Sourcing portfolio analysis and power

positioning: towards a “paradigm shift” in

category management and strategic sourcing
Andrew Cox
International Institute for Advanced Purchasing and Supply (IIAPS), Stratford-upon-Avon, UK

Abstract
Purpose – The paper aims to present the case for a “paradigm shift” in current thinking about how to undertake category management and develop
sourcing strategies using power positioning techniques. The case is made based on the growing evidence of a mismatch between currently dominant
academic and consulting methodologies and the reality of professional managerial practice.
Design/methodology/approach – The paper provides a critique of the currently dominant thinking about how to conduct category management
and strategic sourcing using the Kraljic Purchasing Portfolio Analysis methodology and the more recent Purchasing Chessboard approach. The
critique focuses on their lack of analytical rigour when segmenting categories of supply, and their lack of robustness when making practical
recommendations for managers when developing sourcing strategies.
Findings – The paper demonstrates how (building on the initial power positioning approach outlined, but not fully developed, by Kraljic) a new
approach to portfolio analysis can be developed. Sourcing Portfolio Analysis identifies over 30 strategic sourcing strategies for managers to utilise.
Using a simple case study, the power of this new methodology to provide managers with more comprehensive and effective sourcing strategies is
demonstrated.
Research limitations/implications – Because of the power of this new approach, and the need to challenge existing methodologies, researchers
are encouraged to utilise it and try help to generate a “paradigm shift” in current thinking within the profession.
Practical implications – The paper provides the basis for a future more strategic supply management, rather than the currently tactical spend
management, approach to sourcing.
Originality/value – This paper provides a new approach to portfolio analysis.
Keywords Sourcing, Procurement, Collaboration, Buyer–supplier relationships, Supplier relationships, Purchasing power
Paper type Viewpoint

Issues with current category management and Purchasing portfolio analysis

strategic sourcing methodologies
In the past 30 years, the most commonly used methodology
for undertaking category management and developing
sourcing strategies has been Purchasing Portfolio Analysis
(Kraljic, 1983). More recently, AT Kearney developed an
adaptation of this methodology known as The Purchasing
Chessboard (Schuh et al., 2008). While there are significant
analytical differences between these two approaches, they
essentially operate with the same conceptual paradigm when
making recommendations about how managers should
develop sourcing strategies and tactics. In what follows, a brief
summary is provided of some of the key weaknesses recently
identified in the analytic rigour and logic of these two
methodologies (Cox, 2014).
The current issue and full text archive of this journal is available on
Emerald Insight at: www.emeraldinsight.com/1359-8546.htm
This approach to category management and strategic sourcing
(Figure 1) recommends managers to analyse Supply Market
Complexity (High/Low) and then the Importance of the
Purchased Item (High/Low) to identify alternative sourcing
strategies and tactics. Since the 1980s, this approach has been
the technique most commonly recommended to guide
managerial action (Booth, 2010; Carter, 2006; Cousins et al.,
2008; Flynn, 2006; Lysons and Farrington, 2012; Monczka
et al., 2005; O’Brien, 2009; Van Weele, 2009).
This methodology recommends four basic sourcing
strategies depending on the category segmentation:
1 Strategic: Develop long-term collaborative relationships;
2 Leverage: Regularly market test and bid volumes;
3 Bottleneck: Assure supply; and
4 Non-critical: Reduce transaction costs.
To assist with effective implementation, each of the four
strategies is supported by between 8 and 14 tactics. Once a
particular supplier (or suppliers) has been identified, the
methodology also recommends that the power balance
between them be understood, so that buyers can use one of
three negotiation strategies (Diversify, Balance or Exploit).

Supply Chain Management: An International Journal

20/6 (2015) 717–736 Received 17 June 2015
© Emerald Group Publishing Limited [ISSN 1359-8546] Revised 19 August 2015
[DOI 10.1108/SCM-06-2015-0226] Accepted 20 August 2015

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 Sourcing portfolio analysis & power positioning Supply Chain Management: An International Journal
Andrew Cox Volume 20 · Number 6 · 2015 · 717–736

Figure 1 Purchasing portfolio analysis and not what is critically important to the organisation
strategically (value for money from supply). This has resulted in
a focus on cost reduction and tactical spend management rather than
High
BOTTLENECK STRATEGIC value for money trade-offs and strategic supply management (Cox
and Ireland, 2015a, 2015b).
• High Complexity / • High Complexity /
Few Suppliers Few Suppliers Limited analysis of evaluation criteria for supply market complexity
• Low Value / Non-Critical / • Low Value / Critical / The analysis of evaluation criteria for understanding Supply
Scarce Items Scarce Items Market Complexity (and therefore potential opportunities and
• Ensure Short
Short-term
term • Long-term
Long term Collaboration / risks) is underdeveloped. The methodology is overly reliant on
Market
Complexity of

Availability Strategic Impact the early work of Porter (1979, 1980), and, while it identifies six
criteria for analysis, it fails to accommodate recent developments
Supply

in the analysis of structural market dynamics, or the critically

NON-CRITICAL LEVERAGE
important recent insights into information asymmetry by
C
S

behavioural economists. This leads to an overly-simplistic

• Low Complexity / • Low Complexity /
Many Suppliers Many Suppliers
• Low Value / Non-Critical / • High Value / Critical /
Abundant Items Abundant Items
Low • Short-term Functional • Short-term Cost
Efficiency Leverage & Bidding
Low
Importance of
High
Purchasing
Source: Adapted from Kraljic (1983, p. 111)
Despite the centrality of this approach since the 1980s, in a study
of 122 companies in 16 industrial sectors, it was shown that very
few organisations were even aware of the Purchasing Portfolio
Analysis methodology (Cox et al., 2005). Similarly, when
working closely with managers, it is apparent that very few of
those using this methodology slavishly follow its dictates. In
practice, managers often “cherry-pick”. This means that they
adopt and/or adapt any of the strategies and tactics recommended
within the four-box methodology to suit themselves, irrespective of
what the methodology recommends they should do.
It follows, therefore, that there is a major disconnect between
theory and practice. More worrying, however, is the evidence of
“cherry-picking”. If this occurs, then managers are either
pursuing strategies that are “theoretically wrong” (that should in
practice lead to sub-optimal outcomes), or the theory and
methodology itself is wrong. This is because it does not provide
logically coherent practical guidance for managers to use. It is our
view at the International Institute for Advanced Purchasing and
Supply (IIAPS) that the fault is with the theory rather than with
managerial practice. This is because this approach, while having
some solid foundations (such as an embryonic power positioning
methodology), is based on a faulty analytic logic that results in
inappropriate recommendations for action.
Given limited space, only a few examples can be presented
of this faulty logic and lack of rigour and robustness, a more
detailed discussion is provided in Sourcing Portfolio Analysis
(SPA; Cox, 2014). The major gaps in analytic rigour
identified in the Kraljic methodology include the following.
A simplistic analysis of category value
By focusing only on High or Low Importance of Purchased Item, a
simplistic understanding of category value is created.
Furthermore, in practice managers tend to see this as a
euphemism for the key performance indicators (KPI) by which
the Procurement Function is currently measured (cost savings),
analysis of the complexity of the supply market to be managed.
Erroneous focus on supply market complexity rather than buyer and
supplier exchange
Perhaps the gravest error is the analytical focus on Supply
Market Complexity itself. This is because buyers have sourcing
relationships with suppliers, and not with supply markets per
se. In practice, if a buyer selects one or many suppliers to
market test, then this is the “supply market” that they are
choosing to source from. While the overall competitive forces
within a supply market may impact the strategies of a buyer
and its suppliers, it is the actual and/or perceived power
balance between the specific buyer and the suppliers actually
chosen for a market test that should be the primary focus of
analysis, rather than the “general” supply market that is not
directly involved in the relationship. Arguably, this type of
analysis can only be achieved using positioning techniques
that focus on the relative dyadic power and leverage between
the buyer and each potential and/or actual supplier. This is
because the power and leverage positions of specific suppliers
can vary widely with a particular buyer in a supply market.
Lack of comprehensive identification of buyer and supplier power
and leverage scenarios
The methodology does provide an embryonic identification of
nine power positions and three negotiation strategies, but this
analysis is not fully comprehensive. Only six primary and 20
subsidiary evaluation criteria are identified for determining
buyer strengths without any methodology provided to explain
how to utilise the criteria as part of the power positioning
methodology. The weakness of this approach is shown by the
fact that IIAPS has identified well over 100 evaluation criteria
to determine buyer and supplier power positions (Cox, 2014).
These lacunae lead, ultimately, as briefly outlined below, to
a lack of robustness in specifying buyer and supplier power
scenarios and inappropriateness in many of the sourcing
strategy recommendations made.
Limited range of strategic sourcing options and tactical levers
identified
The methodology identifies only four sourcing strategies with a
limited number of tactics, yet other positioning methodologies
have identified 4 strategies and up to 64 methods/tactics (see
below and Schuh et al., 2008); and IIAPS works with 32
strategies and over 100 tactics (see below and Cox, 2014).
Inappropriate and/or misguided strategic sourcing recommendations
One of the major problems with all positioning methodologies

