Supply Chain Management: An International Journal

Supply chains in the construction industry

Anders Segerstedt Thomas Olofsson
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Anders Segerstedt Thomas Olofsson, (2010),"Supply chains in the construction industry", Supply Chain Management: An
International Journal, Vol. 15 Iss 5 pp. 347 - 353
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 Guest editorial

Supply chains in the construction industry

Anders Segerstedt
Industrial Logistics, Lulea University of Technology, Lulea, Sweden, and IBDK, Narvik University College, Narvik, Norway, and
Thomas Olofsson
Construction Engineering and Management, Lulea University of Technology, Lulea, Sweden

Abstract
Purpose The purpose of this paper is to introduce a special issue about the construction industry and the management of its supply chains. It aims to
discuss and point to some differences and possible similarities with traditional manufacturing and its supply chains.
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Design/methodology/approach The paper is mostly a literature review and contains official statistics.
Findings The market of the construction company is mostly local and highly volatile. The long durability of the construction product contributes to
the volatility. The product specification process before the customer order arrives shows different degrees of specifications: engineer to order, modify to
order, configure to order, select a variant. (The common make-to-stock in traditional manufacturing does not exist.) A construction company only
executes a small part of the project by its own personnel and capacity. This is a way of risk spreading and risk mitigation and to compensate for an
unstable market. If a construction company wants to establish a new concept, from engineer to order to e.g. configure to order, it must be
engaged earlier in the business process and with other than usual customers, which might complicate the process.
Research limitations/implications Experiences from Sweden and Swedish developments are the main source of information.
Originality/value The paper introduces the articles that are a source of scientifically generated knowledge regarding various problems and
opportunities associated with supply chain management in the project-based construction industry.

Keywords Supply chain management, Construction industry, Sustainable development, Sweden, Project planning

Paper type Literature review

Introduction
This is the introductory article in a special edition about the
construction industry and the management of its supply
chains. Eccles (1981) defined construction as the erection,
maintenance, and repair of immobile structures, the
demolition of existing structures, and land development.
The term architectural, engineering and construction (AEC)
industry also includes the design in the supply chain of the
construction, repair and retrofit of our built environment.
Also, the boundary between construction and the
manufacturing industry is indefinite and fuzzy. Are plants
producing building insulations part of construction or part of
the manufacturing industry? The difference in output
produced, firm size and use of technology in the residential,
commercial/public, industrial and infrastructure sector also
makes it hard to characterize and measure the performance of
construction on industry level (Huang et al., 2009).
Therefore, several investigations showing a slow increase or
even decline in productivity developments may be debatable.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-8546.htm
Supply Chain Management: An International Journal
15/5 (2010) 347 353
q Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/13598541011068260]
Even so, much research work and several public funded
unraveling reports have assessed and suggested ways to
improve productivity in the construction industry.
Since the 1990s there has been an increased interest of
supply chain management theories to understand and
characterize the deficiencies and to propose solution to
improve the coordination of the often many subcontractors
and suppliers in the construction supply chain. The UK-
sponsored Latham (1994) and Egan (Construction Taskforce,
1998) reports investigated the current practice of loosely
coupled supply chain; Dubois and Gadde (2002) suggested a
more integrated supply chain using collaborative agreements
between contractors, suppliers and clients. Cox and
Townsend (1998) discussed the relationship between supply
chain management and market structure, i.e. the constraints
Many of the authors mentioned in this article have also served as
reviewers; a lot of people have been engaged in the review process,
therefore special thanks also go to: Paola Olimpia Achard, Diana
Chroneer, Tim Foster, Rickard Garvare, Jopp I. M.Halman, Petri Helo,
Olli-Pecka Hilmola, Zhongsheng Hua, Karl Inderfurth, Patrik Jonsson,
Jari Juga, Kristian Kristiansen, Jarmo Laitinen, Ales Magdic, Stefan
Minner, Arthur Money, Andreas Norrman, Ossi Pesamaa, David Pyke,
Martin Rudberg, Goran Svensson, Ou Tang, Anders Thorstenson, Peter
Wallstrom, Erik van der Sluis, Karel van Donselaar, Ruben Vrijhoef,
Simone Zanoni, Par A hlstrom
The authors would also like to thank Mrs Tatiana Liljestrom for
administrative help.
The work with this special issue has been supported by the Swedish
Research Council Formas (Project SE 468200440 and
SE 358961522072) for which the authors are very thankful.

