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Sourcing
Aligning purchasing portfolio negotiation
management with sourcing styles

negotiation styles
Mingu Kang 2341
School of Management, Zhejiang University, Hangzhou, PR China
Received 24 September 2016
Paul Hong Revised 9 September 2017
Accepted 2 May 2018
College of Business and Innovation, University of Toledo, Toledo, Ohio, USA
Roman Bartnik
Cologne Business School, Cologne, Germany
Youngwon Park
Graduate School of Humanities and Social Sciences,
Saitama University, Saitama, Japan and
Manufacturing Management Research Center, Faculty of Economics,
The University of Tokyo, Tokyo, Japan, and
Changsuk Ko
Zhejiang University, Hangzhou, PR China

Abstract
Purpose – The purpose of this paper is to examine how to align purchasing portfolio management with
sourcing negotiation styles.
Design/methodology/approach – The authors have adopted two-step field tests: a case study; and a
follow-up experimental test with 77 sourcing professionals.
Findings – The authors note that Kraljic Portfolio Matrix (KPM) provides a valuable guide for determining
sourcing negotiation styles (i.e. competitive negotiation for leverage items, collaborative negotiation for
strategic items and accommodative negotiation for bottleneck items). Interestingly, effective buyers adopt
right negotiation styles based on the switching costs of changing suppliers, the dependence level on specific
suppliers and the availability of alternative suppliers.
Originality/value – This study shows that aligning purchasing portfolio management with sourcing
negotiation styles improves the chances of effective buying outcomes. Practical implications suggest that
successful buyers move beyond interpreting generic predictions of the KPM framework and rather implement
specific negotiation styles to maximize the potential benefits of purchasing portfolio management.
Keywords Outsourcing, Negotiation styles, Purchasing portfolio
Paper type Case study

1. Introduction
The Kraljic Portfolio Matrix (KPM) framework, presented by Kraljic (1983), is one of the most
successful templates for purchasing management (Gelderman and Van Weele, 2005; Pagell
et al., 2010). Prior research has emphasized that KPM is a useful approach to manage complex
supplier base (Gelderman and Van Weele, 2005). Other studies have refined the broad
predictions of the original KPM, showing that buyers formulate a long-term sourcing strategy
to develop suppliers in light of power position and dependence relationship (Caniėls and
Gelderman, 2005), or adapt their supplier strategies in response to changing customer
requirements (Pagell et al., 2010). Recent research on vaccine procurement suggests that the Management Decision
nature of power relationships influence the ways that buyers negotiate with their suppliers Vol. 56 No. 11, 2018
pp. 2341-2356
(Pazirandeh and Norrman, 2014). Since purchasing items in the KPM frame are characterized © Emerald Publishing Limited
0025-1747
by diverse power and dependence situations, it is necessary for actors to apply not only DOI 10.1108/MD-09-2016-0662
MD differentiated supplier relationships (Caniëls and Gelderman, 2007), but also appropriate types
56,11 of negotiation. Given the strategic role of negotiation in the purchasing function, it is crucial for
buyers to reach not only an abstract understanding of the widely used KPM framework but
also to understand how to implement it in specific sourcing negotiations. However, it remains
unclear how to translate the KPM logic into buyers’ real-life negotiation contexts. In response to
the above research need, this study aims to examine how sourcing professionals apply
2342 appropriate sourcing negotiation styles across the different quadrants of the KPM. In doing so,
we explore how buyers align purchasing portfolio management with negotiation styles.
By focusing on the relationship between purchasing portfolio management and
negotiation styles, this study attempts to contribute to the literature on the purchasing
portfolio management and to provide practical insight into the ways that practitioners
exercise appropriate negotiation styles in different purchasing situations.

