis, our first guesses can be quite misleading.

Also, for large projects, there will often be multiple materials that need to be stored – each one with their own, often complex, requirements. In addition to this there is extra area that is necessary for safety requirements and access roads. All of this can again add up to extra complexity and unintuitive results when trying to estimate size.

How should I arrange the Inventory within my facility?

Once the appropriate work has been done to remove the guesswork from facility sizing and location, we now have an initial quantitative estimate of how much storage space will be required. But can we improve that? Selecting where to place access roads and various material types can get complex fast, as the number of options quickly leads to a combinatorial explosion.

Naive packing – 37 blocks (27% utilisation)

Naive packing – 37 blocks (27% utilisation)

Optimised packing – 62 blocks (46% utilisation)

Optimised packing – 62 blocks (46% utilisation)

Large distribution chains constantly re-evaluate their warehouses, but this isn’t anywhere near as common with capital project facility logistics. Often, a plan for facility layout is done at the start of the project during the planning phase, and then remains static until either the project is finished or, more likely, something goes wrong. I’ve worked on projects that have seen storage yard utilisation down below 20%. Those reaching the lower end of those numbers are generally because their facility layout plans haven’t been able to respond to unforeseen circumstances.

The need for analytics in Facility Logistics

Over the years at Biarri I have been able to work on many facility logistics projects in both consulting and software developmentthere is a clear need for companies in any industry to properly build analytics into their decision making when building facilities to support large construction projects.

As I mentioned at the start of this article, we don’t work in an ideal world, and delays or mishaps may mean that the original plan is no longer a good idea. I have heard industry people dismiss this as simply a consequence of the environment we work in, often referencing the famous paraphrasing of Helmuth von Moltke, saying “No plan survives contact with the enemy.” But Moltke didn’t have access to live data streams and software that could dynamically replan on the fly.

In the modern age we can – and should – do better.

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