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Andrew Cox
is the desire to provide specific strategies and tactics for
particular segmentation positions. This desire often leads to
an over-simplification of the complex choices that managers
must make, and a failure to provide them with all of the
strategic and tactical options that are potentially available
given the circumstance in which they find themselves. One
simple example reveals this issue.
Purchasing Portfolio Analysis contends that long-term
collaborative relationships should be used in the Strategic
quadrant. Unfortunately, this recommendation is based on a
faulty logic. If a buyer has a long-term need for any supply
item, entering into longer-term relationships is always an
option. This means that collaborative ways of working are
always potential options in many other quadrants. Indeed,
there is considerable evidence that best practice in
collaboration often occurs in the Leverage quadrant (Shimizu,
1996; Cox and Chicksand, 2008).
It is also worth stressing that recommending collaboration
in the Strategic quadrant is itself highly questionable. This is
because the worst position for a buyer to be in is to have to
source a strategically important supply requirement from a
dominant monopolist supplier. It is not clear why such a
dominant supplier should want to collaborate and pass more
value to a buyer. Arguably, the potential strategic and tactical
choices available to suppliers are much more complex than
this, and adopting strategies that create increased competition
should always be the first requirement in the Strategic scenario,
rather than the collaborative one identified.
Incoherence in exclusivity of tactical levers
The methodology also over-simplifies the choices for
managers when identifying particular tactics to be used within
each of the four positioning scenarios because many of the
tactics identified can be used just as effectively in all four of
them. This issue is clear in the Strategic quadrant where the
main tactics identified for buyers are as follows:
● accurate demand forecasting;
● detailed market research;
● development of long-term supply relationships with
established global suppliers;
● make or buy decisions;
● contract staggering;
● risk analysis;
● contingency planning;
● logistics, inventory and vendor control;
● highly detailed market data;
● long-term supply/demand trends;
● good competitive intelligence; and
● industry cost curves.
It can be argued, however, that most, if not all, of the tactics
above are just as relevant for the effective management of any
category as they are to those characterised by High Purchasing
Importance and High Supply Market Complexity. This is because
most of these tactics are essential elements of the effective
management of ALL supply relationships. There are similar
problems about a lack of uniqueness for many of the tactics
identified by this methodology in the other three quadrants of the
positioning matrix.
If the Purchasing Portfolio Analysis positioning methodology
is neither fully rigorous analytically nor fully robust in its
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Volume 20 · Number 6 · 2015 · 717–736
recommendations for action, then it is inevitable that it will
lead to potential sourcing errors by those using it or to
“cherry-picking”. A similar problem of logical incoherence
with options and recommendations can be found in The
Purchasing Chessboard (Schuh et al., 2008).
The purchasing chessboard
This methodology is an attempt to create a more sophisticated
positioning approach that uses the four power positions
identified in The Power Matrix (Cox, 2001a, 2001b, 2001c;
Cox et al., 2000, 2002) and outlined in Figure 2.
Unfortunately, as Figure 3 shows, the methodology then
recommends the same four sourcing strategies as in Purchasing
Portfolio Analysis, each with four unique approaches and 16
tactical levers, or 64 overall methods in total for “reducing costs”.
Unfortunately, while all of the 64 methods described are
undoubtedly tactical levers that a buyer might use with
suppliers, there are serious problems with these positioning
recommendations. The single major error in the logic of this
approach is that the authors do not appear to understand that
the Power Matrix was developed as a critique of the Purchasing
Portfolio Analysis approach and its recommendations for action
(Cox et al., 2003, 2004). In particular, the authors of the
Power Matrix argued that collaboration is a feasible option in
at least three of the power positions and not, as argued in
Purchasing Portfolio Analysis, in just one.
As a result, The Purchasing Chessboard makes the same errors
of logic inherent in Purchasing Portfolio Analysis, and there are
a number of additional weaknesses. These include:
● the power resources that are identified to guide positioning
are extremely limited and never fully clarified; and
● the importance of specific power resources for particular
sourcing selection decisions is never explained.
This means that the analytic rigour of this methodology is in
serious doubt, and there are fundamental issues with the
recommendations of methods to be used in each of the four
basic sourcing strategies. This is because few of the 64 methods
recommended in Figure 4 are unique to a particular sourcing
strategy, and they are often feasible options in more than one
power scenario, as the analysis below indicates.
● Usable methods in all four power scenarios: 2, 3, 4, 5, 8, 10,
12, 13, 14, 15, 16, 18, 19, 20, 21, 22, 23, 24, 25, 26, 28,
29, 30, 31, 32, 33, 37, 38, 41, 42, 45, 46, 49, 50, 51, 52,
53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64.
● Usable methods in two or three power scenarios: 1, 6, 7, 9, 11,
17, 27, 34, 35, 36, 39, 40, 43, 44, 47, 48.
● Usable tactics in only one of the four power scenarios: None.
As result of this incoherence, it is hardly surprising that managers
often simply prefer to “cherry-pick” whichever tactical levers/
methods appear to be useful, and attach them to whichever
strategic sourcing options they have decided makes sense. More
worrying perhaps, as explained below, is the fact both these
methodologies focus primarily on static forms of leverage.
Static, non-dynamic logic
Although the need to change (Diversify) power circumstances
is discussed briefly in Purchasing Portfolio Analysis, the overall
thrust of this, and The Purchasing Chessboard methodology, is
still primarily on what buyers ought to do given their current
segmentation circumstance. As a result, managers using these
 Sourcing portfolio analysis & power positioning Supply Chain Management: An International Journal
Andrew Cox Volume 20 · Number 6 · 2015 · 717–736

Figure 2 The power matrix

LEVERAGE ALLIANCE
(BUYER DOMINANCE) (INTERDEPENDENCE)
High
• Few buyers/few suppliers
• Few buyers/many suppliers
• Buyer has relatively high % share of market for
• Buyer has high % share of market for supplier
supplier
• Supplier is highly dependent on buyer for
• Supplier is highly dependent on buyer for
revenue with few alternatives
revenue with few alternatives
• Supplier’s switching costs are high
• Supplier’s switching costs are high
• Buyer’s switching costs are low
• Buyer’s switching costs are high
• Buyer’s account is attractive to supplier
• Buyer’s account is attractive to supplier
• Supplier’s offering is standardised commodity
• Supplier’s offering is relatively unique
• Buyer’s
y search costs are low
• Buyer
Buyer’s
s search costs are high
Power

• Supplier has no information asymmetry

• Supplier has moderate information asymmetry
Resources

advantages over buyer

advantages over buyer

MARKET DEPENDENCY
Buyer

(INDEPENDENCE) (SUPPLIER DOMINANCE)

B

• Many buyers/many suppliers

• Many buyers/few suppliers
• Buyer has relatively low % share of market for
• Buyer has low % share of market for supplier
supplier
• Supplier has no dependence on buyer for
• Supplier has little dependence on buyer for
revenue and has many alternatives
revenue and has many alternatives
• Supplier’s switching costs are low
• Supplier’s switching costs are low
• Buyer’s switching costs are high
• Buyer s switching costs are low
Buyer’s
• Buyer’s account is not particularly attractive to
• Buyer’s account is not particularly attractive to
supplier
supplier
• Supplier’s offering is relatively unique
• Supplier’s offerings is standardised commodity
Low • Buyer’s search costs are very high
• Buyer’s search costs are relatively low
• Supplier has substantial information asymmetry
• Supplier has very limited information
advantages over buyer
asymmetry advantages over buyer

Supplier Power
Low High
Resources
Source: Cox (2014, p. 94)

Figure 3 Construction of the chessboard

The Power Matrix The Chessboard Kraljic

High High Difficult BOTTLENECK

LEVERAGE ALLIANCE HIGH HIGH DEMAND & STRATEGIC
SUPPLY POWER SUPPLY POWER
• Few Suppliers • Few Suppliers
• High Buyer Power • High Buyer & CHANGE SEEK JOINT • Low Level of • High Level of
Supplier Power Spend Spend
• Buyer Maximises NATURE OF ADVANTAGE
Value • Share Value DEMAND WITH SUPPLIER • Contingency • Relationship
Supply Planning Management
Buyer Supply
Market
Power Power
LOW SUPPLY & HIGH Complexity
MARKET DEPENDENCY DEMAND POWER DEMAND POWER
NON-CRITICAL LEVERAGE
• Many Suppliers • Many Suppliers
• Low Buyer & • High Supplier LEVERAGE
Supplier Power Power • Low Level of • High Level of
MANAGE COMPETITION Spend
p Spend
p
• Market Outcomes • Supplier Maximises SPEND AMONGST • Simplify • Competitive
Low Determines Value Value Low SUPPLIERS Easy Transactions Tendering

Supplier Demand Purchasing

Low High Low High Low High
Power Power Importance

Source: Cox (2014, p. 44)

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Figure 4 Purchasing chessboard sourcing recommendations

16 METHODS 16 METHODS
1 = Invention on Demand 33 = Value Chain Reconfiguration
2 = Leverage Innovation Network BOTTLENECK / 34 = Revenue Sharing
3 = Functionality Assessment STRATEGIC / 35 = Profit Sharing
SUPPLIER
4 = Specification Assessment INTERDEPENDENCE 36 = Strategic Alliance
DOMINANCE
5 = Core Cost Analysis 37 = Supplier Tiering
6 = Design for Sourcing 38 = Sustainability Management
7 = Product Teardown STRATEGY STRATEGY 39 = Project-Based Partnership
8=D Design
i ffor Manufacture
M f t 40 = V l B
Value-Based dSSourcing
i
• Change Nature • Seek Joint Advantage
9 = Vertical Integration 41 = Collaborative Capacity Mangmt
of Demand with Suppliers
10 = Intelligent Deal Structure 42 = Virtual Inventory Management
11 = Composite Benchmarking 43 = Total Lifecycle Concept
12 = Process Benchmarking
4 LEVERS 4 LEVERS 44 = Collaborative Cost Reduction
13 = Bottleneck Management • Innovation • Value Chain Management 45 = Visible Process Organization
14 = Political Framework Management Breakthrough • Value Partnership 46 = Vendor Managed Inventory
15 = Product Benchmarking • Re-specification
f • Integrated
I t t dOOperations
ti 47 = Supplier Development
16 = Complexity Reduction • Risk Management Management 48 = Supplier Fitness Program
• Technical Data Mining • Cost Partnership

NON-CRITICAL / LEVERAGE /
16
6 METHODS
O S 16
6 METHODS
O S
INDEPENDENCE BUYER DOMINANCE
17 = Sourcing Community 49 = RFI/RFP process
18 = Buying Consortia 50 = Expressive Bidding
19 = Cost Data Mining 51 = Total Cost of Ownership
STRATEGY
20 = Standardisation STRATEGY 52 = Leverage Market Imbalances
21 = Procurement Outsourcing • Leverage Competition 53 = Supplier Market Intelligence
• Manage Spend
22 = Megag Supplier
pp Strategy
gy Amongst
g Suppliers
pp 54 = Reverse Auctions
23 = Master Data Management 55 = Price Benchmarking
24 = Spend Transparency 4 LEVERS 56 = Unbundled Prices
4 LEVERS
25 = Compliance Management • Co-Sourcing 57 = Make or Buy
• Tendering
26 = Closed Loop Spend Management • Commercial Data Mining 58 = Best Shoring
27 = Supplier Consolidation • Supplier Pricing Review 59 = Cost Regression Analysis
• Demand Management
28 = Bundling Across Generations • Globalization 60 = Factor Cost Analysis
• Volume Bundling
29 = Demand Reduction • Target Pricing 61 = Global Sourcing
30 = Contract Management 62 = LCC Sourcing
31 = Bundling Across Product Lines 63 = Cost-Based Price Modelling
32 = Bundling Across Sites 64 = Linear Performance Pricing

