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4 Major Types of Sourcing Strategies in the Construction Industry

The construction industry encompasses many unique challenges, particularly in sourcing materials for their complex projects. From building a single custom home to being responsible for an extensive housing development or a towering skyscraper, much of the success (and the profitability) of a construction project rests on the shoulders of the team responsible for sourcing the materials for its projects.

Typical factors that other industries have to deal with come into play, such as the suppliers, cost, quality, and availability of raw (building) materials. But construction can be far more complex because of many other variables unique to the construction industry, including weather, the condition of the building site, and the availability of skilled trades. Also, many construction projects involve multiple parties. Some are stakeholders, some will be contracted for specific stages of the project, and some may be partners.

With so many possible variations in scale and approach, not every construction project uses the same sourcing strategy. Here are four of the most common.

Traditional Sourcing Practices

When the contractor for a construction project is responsible solely for the building component of the project, traditional sourcing practices are often used. Under this model, the design and major decisions are made by an engineering or consulting firm that runs the overall project. The contractor is responsible for sourcing any required labor, materials, and heavy equipment rentals—but they do so under cost limits and timelines set by the firm that is running the project.

Management Contracting

A construction project that can be broken down into defined components frequently employs a management contracting approach to sourcing. With management contracting, there is essentially an additional layer added to the organization. The client and an engineer or consultant are still there, but the project general contractor takes on responsibility for managing the overall project. Subcontractors or specialized contractors are hired to undertake the various components of the build, reporting up to the general contractor. 

Naturally, this approach also adds to the complexity of sourcing. Among the major challenges is undertaking sourcing for the project when one party is responsible for build and delivery, while another is responsible for the financial aspects.

Design and Build

Many home buyers hire a contractor who is responsible for both designing and building their home or building. A consultant is often brought in to oversee and manage the contract terms. But, the contractor is responsible for all aspects of the design and construction of the project—within the limits of the budget and timeline set out in the contract.

This is where a design and build approach to sourcing is typically employed. The contractor, the client, and the consultant will need to collaborate closely. The contractor will carry the risk of the project, so they will want to make sure they have a firm grasp of material, services, and subcontracting costs. Any cost over-runs are usually the responsibility of the contractor, making their sourcing team even more critical to the profitability of the project.

Working As Partners Or a Joint Venture

Collaboration is a valuable approach in the construction industry. Companies that work together on a successful project may decide to expend that relationship, working in partnership or on joint ventures going forward.

This approach requires a considerable adjustment to the sourcing process for all the companies involved. Which procurement department is responsible for which aspects of which projects? One department might have a superior relationship with a supplier, which would make it advantageous for them to be responsible for that aspect of sourcing.. Collaboration plays a key role for procurement teams to keep costs down, quality high, and projects on time.

Arkestro Supports All Construction Industry Sourcing Strategies

When you look at the four most common sourcing strategies used by the construction industry, a few things jump out.

First, we see the procurement team for a construction project tracking a lot of variables that can change rapidly. Many of these factors are subject to outside forces, such as bad weather. There’s no better example of this variability than what’s happened to the price and availability of lumber during the coronavirus pandemic. Lumber mills were shut down during pandemic lockdowns; then, many homeowners decided to embark on home renovation projects. As a result, lumber has been in short supply nationwide. According to Market Watch, the price of lumber has also increased by up to 60%.  

The procurement departments at construction companies have been scrambling to source the lumber needed for projects. Supplier relationships and the ability to negotiate deals quickly are critical to avoid having a project held up because of a lack of material.

Perhaps the bigger takeaway from the different construction industry sourcing strategies is the importance of collaboration and transparency. In most cases, procurement departments don’t work alone; they work in tandem with the sourcing team at other companies involved in a project. If the procurement teams don’t work together, they miss out on opportunities like volume discounts.

Strategic Sourcing Software for the Construction Industry

Arkestro is a Predictive Procurement Orchestration platform that’s ideal for the construction industry, no matter what sourcing approach is chosen. 

Arkestro is a centralized, up to date supplier database with the ability to manage the full supplier relationship using messaging, tasks, reminders and file sharing. Providing visibility to enable your organization to make true apples-to-apples comparisons and award decisions to get better quotes faster. 

