Organisation of Purchasing and Buyer-Supplier Relationships in Large Construction Companies

Doctoral thesis, 2014

Large construction companies purchase 70-80 per cent of their turnover from material and service suppliers, rendering their purchasing processes and practices crucial for achieving profitability and a competitive edge. However, the organisational structure of these companies, where purchasing is conducted in both the central purchasing department and in the projects, makes purchasing a challenging issue. Despite the potential benefits and challenges, research on purchasing in construction companies remains scarce. The aim of this thesis is two-fold: (1) to explore purchasing processes and practices in large Swedish construction companies regarding organisation of purchasing and buyer-supplier relationships, and (2) to suggest ways of improving purchasing. This thesis is based on two studies. The first is a two-year case study in a large construction company where participant observations and interviews provided an understanding of purchasing mainly from the perspective of a central purchasing department. The second study is an interview study carried out in three large construction companies and among their subcontractors. The latter study provided important insights into the projects’ perspective on purchasing. This thesis shows conflicting interests between the purchasing department and the projects concerning relationships with suppliers with framework agreements. While purchasing departments have a long-term focus, projects focus on flexibility and smoothness in project delivery. These conflicting interests result in a dual interface towards suppliers. To bridge this tension, increased internal integration is proposed by forming cross-functional teams. The thesis also shows current practices for achieving cooperation in the relationships between contractor site managers and subcontractor foremen. This identified cooperation nuances the current one-sided perception of the construction industry as adversarial and short-term. Moreover, this thesis proposes a new definition of purchasing in construction, highlighting the importance of integrating strategic and operational perspectives when exploring purchasing processes and practices.