Understanding construction supply chains: A multiple theoretical approach to inter-organizational relationships in construction

The transaction cost economics (TCE) approach has been applied often as a basis for the analysis and explanation of the functioning and organization of construction processes and supply chains. The objective of this paper is to develop a more complete theoretical framework to better understand inter-organizational relationships (IOR) in construction supply chains from a multi-disciplinary perspective. The starting point of this paper is the observation that the TCE perspective alone is too narrow to fully explain and understand construction supply chains. In addition to TCE, three additional perspectives are introduced to explain the organization and functioning of supply chains: production and operations management (POM), network theory, and the language/action (L/A) perspective. The POM perspective shows that an organizational form of production must be aimed at the general objective of value creation for customers, not merely on the economic argument of minimizing transaction costs. Both TCE and POM, particularly address bilateral inter-firm business relationships and do not include the complexity of wider industry networks, and additional factors of multiple inter-firm relations. Finally, TCE, POM as well as network theory disregard the dynamics associated with the recurrent process of language and action between firms and individuals. In the paper, the theoretical principles of the four perspectives are used to explain IOR in construction supply chains. Next, the four perspectives are mapped and classified in a theoretical framework, including additional directions for the further development of the framework. It is concluded, however, that the framework may still be too incomplete to fully explain and understand the organization and functioning of IOR in construction supply chains, and that a more complete theoretical paradigm is needed.