Source: Adapted from Schuh et al. (2008)

methodologies often believe that they have fully completed
their sourcing decision-making if they have successfully
identified in which of the four quadrants their category of
supply currently resides. The idea that they should be trying to
transform the current Supply Market Complexity to their
advantage in the future does not appear to occur to them.
As Figure 5 demonstrates, buying leverage requires not just the
acceptance of the current Supply Market Complexity but also the
ability to change it in the future, so that the buyer can extract
even more value for money from suppliers. Given this, the
ultimate goal of all buying activity is dynamic movement (Cox,
2001c, 2014).
This means that the buyer’s first task, after having analysed
their current supply market (and, preferably, power) position,
is to ascertain to what extent all categories of supply can,
whenever possible, be sourced from supply markets with low
complexity/supplier power rather than those with high
complexity/supplier power.
While it is only rarely possible to change the relative
importance to the business of a category of supply, the primary task
of buyers is to ascertain to what extent it is feasible in the
future to move from constraining market (or supplier power)
positions to more congenial leverage positions. This
movement is ultimately what is meant by the suppler
relationship management strategy of Diversify.
There are, however, few detailed strategies and/or tactics
identified within either of these two methodologies to explain
how buyers can move dynamically from less to more congenial
sourcing scenarios in the future. The Chessboard, in
particular, is silent about this issue, and although there are
allusions in Purchasing Portfolio Analysis about the need to
Diversify it is relatively silent about how to adopt the first
principle of leverage, which advocates moving out of high supply
market complexity to supply markets with lower complexity.
For these reasons, these methodologies fall someway short
of the rigour and robustness required for a comprehensive
guide to sourcing options selection. Buyers using this
methodology, normally do one, or more, of the following:
● identify and use only a very limited number of strategic
options and/or tactical levers;
● “cherry-pick” strategic options and tactical levers from any
of the quadrants; and/or in the worst cases; and
● develop and implement inappropriate sourcing strategies
and tactical levers.

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Figure 5 Dynamic leverage

1st Principle of
Leverage: High
BOTTLENECK STRATEGIC

Find ways to move into Easy • High Complexity / • High Complexity /

(Low Complexity) Supply Few Suppliers Few Suppliers
Markets whenever possible. • Low Value / Non-Critical / • Low Value / Critical /
Scarce Items Scarce Items
This means dynamically
• Ensure Short-term • Long-term Collaboration /
changing Power Positions to

Supply Market
y of
Availability Strategic Impact

Complexity
your advantage (Diversify).

NON-CRITICAL LEVERAGE
2nd Principle of
L
Leverage: • Low Complexity / • Low Complexity /
Many Suppliers Many Suppliers
If it is not possible to move to
• Low Value / Non-Critical / • High Value / Critical /
a Low Complexity Market Abundant Items Abundant Items
understand the current
Low • Short-term Functional • Short-term Cost
position and seek ways to Efficiency Leverage & Bidding
Exploit or Balance the
existing relationship. Importance of
Low Hig
gh
P
Purchasing
h i

Source: Cox (2014, p. 56)

SPA and power positioning Figure 6 The criticality matrix

To counter these perceived weaknesses, IIAPS has developed

es
an alternative approach to category management and strategic
Mission Critical Activitie
nue Generation/
sourcing. This methodology, known as SPA (Cox, 2014), is
briefly explained in what follows, although given the lack of
space the discussion focuses only on the strategic rather than STRATEGIC
STRATEGIC
Reven

the tactical options available for buyers to leverage improved CRITICAL

value for money from suppliers.
Commercial
y
Criticality

Criticality analysis
The starting point for category management in SPA is the
realisation that there is a need for a much more sophisticated
understanding of the types of categories of supply that must be
managed. Rather than focusing on the “importance” of a TACTICAL
supply item for “Purchasing” (with its emphasis currently on TACTICAL
CRITICAL
“categories of spend” and “cost savings”) SPA seeks to
Activitties
Support

understand the relative criticality of “categories of supply” to

the organisation, and how value for money from supply can be
achieved, This means understanding (Figure 6) the impact of
a supply item on both the Commercial and Operational goals of
the organisation.
By undertaking this analysis, four rather than two
segmentation possibilities are created, allowing for a much more
sophisticated understanding of the different types of categories of
supply that must be managed by organisations. This analysis is
essential because it plays a major role in identifying:
● who will be part of the sourcing strategy team;
● the level of engagement of stakeholders;
● the level of time and resource that will be devoted to a
specific sourcing strategy; and
● the types of value for money KPIs that are to be sourced.
As the Criticality Matrix demonstrates, there are four broad
criticality choices, with resourcing implications for category
team selection:
1 Strategic Critical: A strategic critical category will have a
significant impact on both operations and the commercial/
mission critical goals of the organisation. The total level of
expenditure may not be high, although it often is. Such
Low Operational High
Criticality
Source: Cox (2014, p. 113)
categories normally require extensive senior management
attention, with the highest levels of organisational
resource input in the sourcing process in terms of
expenditure, time and involvement.
2 Strategic: A strategic category will normally have only a
relatively low impact on operational delivery, but
nevertheless impact significantly on the strategic
commercial/mission critical goals of the organisation. The
total level of expenditure may not be high relatively. Such
categories do not normally require extensive senior
management attention, or the highest levels of
organisational resource input in the sourcing process in
terms of expenditure, time and involvement.
3 Tactical Critical: A tactical critical category will normally
have a significant impact on operational delivery, but not

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Andrew Cox
on the commercial/mission critical goals of the
organisation. The total level of expenditure may be
relatively high. Such categories normally require extensive
attention, but with only middle rather than senior
management participation in cross-functional teams. The
organisational resource input required in the sourcing
process, in terms of financial resources, time and
involvement of internal and external stakeholders, is
normally not as significant as that required for strategic
items.
4 Tactical: A tactical category will normally have only limited
significance for either operational delivery or the
commercial/mission critical goals of the organisation. The
total level of expenditure will not be high relatively. Such
categories normally require only limited attention, with
middle- and lower-level managers participating in ad hoc
teams. The organisational resource input required in the
strategic sourcing process, in terms of financial resources,
time and involvement of internal and external
stakeholders, is normally quite low.
These four ways of segmentation of categories of supply
provide a far more analytically rigorous approach to
category segmentation, not least because these provide a
guide to the resourcing, levels of analysis and work scopes
that buyers must engage in when developing sourcing
strategies. It also avoids many of the positioning errors
made by buyers forced into making simplistic choices as
between High (i.e. Direct/Production) and Low (i.e.
Indirect/Non-Production) categories.
Static power positioning and sourcing strategies
One of the ironies of the Purchasing Portfolio Analysis
methodology is that it provided an embryonic approach to
power positioning, but then used an overly simplistic
segmentation based on the analysis of Supply Market
Complexity. In Sourcing Portfolio Analysis, this error is avoided.
The main focus of analysis is the dyadic exchange
relationships between buyers and suppliers. An analytical
distinction is also made between static and dynamic leverage.
Space does not allow for a full exposition of the 150⫹
variables that must be analysed to fully understand the current
balance of power between a buyer and potential suppliers.
These variables are explained in more detail elsewhere (Cox,
2014; Cox and Ireland, 2015a, 2015b forthcoming), but some
of the major attributes are identified in Figure 7.
The Power Matrix identifies four Power Scenarios in which
buyers and suppliers can operate:
1 Leverage: This is Buyer Dominance, where the buyer has
all, or most, of the power resources to leverage improved
value for money from the supplier, who possesses few
countervailing power resources.
2 Alliance: This is Interdependence, where both the buyer and
supplier have many power resources that countervail those
of the other party. Value will normally be shared in such
relationships because neither party has the upper hand.
3 Market: This is Independence, where the buyer and supplier
have few power resources with which to leverage the
other. The relative competence of both parties in bidding
and negotiation will normally determine the share of
value.
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4 Dependency: This is Supplier Dominance, where the
supplier has all, or most, of the power resources to
determine value for money outcomes and also to retain
the lion’s share of value from the buyer, who possesses few
countervailing power resources.
This approach provides a more comprehensive way of
thinking about the dyadic exchange relationships that actually
occur within supply markets. This is because it insists on the
analysis of the power and leverage position between the buyer
and all of the potential suppliers within a supply market. The
methodology recognises, therefore, that a supplier may be
operating in the same supply market as other suppliers, but
has a very different power and leverage position with the same
buyer – this is an analytic refinement that other methodologies
do not provide. More significantly perhaps, the methodology
analyses a much more comprehensive range of analytic
variables than the limited list of factors (i.e. monopoly,
oligopoly, technological change, barriers to market entry, logistics
costs and complexity and relative scarcity) provided by Kraljic
(1983) and Schuh et al. (2008).
By starting an analysis with the unique power attributes that
a buyer has with each of the potential suppliers in the market,
the positioning that occurs reveals the “actual” Supply Market
Complexity facing the buyer. Figure 8 demonstrates this point.
In the example provided, a power analysis has been
undertaken for four suppliers. In this case, this is the “actual”
supply market that is available to the buyer. The analysis
shows that the four potential suppliers do not operate in the
same power positions. In fact, some suppliers (A and D) are
much more powerful than others (B and C) in this market.
This is the most significant insight that the Power Matrix
provides. It allows managers to understand which suppliers
are more (B and C) or less (A and D) amenable to value for
money leverage, and, if all of the power attributes have been
fully analysed, why this is so. This means, for example, that if
a buyer decides that collaboration is an appropriate sourcing
strategy then they would normally be advised to pursue it first
with any suppliers in the Leverage (Buyer Dominance),
followed by those in the Alliance (Interdependence) and, only
if they have no other options, in the Dependency (Supplier
Dominance) power position.
The logic of this is that, when selecting from the 11 basic
strategic sourcing options that may be available for buyers to
choose from, an understanding of which are appropriate in
particular power positions is a key analytic requirement. The
11 potential options are listed below:
1 Insourcing: Vertical integration with no outsourcing.
2 Joint Venture: Partial insourcing/partial outsourcing.
3 Supply Chain Management: Full lean/agile/agilean supply
chain collaboration with the first-tier supplier and in the
supply chain.
4 Supplier Development ⫹ Partial Supply Chain Management:
Full lean/agile/agilean supplier collaboration at the
first-tier ⫹ information-based collaboration only within the
supply chain.
5 Supplier Development ⫹ Supply Chain Sourcing: Full lean/
agile/agilean supplier collaboration at the first-tier ⫹
arm’s-length sourcing from within the supply chain.
6 Supplier Development: Full lean/agile/agilean supplier
collaboration at the first-tier only.
 Sourcing portfolio analysis & power positioning Supply Chain Management: An International Journal
Andrew Cox Volume 20 · Number 6 · 2015 · 717–736