2. Purchasing portfolio management and negotiation styles

Purchasing portfolio management, i.e. linking purchasing strategies to part characteristics,
has proven a popular tool for buyers. The KPM first appeared in the Harvard Business Review
in 1983. Attractive despite its age, recent studies still find it to be a popular model (Gelderman
and Van Weele, 2005; Pagell et al., 2010), and survey evidence suggests that using purchasing
portfolio methods may be a sign of purchasing sophistication (Gelderman and Van Weele,
2005). By linking characteristics of purchasing items to strategy, KPM has contributed to the
development of purchasing and supply chain management strategies (Pagell et al., 2010;
Caniėls and Gelderman, 2005; Dubois and Pedersen, 2002; Knight et al., 2014). As an extension
of the research by Kraljic (1983), a substantial number of similar purchasing portfolio models
have been introduced, but they may slightly differ in nuances or level of details (e.g. by using
complexity as proxy for supply risk) (Caniėls and Gelderman, 2005; Lilliecreutz and Ydreskog,
1999). Kraljic asks buyers to classify their purchasing items by profit impact and supply risk,
leading to four combinations: leverage items, strategic items, non-critical items and bottleneck
items, in order to allocate their sparse time and resources optimally for value maximization
(Cooper et al., 1999). Figure 1 shows the KPM framework and the general recommendations
corresponding to the each quadrant.
Leverage items feature low supply risk and high profit potential. It is easy for buyers to find
alternative suppliers that can supply necessary volume of leverage items with similar prices

Leverage items Strategic items

High

Exploitation of Strategic
purchasing power partnership
Profit impacts

Efficient processing Volume assurance,

Search of alternatives

Figure 1.
Kraljic’s purchasing Low Non-critical items Bottleneck items
portfolio and Low High
recommendations
Risk factors
and quality. Leverage items represent relatively high purchasing volume and large proportion Sourcing
of the total cost of the finished product (Caniëls and Gelderman, 2007). According to the negotiation
purchasing portfolio theory, an aggressive approach, such as exploitation of full purchasing styles
power, is generally recommended for leverage items (Kraljic, 1983; Caniëls and Gelderman,
2007). Previous research also suggests that short- to medium-term supply contracts are more
appropriate than long-term commitment for leverage items (Kraljic, 1983; Caniëls and
Gelderman, 2007). Strategic items are defined by high supply risk and high profit potential. 2343
Kraljic (1983) suggested three approaches (i.e. exploit, balance and diversify) when managing
strategic items based on supply market strength and buyer advantage. The key risk-mitigation
approaches for strategic items include building close strategic partnerships with suppliers and
alternative partners to reduce the risk associated with overdependence on a single partner
(Kraljic, 1983; Caniëls and Gelderman, 2007). Bottleneck items have high risk factors on the
supply side and low profit potential. Since these parts are typically rare and hard to replace,
supply chain managers may face nerve wracking challenges when dealing with them,
e.g. inventory shortages, manufacturing disruption, quality control issues, supplier
dependence, etc. As a result, bottleneck parts increase firms’ operational complexity and
require additional investments for risk prevention. In this case, the portfolio management
literature offers two specific advices: focus on assuring supply in the short run; and, in the long
run, reduce the risk by finding backup suppliers or accept the risk of the negative
consequences (Kraljic, 1983; Caniëls and Gelderman, 2005, 2007; Gelderman and Weele, 2002).
In view of simplicity and applicability, KPM has become a useful tool for strategic
purchasing management. However, with increasing supply chain complexity, effective
sourcing now requires high levels of interactive coordination among inter-firm networks
and conflict management (Kang et al., 2012), and thereby simple KPM logic is not
necessarily applicable to complex purchasing situations. The power of negotiation plays a
significant role in resolving buyer-supplier conflicts and achieve desirable collaboration
results (Welbourne and Pardo-del-Val, 2009). Since negotiation plays a significant role in
achieving successful buyer-supplier conflict management and collaboration result
(Welbourne and Pardo-del-Val, 2009), linking KPM to negotiation is helpful to
complement and extend existing KPM approaches.