347
 Supply chains in the construction industry
Anders Segerstedt and Thomas Olofsson
and structural forces of the market and Agapiou et al. (1998)
introduced the building merchants providing supply for the
building industry as an important player in the supply chain.
Other perspectives and explanations of root causes for low
productivity development have been proposed by Vrijhoef and
Koskela (2000), who recommended an integrated
management of the interface between site activities and
supply chain.
Several authors have also recognized the important role of
the client. Briscoe et al. (2004) identified the client as the
most significant actor in achieving integration in the supply
chain. London and Kenley (2000) adapted Lambert et al.
(1998) model of the supply chain structure from an industrial
organization perspective and put the client organization in the
focal point. Vrijhoef and de Ridder (2005) developed this
concept further and discussed two strategies for integration;
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supplier driven integration and client driven integration.
What kind of supply chain is the construction
supply chain?
It is not uncommon to hear that the construction industry is
totally different to other industries and must find other
solutions and concepts for improving performance and
efficiency. Is it true or a myth? It is customary to view that
there are certain peculiarities of construction, like one-of-a-
kind products, temporary organization, and site production,
preventing the attainment of flows as efficient as in
manufacturing (Koskela, 1992). As an example the principal
construction company that manages a construction project
mostly executes only a small part of the product by its own
personnel and its own production facilities. The great part,
approximately 75 percent and more, of the products value is
built with help from suppliers and subcontractors (Dubois
and Gadde, 2000). It is often believed that advances in
construction are related to the elimination of these
peculiarities, like site production by means of
industrialization or one-of-a-kind products by means of pre-
engineering. These peculiarities are also at the core of the
argument that construction is so different, especially from
manufacturing that technology transfer from other fields is
not possible. Ballard and Howell (1998a, b), advocates of
Lean construction, who posed the question What kind of
production is construction? argued that parts and
components more suitable for manufacturing should take
advantages of lean techniques developed in manufacturing
while lean techniques suitable for the dynamics of
construction should be developed to minimize the
peculiarities in construction. One such technique to shield
the production on-site from the jumbled flow and loosely
linked process segments is the Last planner approach (Ballard
and Howell, 1998b). Vrijhoef and Koskela (2000)
characterized the supply chain in construction as:
.
converging at the construction site where the object is
assembled from incoming materials;
.
temporary producing one-off construction projects
through repeated reconfiguration of project organizations
separated from the design; and
.
typical make-to-order supply chain, with every project
creating a new product or prototype.
In traditional manufacturing, modularization and
standardization of semi-manufactured items have been ways
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Supply Chain Management: An International Journal
Volume 15 Number 5 2010 347 353
to increase efficiency and lower costs in production,
decreasing delivery times, and even increasing the flexibility
and variety of products to satisfy customers demands.
Christopher (2001) discusses the introduction of a strategic
inventory to hold common sub-assemblies and only complete
the final assembly or configuration when the precise customer
requirement is known. This type of postponement strategy
moving the customer order point up-streams is utilized in the
mass-customization industry separating base and surge
demands. However, unlike the construction industry, the
product design is often developed in a separate product
development process in the manufacturing industry by the
lead firm or system integrator.
The peculiar relation between design and production in the
construction industry has also been recognized by Winch
(1998), who classified from an institutional view the principal
contractor and principal designer as sharing the role of the
system integrator, see Figure 1. The customer of a
construction company is often separated; this means the
first tier customer to the construction company is often an
agent for the second tier customer; and the real consumer of
the product (e.g. the tenant of the flat) is still not known.
However, this is not totally unique for the construction
industry, other companies are also often in a supply/demand
chain where the first tier customer delivers to second and
third tiers customers, etc. But a construction company is
often more movable and impermanent in its supply chain
compared to other industries; the construction company can
be the focal company in a development project and be
positioned as first or even second tier supplier in other
projects (see Figure 1) (Figure 1 is adapted after Lambert et al.
(1998), London and Kenley (2000) and Vrijhoef and de
Ridder (2005)).
Market volatility: the Swedish case
The construction industry is local. Governmental subsidies,
national and local regulations and culture have essentially
protected the construction industry from global competition.
The building products also have a long life-span creating a
situation where the demands vary dramatically over time.
Since 1950 the number of initiated flats in Sweden has varied
with a factor of 10 over time, Figure 2.
In the 1960s when the large governmental multi-dwelling
program was launched many concrete prefabrication factories
started changing the construction from an essential craft
based industry to more of an assembly on-site operation.
During this era both construction companies as well as client
organizations started element factories. As the demand
decreased in the 1970s many of these prefabrication
facilities were closed and more work were again performed
on-site (Kadefors, 1995).
In the 1970s the energy crisis introduced thicker insulation
and more advanced systems for heating and ventilation
introducing new specialists in the project organization.
However, the market for single housing was still booming
due to beneficial interest rate subsidies, which resulted in the
build-up of the one-family detached timber house
manufacturing industry in Sweden. The financial crisis in
the real estate sector together with the de-regulation and
decrease of governmental subsidies in the 1990s caused the
production of single and multi-dwelling flats in Sweden to
drop to historically low numbers.
 Supply chains in the construction industry Supply Chain Management: An International Journal
Anders Segerstedt and Thomas Olofsson Volume 15 Number 5 2010 347 353