Figure 7 Buyer and supplier attributes in the power matrix

High LEVERAGE ALLIANCE

(BUYER DOMINANCE) (INTERDEPENDENCE)

75 Buyer (Demand-Side)
Power Attributes: BUYER HAS HIGH COINCIDENCE
RELATIVE POWER OF POWER FOR
• Market Position of Buyer (14) OVER THE SUPPLIER EACH PARTY

Buyer Power
Resources
• Configuration of Buyer
Demand (21)

• Buyer Relationship &

SUPPLIER HAS
Performance Management (12) LIMITED POWER
RELATIVE POWER
FOR EITHER PARTY
• Buyer Sourcing Dependency & OVER BUYER
Opportunism Management (27)

(INDEPENDENCE) (SUPPLIER DOMINANCE)

Low
MARKET DEPENDENCY
Low Supplier Power High
Resources

90 Supplier (Supply-Side) Power Attributes:

• Market Position of Supplier (16)
• Supplier
S C
Capacity & Profitability
f Issues ((26))
• Supplier Relationship & Performance Management (23)
• Supplier Customer Lock-In & Opportunism Management (25)

Source: Cox (2014, p. 97)

Figure 8 Static power positioning only ⫹ arm’s-length sourcing from within the supply
chain.
BUYER DOMINANCE INTERDEPENDENCE 9 Partial Supplier Development: Information-based supplier
High
collaboration at the first-tier only.
10 Supplier Selection ⫹ Supply Chain Sourcing: Competitive
arm’s-length sourcing at the first-tier ⫹ arm’s-length
B sourcing from within the supply chain.
11 Supplier Selection: Competitive arm’s-length sourcing at
the first-tier only.
Buyer Power
Resources

C D
This list indicates that selecting appropriate strategic sourcing
options is not as simple as selecting only between arm’s-length
and collaborative approaches, as suggested by the Purchasing
Portfolio Analysis and The Purchasing Chessboard methodologies. It
becomes an even more complex choice when these operational
ways of working with suppliers are linked with potential
A
commercial outcomes in the relationship.
Low
INDEPENDENCE SUPPLIER DOMINANCE As Figure 9 shows, when commercial and operational
analyses are combined, a much more comprehensive typology
Low Supplier Power High
Resources of 31 strategic sourcing options is created. There is an
additional sourcing strategy option that is potentially available
Source: Cox (2014, p. 101) to all buyers and, in all, power positions with suppliers. The
final potential option, Internal Value and Process Optimisation,
7 Partial Supply Chain Management: Information-based is derived from Lean Thinking principles (Womack and Jones,
supply chain collaboration with the first-tier supplier and 1996). All organisations can undertake internal process
in the supply chain. improvement initiatives to reduce unnecessary waste and
8 Partial Supplier Development ⫹ Supply Chain Sourcing: inefficiencies in their business, whatever the power position
Information-based supplier collaboration at the first-tier externally.

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Figure 9 31 Potential strategic sourcing options

11 BUYER DOMINANT OPTIONS

• Partial Supply Chain • Supply Chain Management

Management • Supplier Development +
Buyer • Supplier Selection Partial Supply Chain
• Partial Supplier
Maximises • Joint
• Supplier Selection + Development + Supply Management • Insourcing
Value Venture
Supply Chain Sourcing Chain Sourcing • Supplier Development +
• Partial
P ti l Supplier
S li Supply Chain Sourcing
o Commercial Leverage

Development • Supplier Development

2 CONTESTED OPTIONS 8 RECIPROCAL OPTIONS

• Partial Supply Chain • Supply Chain Management

Neither
Management • Supplier Development +
Buyer or
Supplier • Supplier Selection • Partial Supplier Partial Supply Chain
• Joint
Maximises • Supplier Selection + Development + Management N/A
Venture
Their Share Supply Chain Sourcing Supply Chain Sourcing • Supplier Development +
of Value • Partial Supplier Supply Chain Sourcing
Approach to

D
Development
l t • Supplier Development

10 SUPPLIER DOMINANT OPTIONS

• Partial Supply Chain • Supply Chain Management

A

Management • Supplier Development +

Supplier • Supplier Selection • Partial Supplier Partial Supply Chain
• Joint
Maximises • Supplier Selection + Development + Management N/A
Value
Venture
Supply Chain Sourcing Supply Chain Sourcing • Supplier Development +
• Partial Supplier Supply Chain Sourcing
Development • Supplier Development

Arm’s-Length Partial Collaboration Full Collaboration Joint Venture Insourcing

Operational Ways of Working

Source: Cox (2014, p. 165)

Despite this, in Sourcing Portfolio Analysis, not all sourcing relationships are inherently conflictual. This is because, if
options are potentially feasible in all power positions. As buyers and suppliers are competent, they should always be
Figure 10 demonstrates, those operating in the Market seeking ways to operate within their ideal or optimal, rather
(Independence) power position have fewer potential than sub-optimal, power positions.
feasible sourcing options (when insourcing and joint If this is the case, then a competent buyer (or competent
ventures are excluded) than those operating in the other supplier for that matter) should not just understand their
three quadrants. current (static) power circumstance, and identify what they
The first task for buyers to undertake when making sourcing should do given this. Their first task should be to understand
strategy selection decisions, therefore, is to understand their the scope for dynamic movement. That is understand,
current power positions with their potential suppliers. Having assuming they are not already in their ideal leverage position,
achieved this, it is then possible to identify (within each of the what, in the future, are the most appropriate strategies and
four quadrants of the Power Matrix) which of the strategic tactics to move from their current less advantageous to a more
sourcing options identified earlier are potentially viable advantageous leverage position. This logic applies to both
options with the supplier, or suppliers, in the most currently arm’s-length as well as collaborative forms of buyer and
leveraged power position. supplier exchange.
When the Power Matrix was originally developed, this
Dynamic power positioning and sourcing strategies dynamic movement was explained theoretically (Cox, 2001c;
Unfortunately, even this much more comprehensive Cox et al., 2004), as outlined in Figure 12.
analysis of power positioning and options has limitations. The potential routes by which buyers can improve their
This is because electing to work with suppliers who are power positions with suppliers to achieve more favourable
currently in the most favourable leverage position is only a locations from the buyer’s perspective are:
static approach to sourcing. The beauty of power ● Route 1: Dependency to Leverage;
positioning, however, is that it is also provides scope for a ● Route 2: Dependency to Alliance;
dynamic approach to sourcing. This is because it is based on ● Route 3: Dependency to Market;
the assumption that there are preferable power positions that a ● Route 4: Alliance to Leverage;
buyer or supplier would “ideally” wish to move to, and ● Route 5: Market to Alliance; and
operate within, in the future. ● Route 6: Market to Leverage.
As Figure 11 shows, the ideal position for a buyer is to
operate in the Leverage (Buyer Dominance) position. This means that before considering “static leverage” options,
Conversely, the ideal position for the supplier is to operate in a buyer must analyse the scope to move dynamically from their
the Dependency (Supplier Dominance) position. Given this, it current into more favourable power positions in the future.
should be obvious that buyer and supplier exchange When considering dynamic leverage routes, the key is normally