Previous negotiation studies distinguish four styles: accommodate, collaborate compete, and
avoid (Pearson and Stephan, 1998; Nauta and Sanders, 2000; Tangpong and Ro, 2009; Thomas,
1992). An accommodative negotiation applies a yielding approach that adjusts to the other
party’s expectations and reflects low assertiveness of one’s own needs. Especially when one
party possesses strong bargaining power and exhibits undue pressure to ensure its self-interest,
the weaker party might use an accommodative approach to maintain the relationship in the
form of bearing necessary sacrifices and going the extra mile. A collaborative negotiation is
similar to problem-solving and integrative bargaining approaches that create a win-win option
and mutually satisfactory solutions for all parties involved (Brooks and Rose, 2004). This
negotiation style generally involves sharing information and maintaining cooperative attitudes
in order to maximize both one’s own benefits as well as benefits to the other party.
A competitive negotiation is similar to distributive negotiation in that it emphasizes a win-lose
approach and a competitive zero-sum game (Brooks and Rose, 2004). Because each party, when
using a competitive negotiation, pursues its own interest without too much concern for the
interests of others, this approach involves forcing one’s demands on other partners, concealing
information, low cooperation and high assertiveness. An avoidant negotiation emphasizes
withdrawal from a conflict situation with low level of assertiveness and cooperation. This is a
no-win approach that considers very little of both parties’ shared interest and instead avoids the
discussion of their differences and disagreements.
Different combinations of negotiation styles may be used in diverse sourcing contexts in
terms of supply risk factors and contract conditions. Buyers pursue various types of
MD negotiation styles to achieve the desired sourcing goals (Ganesan, 1993). Specific items in
56,11 KPM reflect the nature of transaction environments in terms of supply risk and profit
potential. However, it remains unclear how sourcing professionals adopt appropriate
negotiation styles across the different quadrants in KPM logic (i.e. different kinds of
purchase). In response to this research deficit, this study aims to investigate how KPM are
associated with the choice of negotiation styles. Among the four purchasing items
2344 within KPM, this study focuses on three items (i.e. strategic items, leverage items and
bottleneck items). We exclude non-critical items which may not require any serious
negotiation efforts because of low level of supply risk and profit potential. For non-critical
items, purchasing professionals generally apply normal standard procurement practices
including standardized procedures and routine e-procurement (Gelderman and Semeijn,
2006; Kraljic, 1983).
In view of increasing importance of the Chinese market, we now consider negotiation
practices in China. Certainly, Chinese cultural traditions influence the negotiation process
patterns (Ma, 2007; Kirkbride et al., 1991; Chuah et al., 2014; Woo and Prud’homme, 1999;
Herbig and Martin, 1998). Among them, Confucianism emphasizes disciplinary social order
in the form of obedience, respect and loyalty, while Taoism values patience, harmony and
humility. In addition to these two social philosophies, various Chinese cultural norms have
developed over thousands of years. For example, the value of social harmony has been
traditionally strong in Chinese culture, and thus prior studies have argued that Chinese
negotiators are more likely to settle with compromising approaches in order to avoid
relationship conflicts (Chuah et al., 2014). The Chinese sense of saving face and exchanging
favor fosters strong relational networks in the form of influence and patronage. Naturally,
Chinese negotiators are willing to develop and maintain a long-term relationship with their
partners (Leung and Chan, 2003; Leung et al., 2011). On the other hand, Chinese negotiators
tend to conceal their emotion and keep private opinion to themselves. Thus, it is not unusual
that large portion of communication during negotiation is somewhat implicit and not
necessarily explicit. The linkage between facial expression and underlying meaning is too
often subject to multiple potential interpretations. Thus, Chinese negotiating practices
do carry enormous extent of implicit information and ambiguity, which makes it harder to
predict actual negotiation outcomes (Ulijn et al., 2005; Ma and Jaeger, 2010). Here, we argue
that these cultural factors affect how Chinese sourcing practitioners apply specific
negotiation styles in different purchasing situations.