Figure 1 The system integrator (SI) is located in the focal point of the supply and demand chain
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Figure 2 Started number of flats in apartment blocks (Flerbostadshus) and detached single houses (Smahus) in Sweden from 1950 to 2008

The business cycles in the construction industry seem to
have higher amplitudes than in other manufacturing
industries. The unemployment of construction workers is
greater in low business cycle than in other industries. In
high business cycles more unskilled people are hired than in
other industries; people go out and in from the construction
industry at a greater rate than other industries (Eccles,
1981). The durability and the long life span of building
products also contribute to the amplitude of the business
cycle. The more durable a product is the more the demand
will oscillate, since the yearly production only adds a small
volume of an already existing product. It is also common, as
described above, that governments try to stimulate the
economy in low business cycles by subsidiaries and other

349
 Supply chains in the construction industry Supply Chain Management: An International Journal
Anders Segerstedt and Thomas Olofsson Volume 15 Number 5 2010 347 353

stimulation activities in order to start new construction Figure 3 Product specification process for different variants of building
projects (Kalbro et al., 2009). system

Factory (prefabrication) versus on-site

production: current trends
As in other Western countries, (Latham, 1994; Construction
Taskforce, 1998; Huang et al., 2009), the construction
industry in Sweden has been accused for low productivity and
the Government has set up public investigations scrutinizing
said industry, (SOU 2002:115, 2002; SOU 2009:6, 2009).
The Swedish construction industry has replied by launching
new systems for building multi-family houses, hereafter
referred to as building system, in an attempt to make the
construction process more efficient. However, some of these
attempts have been closed down after unsuccessful
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introduction on the market.