In addition to the design and features that support companies that are collaborating or partnering on projects, Arkestro saves money. The AI-powered software supports advanced features like automated processes to reduce staff time spent on repetitive tasks. Artificial Intelligence also means Arkestro offers a key competitive advantage: intelligent first offers that allow sourcing teams to award contracts faster than competing negotiators, and with better pricing outcomes. 

If your organization is in the construction industry, your sourcing team will be far more efficient, effective, and engaged using Arkestro. Whether building single homes, towers, or housing developments, schedule a demo to see how Arkestro can take the stress off the shoulders of your team. 

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Rob DeSantis

Founder

As a former co-founder of Ariba running sales, Rob has deep expertise in the procurement space, having helped propel Ariba from zero to $250 million in revenue in four years and IPO of the year in 1999 before its acquisition by SAP a decade later. In addition to co-founding Ariba, Rob was also an early angel investor and board member of LinkedIn, the world’s largest professional online network.

More recently, Rob served as an investor and advisor to a small portfolio of companies including Bloom Energy, AEye, Inc., HiQ Labs, Agiloft, USEND and more. He is also a co-founder of Dibbs Technology and TrueParity. Rob holds a BSME from the University of Rhode Island.

Marty Meyer

Chief Financial Officer

A trusted partner and advisor on the executive team, Marty has a unique background having been the CFO of nine venture backed technology companies. Marty has raised over $300M in venture funding and has closed six strategic M&A transactions with a combined value of over $1B. Marty has deep domain expertise in ecommerce, consumer internet, networking, data security, data privacy, media technology and enterprise software industries. Marty is especially experienced in the finance and operations activities of SaaS companies and is driven by data and metrics to help create outstanding customer experiences and drive efficient growth.

Neil Lustig

President and Chief Operating Officer

Neil is a seasoned executive with over 30 years of experience leading and building teams in Tech. Neil brings insights from a variety of market spaces and company sizes. Most recently Neil was the CEO of GAN Integrity, an innovative SaaS Compliance technology company serving enterprise customers in North America and Europe. Before that Neil was the CEO of Sailthru, a leader in ML driven personalized multi-channel marketing communications for media and e-commerce markets. Prior to that Neil was the CEO of Vendavo, the leader in B2B price optimization and management for large enterprises. Before Vendavo, Neil led the commercial team at Ariba, the market pioneer that defined and created the eProcurement space. Neil served as the GM of Ariba Europe and subsequently the GM of Ariba North America. Neil started his career at IBM where he spent sixteen years, initially as a software developer, and then twelve years in a variety of Sales and Marketing roles

 

Neil has a BS in Computer Science and Applied Mathematics from SUNY Albany. He is a native New Yorker, Brooklyn born, and still resides with his wife and three children in New York City.

Bonnie Adams

Director of People Operations

Bonnie is a People Operations and HR veteran, with over a decade of experience establishing successful people and culture functions for early to mid-stage tech startups going through high growth phases. She has a passion for supporting and creating inclusive and collaborative work environments and is well-versed in driving positive changes in her organizations as a trusted leader. Prior to joining Arkestro Bonnie worked as the People & Culture Coordinator for Ionic Security, helping them scale from 5 to over 200 employees in addition to a $120M funding round. Most recently she was the Head of People & Culture for blockchain innovator Storj Labs and was the Director of Human Resources at PrizePicks, the largest independently owned Daily Fantasy Sports platform in North America.

Arym Diamond

Chief Revenue Officer

Arym Diamond joined Arkestro in January 2022 bringing over 20 years of experience in the enterprise software and consultancy industry.  He is responsible for the worldwide go-to-market revenue strategy. Prior to Arkestro, Arym was Chief Revenue Officer at CalAmp focused on Telematics and Logistics. He also served as the area vice president of North American Sales within the Salesforce.com Enterprise Business unit for Einstein Analytics & AI, where analytics and machine learning were re-imagined for the front office.  Prior to that, he spent over 10 years at Oracle in various sales positions. Arym holds an MBA from the University of Southern California Marshall School of Business, and an undergraduate degree from California State University.

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