Sourcing strategies: A case study in the construction industry
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There is an ever-increasing interest towards the field of purchasing and much attention has been placed towards the importance of purchasing in relation to firms survival in a competitive environment. In general, firms have an array of interrelated activities from operational production, to marketing and R&D. However, all firms also typically conduct purchase activities, hence the chain of activities is only as strong as its weakest link. Further, in many industries firms spend more than half of their revenue on purchasing materials and services. This can be explained through the trend of firms to exclude non-critical activities out to other actors under the banner of outsourcing. This trend on the other hand implies that higher responsibilities have been placed on the suppliers and their specific product contributions to the buying firm. Therefore, the implication is that firms have to develop appropriate supplier strategies based on what type of commodity they are buying. In this thesis the theme is sourcing strategy and addresses this issue. A case study of a construction firm is carried out in this thesis to analyze their purchasing practice, and the objective is to find improvement areas for the case firm in relation to the various uses of sourcing strategies. In order to do that a literature review is conducted to explore and relate the various sourcing strategy models in an effort to compare these findings with observed practice of the case firm.The result of the literature review shows that there are in general four main aspects to consider in relation to sourcing strategy: (1) what strategy for a given commodity, (2) how many suppliers, (3) what kind of relationships to pursue, and (4) how do we structure the supply base. With these aspects at hand, the author analyzed the case firm and in particular within an ongoing construction project to find improvement areas.The findings of the empirical study is that the observed practice of the case firm to some extend resembles the theoretical frameworks in the sourcing literature. The firm uses distinctive strategies based on what commodities they are buying, however, due to the construction industry s specific characteristics, the firm has adapted or reconfigured it to suit their business. Further, by mapping how the supply base of the given project is structured, it resembles what the literature call parallel sourcing.The thesis concludes that even though the case firm s practice resembles parallel sourcing, the practice does not fully reap the benefits depicted by the literature. In order to fully benefit, the case firm is recommended to consider the development of long-term relationships with a limited set of suppliers. By doing so, this would coincide more with the literature s description of parallel sourcing, and hence harvest the same benefits that are argued by the literature.