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Andrew Cox
Figure 10 Power positions and feasible “static” sourcing options
LEVERAGE
(BUYER DOMINANCE)
High 1. Buyer Dominant – Supplier Selection
2. Buyer Dominant – Supplier Selection + Supply
Chain Sourcing
3. Buyer Dominant – Partial Supplier Development
4. Buyer Dominant – Partial Supplier Development +
Supply Chain Sourcing
5. Buyer Dominant – Partial Supply Chain
Management
6. Buyer Dominant – Supplier Development
7. Buyer Dominant – Supplier Development +
Supply Chain Sourcing
8. Buyer Dominant – Supplier Development + Partial
Supply Chain Management
Buyer Powerr
Resources
9. Buyer Dominant – Supply Chain Management
10. Internal Value & Process Optimisation
1. Contested – Supplier Selection
2. Contested – Supplier Selection + Supply Chain
Sourcing
3. Reciprocal – Partial Supplier Development
4. Reciprocal – Partial Supplier Development +
Supply Chain Sourcing
5. Reciprocal – Partial Supply Chain Management
6. Internal Value & Process Optimisation
Low
MARKET
(INDEPENDENCE)
Supplier Power
Low
Resources
Source: Cox (2014, p. 184)
to identify sourcing strategies that augment the power
resources of the buyer, while diminishing the countervailing
power resources of the supplier. The one exception is Route 5.
In this case, the power resources of the buyer and the supplier
are both increased in the search for reciprocal value for money
improvements.
Nine potential dynamic leverage strategies are normally
considered when seeking to use these six dynamic leverage
routes, although these are not all available for buyers in all
routes (Cox, 2014):
● rationalise supplier power positions;
● optimise design and specification leverage;
● optimise demand management leverage;
● increase competition and new entry;
● minimise risks of post-contractual lock-in;
● reduce information asymmetry;
● increase supplier hold-up and dependency;
● joint ventures; and
● insourcing.
Putting it all together – the strategic sourcing
decision-making process
It should now be clear that when selecting strategic sourcing
options, The First Principle of Leverage applies. Namely, a buyer
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Supply Chain Management: An International Journal
Volume 20 · Number 6 · 2015 · 717–736
ALLIANCE
(INTERDEPENDENCE)
1. Contested – Supplier Selection
2. Contested – Supplier Selection + Supply Chain
Sourcing
3. Reciprocal – Partial Supplier Development
4. Reciprocal – Partial Supplier Development +
Supply Chain Sourcing
5. Reciprocal – Partial Supply Chain Management
6. Reciprocal – Supplier Development
7. Reciprocal – Supplier Development + Supply
Chain Sourcing
8. Reciprocal – Supplier Development + Partial
Supply Chain Management
9. Reciprocal – Supply Chain Management
10. Internal Value & Process Optimisation
1. Supplier Dominant – Supplier Selection
2. Supplier Dominant – Supplier Selection + Supply
Chain Sourcing
3 Supplier Dominant – Partial Supplier Development
3.
4. Supplier Dominant – Partial Supplier Development
+ Supply Chain Sourcing
5. Supplier Dominant – Partial Supply Chain
Management
6. Supplier Dominant – Supplier Development
7. Supplier Dominant – Supplier Development +
Supply Chain Sourcing
8. Supplier Dominant – Supplier Development +
Partial Supply Chain Management
9. Supplier Dominant – Supply Chain Management
10. Internal Value & Process Optimisation
DEPENDENCY
(SUPPLIER DOMINANCE)
High
should seek all opportunities to use dynamic leverage to change
the current power scenario to a more advantageous one. Once
this has been achieved, or if no such opportunities for
movement exist, only then should a buyer select the currently
most appropriate static sourcing option(s) that is currently
available in the most favourable power position they can
manage from to achieve improvements in value for money (not
just cost savings).
This methodology comes together in the 16-Box Sourcing
Portfolio Analysis matrix (Figure 13).
The matrix conjoins criticality and power analyses to create
16 potential sourcing scenarios. The matrix does not
provide a simplistic short-cut for managers, but rather seeks
to raise the competence of buyers by helping them to
understand:
● the full range of sourcing strategies available for dynamic
movement between power and leverage positions;
● the full range of static sourcing strategies that may
potentially be available;
● the appropriate levels of work scope and analysis that
should be undertaken for particular types of category of
supply; and
● the potentially feasible sourcing strategies that are actually
viable given unavoidable time and resource constraints.
 Sourcing portfolio analysis & power positioning Supply Chain Management: An International Journal
Andrew Cox Volume 20 · Number 6 · 2015 · 717–736

Figure 11 Ideal buyer and supplier positions

Repositioning when the Repositioning when the

Company is a BUYER Company is a SUPPLIER
LEVERAGE ALLIANCE LEVERAGE ALLIANCE
(BUYER DOMINANCE) (INTERDEPENDENCE) (BUYER DOMINANCE) (INTERDEPENDENCE)

THE WORST
IDEAL CASE

WORST THE
CASE IDEAL

MARKET DEPENDENCY MARKET DEPENDENCY

(INDEPENDENCE) (SUPPLIER DOMINANCE) (INDEPENDENCE) (SUPPLIER DOMINANCE)

Source: Cox (2014, p. 102)

Figure 12 Dynamic buyer movement in the power matrix development than either Purchasing Portfolio Analysis or The
Purchasing Chessboard.
LEVERAGE ALLIANCE
(BUYER DOMINANCE) (INTERDEPENDENCE)
A case example using sourcing portfolio analysis
High
and power positioning
4 ROUTE FOUR
The case example that follows explains how the use of Sourcing
Portfolio Analysis significantly improved the value for money
2
6

1 5 from sourcing when compared with the use of a traditional

Buyer Power
Resources
s

Purchasing Portfolio Analysis approach.

OUTE TWO
OUTE SIX

The historic purchasing portfolio analysis approach

In this case study, an Oil & Gas company was sourcing land
RO

RO

rigs for exploration and production work onshore. The

category team had adopted a traditional Purchasing Portfolio
3 ROUTE THREE Analysis approach to develop their category strategy. The
Low analysis had identified the category as of High Purchasing
MARKET DEPENDENCY
Importance, but Low Supply Market Complexity. This was
(INDEPENDENCE) (SUPPLIER DOMINANCE) because there were many suppliers in the market with low
L
Low
Supplier Power
Hi h
High
search and switching costs, and the buyer had relatively high
Resources
and regular volumes. This led them to locate their category in
Source: Cox (2014, p. 108) the Leverage quadrant, as shown in Figure 15.
Because the current financial planning and commitment
structure in the company only allowed for short-term demand
How this approach to sourcing strategy development is and capacity planning, the category teams were only ever given
undertaken sequentially is described in Figure 14, which 30-day notice by their technical specifiers of the forward
shows that a fully rigorous and robust sourcing strategy demand volumes that they could commit. Given their
development process involves a number of key phases: perception that they were operating in the Leverage quadrant,
● Phase 1: Scoping Analysis; the category team naturally assumed that the best strategy was
● Phase 2: Dynamic Leverage Analysis; to use regular short-term, competitive bidding over day rates
● Phase 3: Static Leverage Analysis and Sourcing Strategy for the hire of land rigs and their operating staff. Although
Selection; there were many potential large and small suppliers in the
● Phase 4: Tactical Levers Analysis; and market, the company normally used the three largest and,
● Phase 5: Go To Market. reputationally, the most technically qualified suppliers in the
industry.
As the case example below demonstrates, this provides a much The problem for the category team was that, after participating
more rigorous and robust approach to sourcing strategy in an independent benchmarking exercise, it became apparent

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Figure 13 Sourcing portfolio analysis

High

LEVERAGE ALLIANCE

minance (<)
Supplier
Buyer
Interdependence (=)
Dominance (>) TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL
DEPENDENCY DEPENDENCY DEPENDENCY DEPENDENCY
wer
es

Dom
Power Positions
s
Buyer Pow
Resource

Main Focus of Buyer Leverage

dependence (=)
MARKET DEPENDENCY

Inter-
TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL
Supplier ALLIANCE ALLIANCE ALLIANCE ALLIANCE
Independence (0)
Dominance (<)

yer & Supplier P

Low

Independence (0)
Low Supplier Power High
Resources
TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL
MARKET MARKET MARKET MARKET
Mission Critical Acttivities
Revenue Generattion/

Buy

Dominance (>)
STRATEGIC
STRATEGIC
Buyer
CRITICAL
ercial Criticality

TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL

LEVERAGE LEVERAGE LEVERAGE LEVERAGE

Tactical Tactical Critical Strategic Strategic Critical

Comme

Support Activities

TACTICAL Criticality of Categories of Supply

TACTICAL
CRITICAL

Low Operational High

Criticality

that their current performance on cost was significantly inferior The analysis demonstrated that the buyer was not operating in
to their competitors, who also had better technical and health one quadrant, with a simple choice to make based only on
and safety performance. This confounded the category team. regular arm’s-length bidding, but had a much more complex
They had thought that they were pursuing best practice by set of choices to make, as Dynamic Leverage Analysis further
consolidating their spend volumes before any bidding process, demonstrated.
and then always taking the lowest price bid from the largest
technically prequalified suppliers. Sourcing portfolio analysis – dynamic leverage
analysis
Sourcing portfolio analysis – scoping analysis The buyer in this case had a number of potential Dynamic
A category strategy review was then undertaken using Sourcing Leverage Routes to consider, as shown in Figure 17.
Portfolio Analysis. In the Scoping Phase, it was agreed that the In the case of suppliers A, B and C, this meant assessing the
category was of High Commercial and Operational Impact. This potential of using Dynamic Leverage Routes 1, 2 or 3. For
made the category Strategic Critical and worthy of the highest suppliers W, X, Y and Z, this meant assessing the potential
levels of corporate resourcing and attention. Historically, benefits of using Routes 5 or 6. In each case, the aim was to see
because it was perceived to be in the easy to manage Leverage to what extent it was possible to move the potential suppliers
quadrant, the category had been managed as a fairly tactical into Leverage and, failing that, either Market or Alliance power
production item in terms of resourcing. positions, using any of the nine potential dynamic leverage
Figure 16 shows the current power positioning analysis of strategies identified earlier.
the potential land rig suppliers after analysis of the relevant After detailed analysis of these nine potential strategies, the
demand and supply attributes and their profits from following conclusions were drawn:
undertaking the work. 1 Rationalise supplier power positions: It was feasible to work
Unfortunately, for the buyers in this case, at the time the oil with suppliers W, X Y and Z to significantly reduce costs,
price was very high and this meant that the three large, but only if technical specifiers were happy with their
incumbent suppliers (A, B and C) were operating in the technical competence. If these suppliers could meet the
Dependency power position. Analysis revealed, however, that technical standards required, and the buyer could use the
there were four medium and smaller suppliers (W, X, Y and demand levers identified below, it might also be possible to
Z), who met the minimum technical standards required but move these smaller suppliers permanently into the Leverage
who were not currently being used. These were in the Market power position. Suppliers A, B and C, on the other hand,
power position because they had few power resources with given their size and their long-standing relationships with
which to leverage the buyer even when the oil price was high. other large potential customers, had more countervailing

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Figure 14 The strategic sourcing decision-making process

PHASE 2: PHASE 3: PHASE 4: PHASE 5:

PHASE 1: TACTICAL
SCOPING ANALYSIS
DYNAMIC LEVERAGE
ANALYSIS
STATIC LEVERAGE
ANALYSIS
+ SOURCING STRATEGY
SELECTION
LEVERS GO TO
MARKET
ANALYSIS

CURRENT SOURCING FUTURE SOURCING

POWER PORTFOLIO ANALYSIS PORTFOLIO ANALYSIS
ANALYSIS
WHAT IS THE CURRENT WHAT IS THE FUTURE GO TO
WHAT IS THE
LEVERAGE POSITION OF LEVERAGE POSITION OF MARKET
CURRENT POWER
SUPPLIERS & SUPPLIERS & FUTURE STRATEGY
POSITION? DYNAMIC
POTENTIALLY FEASIBLE LEVERAGE POTENTIALLY FEASIBLE
SOURCING OPTIONS? SOURCING OPTIONS? SUPPLIER
LEVERAGE ALLIANCE
WHAT IS THE SCOPE ASSESSMENT
FOR MOVING & ALIGNMENT
POTENTIAL SELECTION OF
SUPPLIERS INTO SOURCING STRATEGY
Buyer & Supplier Power Positions