3. Methodology
There is limited research on how practitioners actually negotiate in the different contexts of
the KPM logic. Therefore, to explore the relationship between KPM and corresponding
negotiation styles, this study conducts a case study and experimental study to explore these
contextual questions of “how” and “why” (Yin, 2009, p. 18). First, by using a key informant
approach, we conducted a case study and analyzed empirical observations of practitioners’
actual negotiation practices to learn more about the dynamics of how sourcing practitioners
employ different types of negotiation styles across the KPM. Second, we conducted an
experimental test with 77 Chinese purchasing professionals to explore the sourcing
professionals’ choice of negotiation styles in a fictional sourcing situation. By combining a
single case study and experimental test, this study attempts to generate a richer
understanding of how practitioners select the appropriate negotiation styles and how this
links to the generic predictions of the KPM framework.

3.1 Case study

3.1.1 Case selection. We chose one multinational firm operating in China for the in-depth
case study. To allow comparative analysis and maintain similar industry conditions
between the experimental study and the case study, we selected a foreign electronic Sourcing
manufacturing company operating in China and focused on negotiation practices in negotiation
business-to-business transactions. We will call the firm “HPS” here, to preserve styles
confidentiality. HPS is a leading provider of switching mode power supplier (SMPS), and
has operated a manufacturing facility in the Hubei Province of China. HPS has also operated
a business unit in the city of Shanghai, and its core functions include R&D and components
sourcing. The main role of this Shanghai business unit is to develop SMPS products that 2345
satisfy the needs of customers in the Asia region and to develop reliable suppliers of various
electronic and mechanical components.
3.1.2 Data collection and analysis. To triangulate and form a richer picture on research
issues, we collected background data such as bills of materials (BOM), supplier and price
information and work procedures. For instance, before conducting the interviews, we
received a BOM list for one of HPS’s major products, which is comprised of 73 component
parts. The BOM list included the part number, description, unit price and amount of each
component. Based on HPS’s internal management procedures for component parts, we
classified 73 component parts from the BOM list into 5 categories and analyzed the
structure of material costs before the interviews. Table I shows an overview of the HPS’s
components information.
In collecting data, we used the key informant method, defined as “a technique of
collecting information about a social setting by interviewing a selected number of
participants” (Phillips, 1981). According to this method, an HPS’s component engineer was
chosen not on a random basis, but on the basis of his particular experience and knowledge.
Specifically, the informant has been involved over several years in component sourcing,
component quality testing, price negotiation,and supplier selection in the HPS purchasing
operation. The key informant approach is useful for gathering in-depth data by
interviewing a specific informant who has professional knowledge on research topic.
Potential drawbacks of this approach are that it might generate a potential source of
measurement error due to “positional bias or knowledge deficiencies associated with each
informant” (Phillips, 1981). To overcome this drawback, we have interviewed three
other informants, namely, the CEO, the purchasing manager and the production manager,
to create a richer picture and improve data reliability.
We employed semi-structured interviews based on a predesigned interview protocol
in order to maintain consistency among all the interviews and to systematically
collect the data (Eisenhardt, 1989), which included collecting general information of HPS
related to the business environment and profitability (i.e. volume purchased, percentage
of total purchased cost, impact on product quality or business growth) and supply
risk factors (i.e. number of suppliers, supplier’s power, availability of alternative
suppliers, dependency toward suppliers) for each component and the corresponding
negotiations styles.

Percentage of total
Main category Components materials cost

Inductor Transformer (11%), inductor (3.9%), magnetic core (0.5%) 15.3

Capacitor Electric capacitors (15.4%), Chip capacitor (1%), X-Y capacitors (4.9%) 21.3
Resistor Varistor (0.6%), themistor (0.5%), chip resistors (1.7%) 2.8
Semiconductor Diodes (5.3%), transistors (9.8%), fuse (1.3%), controller IC (11.6%), OP
AMP (0.8%), opto-coupler (1.2%) 30.0 Table I.
Structural Label (0.7%), connecter (0.8%), box (8.6%), PCB (6.7%), heat sink (5.5%), Bill of materials at
component plastic case (8.3%) 30.6 HPS (73 components)
MD Based on the basic information regarding the component parts used in HPS’s major product,
56,11 we conducted interviews with the component engineer and investigated about the profit
impact factors and supply risk factors for each component. Based on this initial interview
data, we placed each component into the four quadrants of the KPM. Table II shows the
purchasing portfolio classification of the component parts and the classification rationale.
For instance, HPS’s component engineer commented on the low supply risk of the electric
2346 capacitor component:
There are many electric capacitor manufacturers in the Chinese markets. In our case, two Korean
firms and several Taiwanese firms operating in China are appropriate electric capacitor suppliers
that can meet our requirements in terms of quality, delivery and cost.
He also mentioned the low supply risk of the electric capacitor, and thus the electric
capacitor was categorized into the leverage item: high profit impact (high percentage of the
total material costs, high impact on quality and reliability of the final product) and relatively
low supply risk (e.g. many reliable suppliers and a relatively high level of component
standardization). Specifically, the PCB, heat sink and transformer was categorized as a
bottleneck item similar to other items. In the early operation of HPS in China, these three
components belonged to bottleneck items mainly because of the low purchasing volume and
the low level of standardization. However, these components were moved into the other
three items due to the increased purchasing volume and HPS’s standardization effort
toward customized components. The HPS component engineer also confirmed the
rationality of classification in Table II. Afterward, we conducted in-depth interviews on
HPS’s negotiation practices with a broad number of key informants, including component
engineers, CEO, purchasing manager and production manager. Each interview lasted about
two hours and was tape-recorded and transcribed for later analysis. The case report was
reviewed by informants to verify construct validity (Yin, 2009).

3.2 Experimental test

3.2.1 Participants. Chinese purchasing professionals from five foreign firms operating in
China, who had a minimum of two years of job experience, participated in this test.