Factory (prefabrication) processes and lean production
concepts have successfully been adopted in Japan (Gann,
1996). Also, approximately 74 percent (between 1990 and
2002) of the detached single houses are still manufactured in
permanent factories in Sweden. From a market point of view,
this indicates that a traditional manufacturing approach could
have potential for the whole housing industry (Bergstrom and
Stehn, 2005). One distinct difference between the detached
single-house market and the production of multi-storey
houses is the way business is organized. Build-operate/own-
transfer forms of contract including responsibilities to fulfill
performance requirements to end users predominate the
detached single house market while design-bid-build or
design-build contracts between actors in the project and the
professional client representing the end user are common in
multi-dwelling housing projects. This greatly affects the
possibility of introducing building system on the multi-
dwelling housing market. In the case of the detached single-
house market the manufacturer is at the focal point of the
supply/demand chain whereas in the case of a design-bid-
build project the professional client acts as system integrators
in the supply chain (London and Kenley, 2000).
New industrialized building systems have been introduced
by construction companies on the Swedish market in the last
decade (Andersson et al., 2009; Gerth, 2008). A serious
obstacle for the successful introduction is the possibility to
configure the building according to project requirements
considering the constraints imposed by the building systems
(Andersson et al., 2009). The traditional design-bid-build
project often leads to requirements on technical solutions that
can be hard to fulfill for the industrialized builder. This often
leads to ad hoc customization of the building system that in
the worst case are more costly to perform compared to the
traditional on-site construction (Andersson et al., 2009).
Make-to-stock, assemble-to-order, make-to-order,
engineer-to-order are distinctions in traditional
manufacturing to differentiate how deep in or up-streams,
in the manufacturing process the customer order determines
the actual production. In traditional manufacturing the
decoupling point is the boundary between make-to-order
and make-to-stock. The system integrator does not complete
a product that will be delivered to a stock; even if the
product is built on speculation with end-users not known.
Construction concepts and projects also show different
preparations before the customer order arrives and before
realization of the project. Figure 3 shows four different kinds
of product specification processes before the customer order
arrives, where the customer order decupling point are
represented with a line dividing the product development of
the building system from the specification process of the
specific project (Hvam et al., 2008). The dividing line
represents how up-streams the customers enter in the product
development process.
The first and lowest degree of a defined building system is
the well-known engineer-to-order where the AEC industry
design products in ordinary construction projects such as
dwellings, offices, arenas and plants/factories. The design
specification process is mainly based on client requirements,
norms and standards. Winch (2003) divided the engineer-to-
order further in concept-to-order and design-to-order
reflecting the two main contractual forms between the client
and the construction company; design-build and design-bid-
build respectively.
The modify-to-order decoupling point is here defined as
design using so called technical platforms. Typically,
construction technical platforms have a generic product
structure and constraints in measures and type of technical
solutions to be used, such as standardized floor heights, a
selection of approved technical solution of outer and inner
walls and window types etc. The major Swedish construction
companies have recently introduced these types of technical
platforms on the market, e.g. Skanska Xchange, NCC
Bostadsplattform, PEAB PGS (Andersson et al., 2009).
The introduction of these kinds of building system requires
cooperation between the principal designer and the principal
constructor owning the building system and acting as system
integrator on behalf of the professional client.
There are also a number of companies working with
standard products in the construction industry, especially in
the detached single house market where the customer select-
a-variant from a certain product portfolio often with only
minor possibilities of customization. The recently developed
building system, the Skanska ModernaHus, consist of three-
to eight-storey dwellings with eight possible floor layouts and