DEPEND- MORE FAVOURABLE

MARKET
ENCY POWER POSITIONS? TACTICAL
X X SUPPLIER(S)
X SELECT THE MOST LEVERS SELECTION
APPROPRIATE FOR
POWER NEGOTIATION
LEVERAGE ALLIANCE X SCENARIO(S)
LINK THE
X MOST
X APPROPRIATE
TACTICAL
X LEVERS NEGOTIATION
SELECT THE
CRITICALITY
X X VIABLE SOURCING WITH
X X OPTIONS SELECTED
ANALYSIS
SOURCING
FINAL
WHAT IS THE X STRATEGIES
SUPPLIER(S)
CRITICALITY OF THE
X MARKET DEPEND. X SELECTION
CATEGORY? PRIORITISE &
Criticality of RANK ORDER
OPTIONS
Categories of Supply
CONTRACT
S SC AWARD
TEAM COMPOSITION
+
LEVEL OF ANALYSIS
T TC WORKSCOPE IDENTIFIED
+
REQUIRED
RESOURCES AGREED

Source: Cox (2014, p. 244)

power levers. This meant that, if the demand levers below tended to exclude all but the three largest, and most
could be implemented, there was scope to move them under expensive, suppliers from the bidding process. If these
conditions of high oil prices, but only into the Alliance power suppliers had demonstrably superior technical performance
position. this would perhaps not have been a problem. Unfortunately,
2 Optimise design and specification leverage: It was apparent
that the technical specifiers were a serious obstacle to Figure 16 Current sourcing portfolio positioning for land rig suppliers
improved leverage. This was because their specifications
CRITICAL
Domiinance (<)

DEPENDENCY
upplier

Figure 15 Land rig suppliers using purchasing portfolio analysis TRANSACTIONAL OPERATIONAL STRATEGIC Incumbents
DEPENDENCY DEPENDENCY DEPENDENCY A, B & C
ower Positions
s
Su

Currently Using
Supplier Selection

High
BOTTLENECK STRATEGIC Strategy
pendence (=)
Inter-

TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL

ALLIANCE ALLIANCE ALLIANCE ALLIANCE
Buyer & Supplier Po

dep
ndependence (0)
ket
Complexity of
Supply Mark

CRITICAL
TRANSACTIONAL OPERATIONAL STRATEGIC MARKET
MARKET MARKET MARKET
NON-CRITICAL LEVERAGE Potentials
W, X, Y & Z
In

• Low Complexity / Many

Dominance (>)

Land Rig Suppliers

Buyer

• High Value / Critical / TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL

Abundant Items LEVERAGE LEVERAGE LEVERAGE LEVERAGE
• Short-term Cost
Low Leverage & Bidding
Tactical Tactical Critical Strategic Strategic Critical
Importance of
Low
P
Purchasing
h i
High
Criticality of Categories of Supply

729
 Sourcing portfolio analysis & power positioning
Andrew Cox
Figure 17 Dynamic leverage routes for land rig suppliers
LEVERAGE ALLIANCE
(BUYER DOMINANCE) (INTERDEPENDENCE)
High
2
6
1 5
Buyer Power
Resources
s
OUTE TWO
OUTE SIX
RO
RO
3 ROUTE THREE
Low
MARKET DEPENDENCY
(INDEPENDENCE) (SUPPLIER DOMINANCE)
Supplier Power
L
Low
Resources
the company had no technical KPI performance data that
demonstrated the superior performance of the three larger
suppliers. It was obvious that decisions were being made
about technical competence using subjective and risk averse
assessments of “brand” rather than on objective comparative
performance data. If a level-playing field could be introduced
for all potential suppliers, then the scope to work with new
entrant suppliers W, X, Y and Z might be feasible.
3 Optimise demand management leverage positions: After careful
analysis of longitudinal demand data, it was apparent that
the company had a long-term annual requirement for land
rigs and service. The only thing that varied was the exact
volumes required over any given 30-day period. This meant
that the company could enter into long-term relationships
with suppliers, even though they could not always specify
exactly what the volumes would be on a monthly basis. In
fact, over the previous five years, the company had always
tended to work with the same suppliers, but only using
short-term arm’s-length relationships. Discussions with
these incumbent suppliers indicated that, as a result of this
uncertainty, they tended to provide only their “B” and “C
Teams” to this buyer. This was because other major oil
companies provided them with longer-term commitments to
whom they normally sent their “A Teams”. It was hardly
surprising that this short-term financial, rather than demand
and supply optimisation, approach to sourcing resulted in
the company receiving much lower technical performance
and higher costs than its competitors. In this circumstance,
only by making longer-term commitments to preferred
suppliers, and working closely with them, could the buyer
hope to achieve significant improvement in performance.
The current lack of leverage with suppliers was self-induced
by the lack of longer-term financial planning and
commitments. If this constraint could be eradicated, then
improved power positioning and the use of more
collaborative sourcing strategies was possible with all
suppliers, but especially with suppliers W, X, Y and Z.
4 Increase competition and new entry: It was agreed that if the two
demand-related levers above could be utilised then suppliers
Supply Chain Management: An International Journal
Volume 20 · Number 6 · 2015 · 717–736
W, X, Y and Z were candidates for potential new entry.
Their entry into the bidding process would also significantly
improve value for money leverage with suppliers A, B and C.
5 Minimise risks of post-contractual lock-in: This was not a
current issue or potential lever because the buyer had only
ever used short-term arm’s-length bidding strategies. The
buyer was, however, warned that if longer-term collaborative
sourcing strategies were used in the future, this risk would
need to be guarded against.
6 Reduce information asymmetry: The analysis undertaken
demonstrated that the buyer suffered from high levels of
information asymmetry about what was done technically and
at what cost, and with what levels of profitability. The buyer
assumed that suppliers were only making normal returns,
although an initial “Should Cost Analysis” demonstrated
that the larger suppliers (A, B and C) were making above
normal returns in conditions of high oil prices. It was agreed
that, if the buyer could adopt a more collaborative
open-book approach to sourcing, rather than relying solely
Hi h
High
on competitive bidding, then this would generate much
greater transparency and reduce the information advantages
favouring current suppliers.
7 Increase supplier hold-up and dependency: If the buyer decided
in the future to adopt longer-term collaborative sourcing
strategies then the opportunities to create supplier hold-up
and buyer-controlled dependency was explained to the
category team. It was recognised, however, that the scope to
achieve this was clearly much easier with suppliers W, X, Y
and Z than the larger suppliers A, B and C.
8 Joint ventures: It was decided that, given current strategic
views in the company about core competencies, and with
current pressures on scarce financial resources, investing in
joint ventures with suppliers in highly competitive supply
markets making low or normal returns was not a sensible
sourcing option.
9 Insourcing: A similar decision was made about the
undesirability of insourcing, and for the same reasons as
identified for the potential joint venture option.
The analysis revealed, however, that if the company was
prepared to make the internal design and specification and
demand management changes identified above, a
transformation could be made in their future power and
leverage positions, and with all suppliers. Because of the
potentially very high levels of volumes potentially available
annually relative to the smaller suppliers’ businesses, it was
possible to move suppliers W, X, Y and Z from Market into
Leverage power positions using Dynamic Leverage Route 6.
Leverage is obviously the most favourable position for a buyer
to operate within. This is because it normally provides them
with the maximum scope to drive continuous improvement in
value for money from suppliers, using either arm’s-length or
collaborative ways of working (Cox, 2014).
In the case of suppliers A, B and C, there was less scope for a
radical change in power positions because of their lack of
potential dependency on the buyer’s volumes for revenue, and
even if these were committed in a more planned way with
preferred suppliers in the future. Despite this, if the changes
suggested above were made and more collaborative long-term
relationships were offered, then even suppliers A, B and C could
be moved from Dependency to the Alliance power position in the
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Andrew Cox Volume 20 · Number 6 · 2015 · 717–736

future, using Dynamic Leverage Route 2. If this was achieved, then This led to a heated internal discussion about which of these
more collaborative rather than arm’s-length sourcing strategies two broad options should be selected.
would be feasible in the future. There were three schools of thought. The Risk Averse School
(in which technical specifiers predominated) argued in favour
Sourcing portfolio analysis – future static leverage of adopting a more collaborative approach, but only with
analysis and sourcing strategy selection suppliers A, B and C in the Alliance power position. The
The dynamic leverage analysis resulted in a much more Young Turks (dominated by procurement managers) argued in
comprehensive understanding of the scope to move supplier favour of a radical transformation using collaborative sourcing
power positions, as well as all of the potential feasible sourcing strategies, but with suppliers W, X, Y and Z.
options available to the category team in the future. The The third school of thought (led by the IIAPS consulting
outcome of the analysis is outlined in Figure 18. team) argued for a Plan Do Check Act (PDCA) approach. This
Having identified the future Sourcing Portfolio Analysis was the approach that was eventually pursued. It contended
positions for each supplier, it was then possible to identify the that while a more collaborative approach should be adopted,
most appropriate strategic sourcing option(s) for market there should be no rush to smaller suppliers until the company
testing. In selecting the most appropriate sourcing decision, a itself had developed its own internal competencies to manage
two-stage process was adopted. First, the buyer identified the collaboration. This required at the very least the establishment
potentially feasible options available given the power positions of robust technical and commercial KPIs to measure current
within which they could realistically operate with suppliers in performance objectively. Furthermore, it was argued that
the future. Second, they then identified which of these suppliers W, X, Y and Z should only be used initially in pilot
potentially feasible options were actually viable. “Viability” projects to demonstrate their competence technically. This
here meant that the buyer had all of the necessary buy-in, was necessary to win the support and buy-in of currently
resources and competencies internally to implement the highly sceptical technical specifiers, and allow objective
sourcing strategy successfully, and also that the potential performance data rather than subjective preferences to
suppliers did also. determine the suppliers and power positions to be adopted in
Given that insourcing and joint ventures had already been the future.
ruled out during the dynamic leverage analysis, Figure 19 This debate internally resulted in a decision to move away
demonstrates the full range of sourcing strategy options that from the historic arm’s-length to a more collaborative way of
were potentially feasible if the buyer was able to move working, but it did not resolve the issue of what type of
suppliers A, B and C into the Alliance power position and/or collaboration should be adopted in the future. Once
suppliers W, X, Y and Z into the Leverage power position in arm’s-length Supplier Selection and/or Supply Chain Sourcing
the future. options were excluded, this left seven potential collaborative
The analysis showed that there were two broad power ways of working that were potentially feasible sourcing options
positions in which the buyer could choose to work in the in either Alliance or Leverage power positions. Given this, the
future, and with different types of suppliers and with much next question to be answered was about whether or not
more collaborative sourcing strategies compared with the the buying organisation possessed, or could acquire in time,
regular arm’s-length bidding traditionally used in the past. the necessary technical and commercial competencies to
successfully implement any of these potentially feasible
Figure 18 Future sourcing portfolio analysis for land rig suppliers options?
In this case, analysis led to the following conclusions.
nance (<)