Portfolio items Components Classification rationale

Leverage item Electric capacitors, transistors, High percentage of the total manufacturing costs
plastic case, PCB (printed circuit High impact on the quality of the finished products
board) Many reliable suppliers
High level of parts standardization
Strategic item Transformer, IC controller High percentage of the total manufacturing costs
High impact on the quality of the finished products
High level of supplier contribution to the development of
finished goods
Limited number of suppliers (IC controller)
Low level of parts standardization (Transformer)
Bottleneck (PCB, heat sink, transformer) Customized components with low level of standardization
item Small order volume at early start period of HPS
Transferred to other items as HPS increases order volume
Non-critical Chip resisters, varistor, Low percentage of the total manufacturing costs
item themistor, diodes, connector, box, Low impact on the quality of the finished products
label, magnetic core, heat sink, Many suppliers available for replacement need (i.e. low
Table II. inductor, chip capacitor, X-Y level of entry)
Basis of purchasing capacitors, OP AMP, fuse, High level of component parts standardization (resister,
portfolio classification opto-coupler diode, connector, core)
of component parts Low level of standardization for heat sink and box
These firms include one international procurement office and four manufacturing firms that Sourcing
produce household electronics, printers, notebooks, semi-conductors, and LCD panels. negotiation
A total of 77 participants joined the study. Of these purchasing professionals, 72 come from styles
the R&D purchasing department, 2 come from the purchasing management department and
3 come from the maintenance, repair and operating supplies purchasing team. In other
words, approximately 93.5 percent of the participants were working in R&D purchasing,
and their major responsibilities are to support new product development projects 2347
by coordinating activities among R&D engineers and suppliers. Given their working
experience, most of these participants had extensive negotiation experiences with suppliers
and were familiar with sourcing negotiation practices. Therefore, there was a good match
between the background of the participants and the context of this study.
3.2.2 Hypothetical situations and test procedures. All the participants in this experiment
were asked to play the role of sourcing managers who worked at “Sun Group, Inc.” (i.e. a
fictitious company name). The participants were provided with an information sheet and also
a verbal description of hypothetical situations associated with three sourcing items and with
Sun Group Inc. The following hypothetical situations were presented to the participants:
Sun Group has recently completed a new refrigerator development project. Its plan is to produce this
new product in its Chinese factory and export to 50 countries around the world. The estimated initial
order quantity is 10,000 units of refrigerators per month. In order to expand global market share and
exploit the benefits of economies of scale, Sun Group is making an effort to increase the sales volume
by reducing its cost. Specifically, Sun Group needs to significantly reduce approximately 10 percent
of total material costs of this new product to enable a successful market expansion.
Given this hypothetical situation, each participant in the role of the sourcing manager of Sun
Group was required to choose an appropriate negotiation style for negotiating the cost of the
three component items (Item A, Item B and Item C) with the three suppliers (S1, S2 and S3).
As shown in Table III, the hypothetical situations of each item A, B and C were designed to
correspond closely to the definitions of leverage item, strategic item and bottleneck item
respectively in the KPM framework.

Item B (strategic
Item A (leverage item) item) Item C (bottleneck item)

Sourcing item Pressing part Electric motor Power cable

Supplier S1 S2 S3
Item part number P7 M7 PR7
Current purchasing 150 RMB 100 RMB 10 RMB
price
Average order 10,000 pcs 10,000 pcs 10,000 pcs
quantity/month
Share of total 20 15 3
purchasing cost
(%)
Quality evaluation Very good Very good Good
Delivery evaluation Very good Good Not so good
Price evaluation Similar to market price Moderately high High
Entry level of item Very low Very high Low
Qualified supplier Many Not many Many, but not many have attained quality
number in market certification for all different countries
Strategic Critical for final Critical for quality Not so critical in terms of customer Table III.
importance of item customer satisfaction of final product satisfaction and final product quality The hypothetical
Supplier’s factory 70 80-90 90-100 situations of three
utilization rate (%) sourcing items
MD By conducting an experimental test of behavior in a hypothetical situation and analyzing
56,11 the thought process that led to specific decisions in a subsequent group discussion, we
collected quantitative and qualitative data set from participants. Specific test procedures
involved the following steps:
• Step 1: participants were informed about the characteristics of the four types of
negotiation styles during the first hour of the training program.
2348 • Step 2: participants were asked to play the role of sourcing managers who were required
to negotiate the cost of components with three different suppliers (i.e. S1, S2 and S3).
• Step 3: participants were provided with an information sheet that explained the
hypothetical features of three sourcing items (i.e. Item A, Item B and Item C) that had
been produced by these three hypothetical suppliers.
• Step 4: participants were required to become involved in the hypothetical situations
and make recommendations about appropriate negotiation styles as well as the cost
reduction target for each of the three sourcing items.
• Step 5: after handing their pen-and-paper responses, the results and strategic
approaches were discussed in a group setting.
3.2.3 Test results. Based on the above test procedures, the participants recommended
particular negotiation styles and suggested cost reduction target for each of the three sourcing
items. Only 60 out of the 77 participants submitted their paper-and-pencil responses with
multiple choices of negotiation styles. Table IV provides a summary of the test results.