350
 Supply chains in the construction industry
Anders Segerstedt and Thomas Olofsson
options including energy performance and exterior design.
This kind of building product is sold directly to the client or
developer. The role of the principal designer is replaced by
sales staff. It further requires that the product can be
introduced early in the conceptual phase of the construction
project.
The configure to order type of product offers are based on
modules and standard parts that can be configured to satisfy
customer needs. These type of building systems are relative
uncommon. The NCC Komplett is an example of a more
flexible and configurable building system that recently was
closed down due high development cost and poor return on
investment (Andersson et al., 2009). The system was quit
flexible and consisted of configurable modules with all
equipment, fittings, wallpaper and flooring attached to the
elements before assembly on-site. As in the select-a-variant
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the configure-to-order system requires direct access to clients
in the conceptual phase of the construction project.
Of the described building systems above, the select-a-
variant and configure-to-order type of building systems affect
the traditional business process with the professional clients
the most. One possible solution for the industrialized builder
is to offer generous framework agreements with big clients
from which the client can call-off apartments when needed.
This type of arrangements is coming into practice by some of
the major property owners in Sweden (Andersson et al.,
2009).
Concluding remarks and introduction of special
issue
This volatility of market demand and increased complexity is
one cause for fragmentation of the construction industry
where subcontracting and rental of expensive equipment been
a way of risk mitigation for construction companies. The
major distinction between construction and manufacturing is
that the construction industry is project-based and of
discontinuous nature, while manufacturing industries
involve continuous processes and relationships. While the
majority of contributions involving supply chain relationships
in management and marketing literature deal with continuous
exchanges in long-term buyer-supplier relationships
(Claycomb and Frankwick, 2010), there is a lack of
research on discontinuous exchanges in project-based
industries, such as the construction industry (Crespin-Mazet
and Ghauri, 2007). Management of supply chain
relationships is, however, especially problematic in project-
based industries due to; the discontinuity of demand for
projects, the uniqueness of each project in technical, financial,
and socio-political terms, and the complexity of each project
in terms of the number of actors involved (Skaates et al.,
2002). Also, the recent development of modular building
system opens new research opportunities in the application of
supply chain modularity in construction (Voordijk et al.,
2006). This special issue therefore serves as a source of
scientifically generated knowledge regarding various problems
and opportunities associated with supply chain management
in the project-based construction industry. The special issue
includes the following contributions:
351
Supply Chain Management: An International Journal
Volume 15 Number 5 2010 347 353
Andreas Hartmann and Jasper Caerteling,
Subcontractor procurement in construction: the
interplay of price and trust
A key characteristic of the construction industry is a huge
amount of subcontracting. Subcontractors supply drawings,
labor and material and transform order-related specifications
into physical components that will be included in the
construction projects. Selecting appropriate subcontractors
and managing subcontractor relationships is very important
for an efficient project performance. From about 200
questionnaires from the Dutch residential building industry
the authors conclude that neither price nor trust can be
downplayed as sole procurement mechanisms. The study
shows what is more, and what is less important. We have no
doubts about that most of this study in The Netherlands
would also be found applicable to Sweden and other nearby
cultures, and a lot of it also to more different cultures. This
study may trigger, and be extended to, similar studies in other
countries.
Charlene Xie, Dash Wu, Jianwen Luo and Xiaoling Hu,
A case study of multi-team communications in
construction design under supply chain partnering
Based on a previous survey result a study is performed to
investigate communication issues and problems in the design
and construction of a new shopping centre. Multiple research
methods including questionnaire survey and interview are
employed to explore how supply chain partnering
procurement influences the team communications. A total
of 26 participants, who were identified as communication
stars, were asked to take part in two rounds of questionnaire
survey and interviews. One important finding is that co-
location is still important despite new techniques of
communications. Another is that partnership provides a
friendly and free environment for communication, but
communication overload can occur if there is not a proper
communication protocol established.
Pierre Hadaya and Robert Pellerin, Determinants of
construction companies use of web-based
interorganizational information systems
Information technologies (IT) may be beneficial to the
construction industry by linking main contractors with their
subcontractors, by reducing the response time and by
enabling companies to expand their activities into new local
and international markets. But, studies have concluded that
IT is less used in the construction industry than in other types
of industry. A survey is performed with 67 senior managers of
Canadian construction companies. Characteristics of the
organization and characteristics of its supply chain are the
main determinates investigated. One interesting finding is that
technology experts do not seem to play the role of opinion
leaders and change agents in the adoption of IT in the
construction sector. Another is that construction companies
will more likely use web-based transactional processes with
those strong supply chain relationships that can provide them
with a competitive advantage.
Lars Bankvall, Lena E. Bygballe, Anna Dubois and
Marianne Jahre, Interdependence in supply chains
and projects in construction
Researchers have claimed that the construction industry
suffers from poor performance. Supply chain management
 Supply chains in the construction industry
Anders Segerstedt and Thomas Olofsson
(SCM) and related concepts such as partnering and lean
construction have been proposed as solutions to these
problems. The authors define, or point to, three different
types of supply chain dependencies; pooled interdependencies
(e.g. two specialists share a crane), sequential
interdependencies (the traditional production process of
material and components), reciprocal interdependencies (the
output of each become inputs for the others). A plasterboard
supply chain in a specific construction project is studied. An
interesting finding, and hypothesis for further confirmation, is
that better planning, synchronization and flexibility is more
important than supply chain integration for a better
performance. This is due to the comprehensive reciprocal
interdependencies in construction industry
Per Erik Eriksson, Improving construction supply
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chain collaboration and performance: a lean
construction pilot project
Lean thinking has not yet been widely adopted in the project-
based construction industry, as compared to many other
industrial settings, as a means for improving supply chain
performance. The article aims to increase the understanding
of how various aspects of lean thinking can be implemented in
a construction project and how they affect supply chain actors
and their performance. Based on a literature review and an
action research case study in Sweden, the author theorize and
extend an existing three stage lean construction model that
can be used as a guide when implementing lean thinking in
construction projects. The empirical data provide practical
illustrations of how lean construction can be managed and
how it affects supply chain actors and their performance.
Based on the case study it is concluded that partnering is a
suitable basis for developing lean construction from the
collaborative second stage to the more sophisticated third
stage, that is, full-fledged lean construction.
Hans-Martin Lonngren, Christoph Rosenkranz, Harald
Kolbe, Aggregated construction supply chains: success
factors in implementation of strategic partnerships
The article presents a network of German construction
companies whose goal is to cover the entire life cycle of a
building, from its design, planning to its final facility
management. The authors focus on the establishment and
implementation of this strategic alliance and its success
factors. The key factors of success in such a strategic alliance
within the construction industry are: a central coordination
among partners but using decentralized task managements;
an appropriate IT-solution; and mutual trust among
cooperating partners.
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Corresponding author
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ltu.se
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