Non-viable options
pplier

TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL Non-viable options included:

Sup

DEPENDENCY DEPENDENCY DEPENDENCY DEPENDENCY

Domin
wer Positions

● Supply chain management;

● Supplier development ⫹ partial supply chain management;
● Supplier development ⫹ supply chain sourcing; and
endence (=)

CRITICAL
ALLIANCE ● Supplier development/partial supply chain management.
Inter-

TRANSACTIONAL OPERATIONAL STRATEGIC Incumbents

ALLIANCE ALLIANCE ALLIANCE A, B & C
None of these potentially feasible options were viable because
Buyer & Supplier Pow

depe

Using Proactive
Collaboration
Strategies
neither the buyer nor the supplier had the technical or
commercial competencies to implement these highly time and
dependence (0)

resource intensive options, and could not acquire them in time.

TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL
MARKET MARKET MARKET MARKET Viable options
Non-viable options included:
Ind

● Partial Supplier Development ⫹ Supply Chain Sourcing: This

Dominance (>)

CRITICAL
ALLIANCE was viable in either Alliance or Leverage power positions,
Buyer

TRANSACTIONAL OPERATIONAL STRATEGIC Potentials and with all suppliers, because both the buyer and the
LEVERAGE LEVERAGE LEVERAGE W, X, Y & Z
Using Proactive
supplier had the technical or commercial competencies to
Collaboration
Strategies implement information sharing to optimise joint
Tactical Tactical Critical Strategic Strategic Critical performance, and also to collaborate on supply and value
chain mapping to identify arm’s-length supply chain input
Criticality of Categories of Supply improvements in the future.

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 Sourcing portfolio analysis & power positioning Supply Chain Management: An International Journal
Andrew Cox Volume 20 · Number 6 · 2015 · 717–736

Figure 19 Future sourcing portfolio analysis with potential land rig suppliers and sourcing strategy options

Suppliers A
A, B & C CRITICAL ALLIANCE
Dominance (<)

1. Contested – Supplier Selection 6. Reciprocal – Supplier Development

Supplier
Buyer & Supplier Powerr Positions

TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL 2. Contested – Supplier Selection + 7. Reciprocal – Supplier Development +
DEPENDENCY DEPENDENCY DEPENDENCY DEPENDENCY
Supply Chain Sourcing Supply Chain Sourcing
3. Reciprocal – Partial Supplier 8. Reciprocal – Supplier Development +
Development Partial Supply Chain Management
ce (=)

4. Reciprocal – Partial Supplier 9. Reciprocal – Supply Chain

dependenc
Inter--

TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL Development + Supply Chain Management

ALLIANCE ALLIANCE ALLIANCE ALLIANCE
Sourcing 10. Internal Value & Process Optimisation
5. Reciprocal – Partial Supply Chain
Management
Independence (0)

TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL

MARKET MARKET MARKET MARKET
Suppliers W, X, Y & Z CRITICAL LEVERAGE
1. Buyer Dominant – Supplier Selection 6. Buyer Dominant – Supplier
Dominance (>)

2. Buyer Dominant – Supplier Selection + Development

Buyer

TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL Supply Chain Sourcing 7. Buyer Dominant – Supplier
LEVERAGE LEVERAGE LEVERAGE LEVERAGE Development + Supply Chain Sourcing
3. Buyer Dominant – Partial Supplier
Development 8. Buyer Dominant – Supplier
4. Buyer Dominant – Partial Supplier Development + Partial Supply Chain
Tactical Tactical Critical Strategic Strategic Critical
Development + Supply Chain Sourcing Management
Criticality of Categories of Supply 5. Buyer Dominant – Partial Supply 9 Buyer
9. B D
Dominant
i t – Supply
S l Ch
Chain
i
Chain Management Management
10. Internal Value & Process Optimisation

● Partial Supplier Development: This was viable in either Leverage power positions). This conjoined strategy was
Alliance or Leverage power positions and with all suppliers supported as well by the implementation of an Internal Value
because both the buyer and the supplier had the technical and Process Optimisation strategy.
or commercial competencies to implement information The result of this exercise can now be seen graphically in
sharing to optimise joint performance, even if the more Figure 20, which shows the sourcing strategy options selected
resource intensive time-consuming supply chain option for the suppliers in both the Alliance and Leverage power
was rejected. positions, after viability analysis had been completed.
● Internal Value and Process Optimisation: This option was Obviously, the major difference between these two power
added because not only was it viable but it was also positions was that the buyer expected to achieve significantly
necessary if the buyer was to pursue more collaborative more value for money leverage if they were eventually able to
ways of working with suppliers in the future. award their volumes to, and work collaboratively on
After internal discussion, two sourcing strategy options were information sharing to optimise performance with, suppliers
adopted in the future. These were Partial Supplier Development W, X, Y and Z operating in the Leverage power position. This
with Supply Chain Sourcing. This offered more scope for is the power position in which the buyer is dominant, and
leverage than Partial Supplier Development on its own, and most of the value generated from collaboration is passed to
could be adopted relatively easily in both Alliance and/or them by dependent suppliers, compared with those (like

Figure 20 Future sourcing portfolio analysis with appropriate potential land rig suppliers and sourcing options selected
Dominance (<)
Supplier
Buyer & Supplier Power Positions

TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL

DEPENDENCY DEPENDENCY DEPENDENCY DEPENDENCY

Suppliers A, B & C CRITICAL ALLIANCE

dependenc ce (=)
Inter--

TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL 1 R

1. Reciprocal
i l – Partial
P i lS Supplier
li 2 IInternall V
2. l &P
Value Process
ALLIANCE ALLIANCE ALLIANCE ALLIANCE Development + Supply Chain Optimisation
Sourcing
Independence (0)

TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL

MARKET MARKET MARKET MARKET
Dominance (>)

Suppliers W, X, Y & Z CRITICAL LEVERAGE

Buyer

TRANSACTIONAL OPERATIONAL STRATEGIC CRITICAL

LEVERAGE LEVERAGE LEVERAGE LEVERAGE 1. Buyer Dominant – Partial 2. Internal Value & Process
Supplier Development + Supply Optimisation
Chain Sourcing
Tactical Tactical Critical Strategic Strategic Critical