4. Findings and propositions

4.1 Negotiation styles for leverage items
Leverage items are featured with a low supply risk and high profit potential. In this context,
it is easy for buyers to find alternative suppliers that can supply the necessary volume of
leverage items with similar prices and quality. According to existent KPM theory, an
aggressive approach, such as exploitation of full purchasing power and competitive
bidding, is generally recommended when managing leverage items (Kraljic, 1983; Caniëls
and Gelderman, 2007). Previous research also emphasizes that short- to medium-term
supply contracts are more appropriate than long-term collaboration for leverage items
(Kraljic, 1983; Caniëls and Gelderman, 2007).
In the experimental test, we find sourcing practitioners’ choice of negotiation styles
closes to the KPM recommendation, but also surprises in the results: for the leverage item,
most participants (58 percent) chose a competitive negotiation, as predicted by the KPM,
whereas a third of participants (33 percent) also opted to apply collaborative negotiation.
After the test, one participant said:
For Item A, it is natural to choose a collaborative negotiation because of the mutually dependent
nature of the sourcing relationship. However, it is important to achieve the lowest possible cost by
actively applying a competitive negotiation.

Leverage items (%) Strategic items (%) Bottleneck items (%)

Accommodation 3 13 56
Table IV. Collaboration 33 79 21
Strategy choices of Competition 58 6 14
participants for Avoidance 6 1 8
different items Average target for cost reduction 15.50 11 9.80
In addition, most participants tended to obtain the maximum effect of price reduction for Sourcing
leverage item by applying competitive negotiation. Although the purchasing price of Item A negotiation
was similar to external market prices, and the purchasing prices of Item B and Item C were styles
higher than their respective market prices, sourcing practitioners nevertheless decided to
focus more on a price-reduction negotiation for Item A (a leverage item) than for Item B
(a strategic item) or Item C (a bottleneck item). Participants set a negotiation goal of
achieving an average of a 15.5 percent price reduction on Item A (a leverage item). 2349
At HPS, both CEO and component engineer mentioned that they opt for strong
competitive negotiation with suppliers in the following two situations: when suppliers
have enjoyed an ample negotiable profit margin; and when the competitive market
pressure is intense and customer demand for price reduction is quite strong. In these two
situations, HPS vigorously negotiated with its suppliers. In general, HPS mainly uses
competitive negotiation for leverage items and non-critical items. A first example for
such leverage part negotiation is the case of HPS’s printed circuit board (PCB) supplier.
The setting was favorable to competitive negotiation because the HPS could find many
alternative PCB suppliers with high-quality performance records in the Chinese market.
In this situation, HPS adopted a competitive price negotiation approach that resulted in a
5 percent price reduction.
A second example is plastic components, where HPS also reported that it was relatively
easy to find alternative suppliers. HPS’s component engineer said:
Yes, we can easily find available suppliers for plastic component in the market, but it is very
important for us to establish good and long-term relationships with the current supplier of this
component because the supplier has developed and invested in several specific molds for our
products. If we try to do business with alternative supplier just for cost reduction, then I guess,
there would be serious conflicts with the current supplier and also at least two more months will be
required only to develop new moulds for the production of plastic components at the new supplier.
For these plastic components, HPS refrained from trying to change the current supplier just
for the purpose of cost reduction, due to the anticipation of very high switching costs of
quality inspection and re-establishing a stable supplier relationship. Therefore, HPS
adopted a more collaborative negotiation toward the supplier of plastic components rather
than a competitive bidding approach. HPS’s buyers openly discussed with the current
supplier about the practical needs for cost reduction and the requirements of HPS’s final
customers, and were able to achieve cost reductions without switching the supplier. In view
of the insights gained through the previous literature as well as our research results, we
present the following proposition:
P1. Competitive negotiation is dominant approach when negotiating leverage items,
while collaborative negotiation is necessary when the potential switching costs of
changing suppliers are high.

4.2 Negotiation styles for strategic items

Strategic items are associated with high supply risk and high profit potential. Kraljic (1983)
suggested three approaches (i.e. exploit, balance and diversify) when managing strategic
items based on supply market strength and buyer strength. The key risk-mitigation
approaches for strategic items include building close strategic partnerships with suppliers
and finding alternative partners to reduce the risk of overdependence on a single partner
(Kraljic, 1983; Caniëls and Gelderman, 2007). In our experimental test, participants
overwhelmingly chose collaboration negotiation (79 percent), and some of participants chose
an accommodative negotiation (13 percent) for the strategic item. From the discussion with
participants, we found that the practitioners in general chose collaborative negotiation in
recognition of supply risk and strategic importance of strategic item. Why accommodate at
MD all for the strategic item? In the group discussion, practitioners explained that they felt this
56,11 was mandated by the strong power position of the supplier relationship in question.
The first example for strategic item is the negotiation of a transformer at HPS.
For HPS, the transformer is a typical strategic item for three reasons: the unit price of
transformer components is relatively very high; the quality of the transformer has a
substantial influence on the quality of the finished products; and close collaboration with
2350 the transformer supplier plays a very important role in enhancing HPS’s product
development performance. One key informant, the CEO of HPS, mentioned failed attempts
to negotiate the price of transformer components. HPS negotiated with the transformer
supplier and attempted to achieve a 5 percent price reduction, but the supplier insisted on
maintaining the existing cost terms without making any concessions. The CEO listed
several reasons for the failure to successfully negotiate this price reduction with the
transformer supplier: the profit margin of the transformer supplier is quite tight;
switching costs associated with changing suppliers in terms of quality and delivery risks
are very high; and the major customers of the transformer supplier were large global
firms, and HPS’s order volume accounted for only a small portion of the total sales of the
supplier. Overall, HPS’s dependence on the transformer supplier was relatively high,
which led to the failed attempt to negotiate a lower price. Given such asymmetric power
relations, the CEO of HPS gave up his efforts to negotiate the price of the transformer
component and switched to an accommodative negotiation by improving payment terms
in order to maintain a long-term relationship with the transformer supplier. Another
example for strategic item is the integrated circuit (IC) controller at HPS. For the IC
controller, maintaining good quality requires intensive sharing of performance
information and joint problem solving with the supplier. Reflecting this strong
collaborative relationship, the component engineer commented:
IC is the most important component for switching mode power supplier products in terms
of product quality and functionality. Also the IC plays a critical role in the product development
processes, because not only the IC itself influences our product design but also technical
support from IC suppliers is very important for our effective product development. At the
development stage, once we choose a specific type of IC controller from the various
suppliers such as Fairchild, Texas Instrument or ST Microelectronics, we can only use this one at
the production stage.
Given the importance of IC, cost negotiations with the IC controller supplier included an
intensive joint review of appropriate price levels based on industry benchmarks, HPS’s
purchasing volume, IC price trends and foreign exchange rate fluctuation. HPS adopted a
collaborative negotiation in order to settle on an IC price and to maintain the long-term
supportive relationship with this key supplier. In sum, in order to maintain long-term
relationships with its suppliers, HPS adopted either collaborative or accommodative
negotiation styles for the strategic items in response to a number of diverse factors, such as
changing market conditions, profit margins of suppliers and the extent of the buyer’s
dependence on suppliers. Based on these findings, we propose:
P2. For strategic items, collaborative negotiation is a dominant approach for parts for which
buyers perceive the supply relationship as equitable and fair, while accommodative
negotiation is necessary when they perceive high dependence on suppliers.