Criticality of Categories of Supply

732
 Sourcing portfolio analysis & power positioning
Andrew Cox
suppliers A, B and C) operating in the Alliance power position,
where value has to be shared.
Sourcing portfolio analysis – outcomes after tactical
levers analysis and market testing
Space does not allow for a full analysis of all of the tactical
levers that were applied to the two conjoined sourcing
strategies selected or to fully describe the market testing
process utilised. Suffice to say that the key tactical levers used
were focused on ensuring how volumes should be divided
annually over a three-year term, so as to ensure that
competition was maintained post-contractually amongst
collaborating preferred suppliers. Other key tactical levers
were supplier commitments to transparency and open-book
dealing, as well as agreements for volumes to be capable of
movement between suppliers based on performance
post-contractually and early termination clauses in the event
of a failure to meet minimum agreed KPIs.
It was also decided that volumes should be guaranteed to three
suppliers, but that the bulk of these volumes would initially be
awarded in the first year to the best two bids from the larger
suppliers (A, B or C). The best performing/bidding smaller
supplier would also receive some guaranteed “pilot” volumes to
allow them to demonstrate their technical and commercial
competencies. These tactical levers were put in place to ensure
that the buyer retained effective leverage post-contractually even
as they collaborated with suppliers in the future.
The result of the market test was that suppliers B and C
received 90 per cent of the anticipated volumes in the first
year, and supplier Y received 10 per cent. Supplier X (the
second best performing smaller supplier) was told that they
would be called upon in the future in the event of a failure by
any of the selected suppliers to meet agreed performance
targets post-contractually.
In the first year, the overall performance of supplier Y
technically and commercially was far superior to that of
suppliers B and C. As a result, it was decided to retain Y and
C (the best performing larger supplier) and to give them 90
per cent of the volumes, but with Y receiving 50 per cent. The
remaining 10 per cent was awarded to supplier X. At the end
of the second year, based on performance, the volumes were
divided 50 per cent to supplier Y, 30 per cent to supplier X
and 20 per cent to supplier C.
The sourcing strategy far exceeded expectations and
confounded the sceptical “technical specifiers” in this case.
Not only did the smaller suppliers show a markedly higher
propensity to collaborate but they also delivered superior
technical performance and lower total costs of ownership. By
the end of the third year, the collaborative information
sharing, coupled with medium-term volume commitments,
had resulted in the replacement of the supplier (B) with the
most exalted brand in the industry by two smaller and much
more technically and commercially proficient suppliers.
This decision was driven by objective performance against
transparent KPIs and not by subjective preferences. The
strategy also demonstrated that collaboration is often a much
more effective sourcing strategy in the Leverage power position
than arm’s-length competitive bidding, although this will not
always be the case.
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The need for a “Paradigm shift” in category
management and strategic sourcing
The identification of the most appropriate sourcing strategies
is, as we have seen, far more complex than anything suggested
by the Purchasing Portfolio Analysis or Purchasing Chessboard
methodologies. Sourcing Portfolio Analysis also has a very
different logic when making recommendations for action, in
particular, power scenarios. The level, and type, of analysis
that is demonstrated here is, we believe, what one should
expect of a highly competent organisation seeking to develop
rigorous and robust sourcing strategies.
Unfortunately, the criticisms made about currently used
tools and techniques here are not new, and many of them were
initially voiced as early as the mid-1990s (Cox, 1996a, 1996b,
1997a, 1997b, 1999a, 1999b, 1999c). Despite repeated
attempts since then to argue the case for a change of
perspective (Cox et al., 2003, 2004; Cox, 2007, 2008a, 2008b,
2013, IIAPS, 2010a, 2010b, 2012, 2014, 2015a, 2015b,
2015c), it is now clear that what may be required is a
“paradigm shift” in the profession (Cox, 2014).
The need for a paradigm shift
For those of us involved in critiquing the current prevailing
professional orthodoxy of Kraljic, Porter and the Chessboard,
there has been a dawning realisation that we are in fact
involved in a battle between alternative paradigms (Kuhn,
2012). When describing the process by which a “paradigm
shift” can occur in scientific enquiry, Kuhn identified a normal
trajectory that is at the heart of the process, as follows:
● Normal science: The testing, and resolution, of observable
problems, puzzles and anomalies that occur in the
explanatory rectitude of the currently accepted paradigm
about scientific causality.
● Crisis: The realisation that there are serious observable
problems, puzzles and anomalies in the currently
dominant paradigm, that cannot be satisfactorily resolved
within the paradigm, with the emergence of an alternative
paradigm or paradigms.
● Revolution: A “paradigm shift” occurs through a change in
world view, allowing the replacement of the old view by a
new, more acceptable, paradigm that is better able to
resolve the observable problems, puzzles and anomalies –
this becomes the basis for a new currently dominant
approach to normal science.
Kuhn’s view of scientific progress is predicated on the
assumption that those involved in professional enquiry move
away from less, to more, adequate ways of understanding and
interacting with the world. But he did not believe it to be a
simple, or non-conflictual, process. On the contrary, even
Planck, M. (1949) recognised that a “paradigm shift” is
sometimes extremely difficult to achieve, and can take a very
long time:
[. . .] a new scientific truth does not triumph by convincing its opponents
and making them see the light, but rather because its opponents eventually
die, and a new generation grows up that is familiar with it.
Kuhn also understood (although he did not use the concept
directly) the implicit problem of the use of “power” in the
process by which a “paradigm shift” generates a scientific
revolution.
 Sourcing portfolio analysis & power positioning
Andrew Cox
This is because “normal science” creates its own “scientific
community”. That is a group of professional adherents who
are dedicated to: the determination of significant facts, the
matching of facts with theory and the further articulation of
the current “normal science” theory. The problem for the
adherents to a new paradigm is that the existing “scientific
community” has built its current position and status from its
adherence to the current orthodox view of the world.
In this circumstance, a new paradigm is potentially an
extremely destabilising event for the adherents to “normal
science” – it threatens the basis of their personal power and
status, as well as creating professional jealousies. This means
that the speedy acceptance of a new paradigm is likely to be
the very last, rather than the first, thing that the current
“scientific community” will accept.
This problem is similar to how individuals react when faced
with cognitive dissonance, i.e. the realisation that there is a gap
between one’s current perception and what is actually
occurring in the world. Human beings, when faced with this
dilemma, normally try to find all means they can to ignore, to
deny and/or to avoid the dissonant information or arguments.
Changing their world view is often the very last thing people
will do in these circumstances, and the most obdurate will
never countenance change at all.
This problem is, in some senses, made even more
problematic for those trying to create a science of business
management thinking. This is because any paradigms that are
under threat are also often the basis by which many academics
and consultants generate significant monetary value for
themselves. This personal financial enrichment is achieved by
offering advice to organisations.
In these circumstances, the “scientific community” of
academics and consultants may be less interested in scientific
“truth”, than in the maintenance of its own personal financial
pipeline. This greater difficulty in business management thinking
arises, therefore, because the much higher potential financial
rewards available than in some other disciplines, and the financial
self-interest of those making money from the current paradigm is
likely to exacerbate the normal resistance to change that arises for
all human being experiencing cognitive dissonance.
If this is the case, a “paradigm shift” may be even more
difficult to achieve. To paraphrase Machiavelli (1953): those
who will definitely lose financially from a “paradigm shift” are
likely to be permanent enemies of a revolution in business or
strategic sourcing thought. On the other hand, those who
might potentially gain financially are likely to be only
lukewarm allies, at least until they can see how they might gain
from the “paradigm shift”.
For these reasons, a “paradigm shift” can sometimes take
generations to be achieved. Hopefully, this will not be the case
for the development of a new way of thinking about
appropriateness in strategic sourcing.
The major reason for this relatively optimistic view is that
there is already within the procurement practitioner
community a growing realisation of “crisis”, and a recognition
that many of the tools being proffered are not “fit for
purpose”. This can be seen in the constant cherry-picking by
managers of what are supposed to be “inappropriate”
strategies and tactics from the models that they are currently
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being offered by academics and consultants working in the
Kraljic, Porter and the Chessboard traditions.
But there is, perhaps, a reason for hope, and this is because
the “paradigm shift” that is necessary in strategic sourcing
thinking is nowhere as great as some might think. This is
because – as explained in our earlier discussion about the lack
of rigour and robustness in the Kraljic, Porter and Chessboard
approaches – there is within all of them an undeveloped focus
on power positioning.
We saw, in that Kraljic identified power positioning as a way of
thinking about how to bargain and negotiate with suppliers, but
he did not fully develop this insight or link it with his analysis of
sourcing strategies. We also saw that Porter’s Five Forces, while
primarily focused on business strategy rather than strategic
sourcing issues, in fact provides the basis for a more scientific
understanding of the “structural” attributes of buyer and supplier
power. Finally, even the Chessboard recognises the importance
of power positioning, even though the methodology used lacks
rigour and robustness intellectually, and in practical terms.
Towards a new science of strategic sourcing
Given this, those of us who believe that Power Positioning is the
way forward for the development of a science of strategic
sourcing and buyer and supplier exchange have grounds for
hope. This is because this theory and its methodology do not
completely reject past thinking, rather this approach seeks to
create a new synthesis that has a superior ability to explain
circumstances, and also to predict the most appropriate sourcing
options to deliver particular desired value for money outcomes.
This opportunity to build on past work is helpful because, as
Kuhn has argued:
Since new paradigms are born from old ones, they ordinarily incorporate
much of the vocabulary and apparatus, both conceptual and manipulative,
that the traditional paradigm had previously employed. But they seldom
employ these borrowed elements in quite the traditional way. Within the
new paradigm, old terms, concepts, and experiments fall into new
relationships with one another.
As a result, Kuhn also argued that:
Though a generation is sometimes required to effect the change, scientific
communities have again and again been converted to new paradigms.
Furthermore, these conversions occur not despite the fact that scientists are
human but because they are. Though some scientists, particularly the older
and more experienced ones, may resist indefinitely, most of them can be
reached in one way or another. Conversions will occur a few at a time until,
after the last holdouts have died, the whole profession will again be
practising under a single, but now a different, paradigm.
For this benign outcome to eventually come to pass, there is,
however, still much to do to develop a fully rigorous and robust
science of strategic sourcing. It is still necessary, for example,
to identify which strategic sourcing options work best, in
particular, power circumstances, and across different types of
industry and public and/or private sector organisational types.
Furthermore, the appropriate linkage of tactical levers with
the full range of sourcing strategies that are potentially feasible
in buyer and supplier exchange is itself a major task that will
require many years of scientific research.
Although these scientific tasks still remain, it is perhaps
fitting to conclude with a final quote from Kuhn (2012,
postscript 1969):
A scientific theory is usually felt to be better than its predecessors not only in the
sense that it is a better instrument for discovering and solving puzzles but also
because it is somehow a better representation of what nature is really like.
 Sourcing portfolio analysis & power positioning
Andrew Cox
IIAPS believes that the Power Positioning approach, which is the
intellectual foundation on which Sourcing Portfolio Analysis is
based, is a better instrument (IIAPS, 2010a, 2010b, 2012, 2014,
2015a, b, c). This is because it provides a much more rigorous and
robust way of thinking about strategic sourcing options and
choices than any of the alternative approaches currently available.
As a result, we believe it is a better representation of what buyer
and supplier exchange is really like.
That said, we believe that the groundwork (or
under-labour) for a science of strategic sourcing has now been
established. In the next volume (Cox and Ireland, 2015a,
2015b forthcoming), we will explain, in much more detail,
how an organisation can operationalise Sourcing Portfolio
Analysis as part of a structured category management and
strategic sourcing process.
In this forthcoming volume, the focus will, however, be much
more on how organisations can think strategically about
“categories of supply” rather than “categories of spend” (IIAPS,
2015a, Cox and Ireland, 2015a, 2015b). To achieve this requires
an understanding of how to move from the current orthodox
paradigm of Kraljic’s Purchasing Portfolio Analysis to an
understanding of the principles of Value Flow Management.
Value Flow Management thinking requires an understanding
of how Power Positioning tools can drive value for money and
value appropriation within an organisation, as well as within
upstream (supplier-facing) and downstream (customer-
facing) supply chains. This journey requires the even more
Herculean task of challenging current orthodox paradigms in
strategic and operational business management thinking.
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Cummins, T. (2015), “Strategic contracting as a source of
organizational success”, Journal of Strategic Contracting and
Negotiation, Vol. 1 No. 1, pp. 7-14.
About the author
Andrew Cox initially studied political economy and was a
Professor in this discipline. In 1993, he became the Professor of
Business Strategy & Procurement at the University of
Birmingham’s Business School in the UK, and Director of its
research Institute, the Centre for Business Strategy and
Procurement (CBSP). The CBSP also established the first ever
MBA programme in Strategy & Procurement Management in
1993. After many years challenging orthodox views about
procurement and supply chain management practice, he left
full-time University life to work more closely with organisations
to develop leading-edge practices. His major publications related
to this topic can be found in the bibliography in this article. In
2010, with like-minded practitioners and academics, he helped
to establish the International Institute for Advanced Purchasing
& Supply (IIAPS). The Institute works closely with companies to
implement word-class and best-in-class approaches to category
management, strategic sourcing and value flow management.
Andrew Cox is currently the Vice President of IIAPS, and a
Visiting Professor at the Universities of San Diego and
Nyenrode. Andrew Cox can be contacted at: acox@iiaps.org