4.3 Negotiation styles for bottleneck items

Bottleneck items are associated with high risk factors on the supply side and low profit
potential. Supply chain managers frequently encounter substantial challenges in relation to
bottleneck items (e.g. inventory shortages, manufacturing disruption, quality control issues,
supplier dependence, etc.). As a result, these items increase firms’ operational complexity
and require them to incur unexpected expenses with low value creation potential. Sourcing
Therefore, scholars recommend that purchasing managers should get volume insurance and negotiation
find alternative partners (Kraljic, 1983; Caniëls and Gelderman, 2007; Gelderman and styles
Weele, 2002). For this bottleneck item, a majority of participants in our test chose an
accommodative negotiation (56 percent), while, again, a substantial minority with one out of
five participants opted for a collaborative negotiation (21 percent). Purchasing managers
tended to focus their efforts on ensuring stable supply volume by using accommodative and 2351
collaborative negotiation. Interestingly, 14 percent of participants were willing to employ a
competitive negotiation in this context. What was the reasoning behind this? When we
asked the practitioners in the discussion section, they argued that they wanted to counteract
the strong negotiation position of the bottleneck suppliers by aggressively developing
“back-up options.” One of the participants who chose a competitive negotiation said:
Firstly, I will keep accommodative attitude toward this supplier, but I might change to a more
collaborative or competitive style if alternative suppliers can be found.
In case of such available backup plans, the participants were willing to adopt a
collaborative or competitive negotiation for bottleneck item in order to mitigate their
overdependence on existing suppliers of bottleneck items. We can interpret this as a kind
of bluff game, where buyers try to prevent bottleneck suppliers from feeling too secure in
their power position in the short term and use competitive benchmarking and new
supplier validation to increase change options. Buyers thus try to change the unfavorable
power relationship by focusing on a major constraint to their purchasing power, which
is close to what Pazirandeh and Norrman (2014) recommend in their study of weak
buyer/strong supplier combinations.
In the early period of HPS’s operation in China, PCB, heat sink and transformer
components were bottleneck items. These items were customized components with a very
low level of standardization and were characterized by a low purchasing volume, resulting
in a high supply risk and low profit potential. Most of these components were sent to HPS’s
China plant from its parent company, and thereby HPS’s purchasing volume in China was
very small. HPS focused on maintaining long-term relationships with the suppliers of these
bottleneck items by actively sharing its vision about its future possibilities in China.
In HPS’s negotiations on price and payment terms with these suppliers, HPS aimed to keep
the supplier happy by giving substantial consideration to the benefits of the supplier in the
relationship. However, as HPS’s purchasing volume from those suppliers increased, HPS
expanded not only its buying power but also the supplier base for those bottleneck items,
and thereby could afford to utilize other backup supplier options. Subsequently, HPS was
able to gradually move toward either more balanced or more dominant power-positions in
the relationship with the suppliers of these bottleneck items. Regarding these relationship
changes, the component engineer commented:
In the early days of the Chinese operation of our company, for some highly customized
components such as PCB, transformer and heat sink, we had encountered many difficulties to
obtain favorable support from suppliers mainly due to the low purchasing volume. In order to
overcome such problems, we did the following: firstly, we tried to enhance the standardization
level of PCB at the product development stage; and secondly we also tried to increase our
purchasing volume by shifting the purchasing location from the parent company in Korea to our
subsidiary in China. Through such our effort, we were able to achieve more favorable support
from suppliers at the product development stage and a stronger power position in cost
negotiations with suppliers.
As suggested by the KPM logic, our findings showed that securing supply is the principal
goal in handling bottleneck items, and thus practitioners would apply accommodative
negotiation styles. However, they did not want to adopt accommodative attitude in the long
MD run, and tried to adopt a collaborative or competitive negotiation according to the nature of
56,11 changing and evolving supplier relationships. Thus, we present the following proposition:
P3. Accommodative negotiation is effective approach when negotiating for bottleneck
items, while collaborative or competitive negotiation might be adopted if either
alternative suppliers of bottleneck items are available or the buyers’ purchasing
power position increases.
2352
5. Discussions
5.1 Theoretical implications
The findings of this research provide interesting insights that contribute to better
understanding of the complex nature of sourcing negotiation practices. A major theoretical
contribution of this research is to incorporate the negotiation theory into the KPM logic.
Previous studies on KPM have focused primarily on supplier management strategies
(Atkin and Rinehart, 2006; Smeltzer et al., 2003), and thus have not considered specific
negotiation styles within different sourcing contexts. Research on purchasing portfolios
suggests the usage of a specific relationship management strategy for each of the four items
in KPM. For example, exploiting the purchasing power of suppliers is a general
recommendation when negotiating for leverage items because the buyer has a relatively
dominant position in this situation (Caniëls and Gelderman, 2007; Kraljic, 1983). Similarly,
this paper recognizes the need to adopt a competitive negotiation for leverage items.
As such, this study confirms that certain negotiation styles fit better with particular
purchasing portfolio items. At the same time, the findings also reveal that negotiation
decision further need to be adapted to the purchasing situations such as switching costs, the
buyer’s dependence on the supplier and the availability of alternative suppliers in order to
enhance negotiation effectiveness (see Figure 2).
In sum, our findings suggest that each quadrant of KPM is more likely associated with
specific negotiation styles: competitive negotiation for leverage items; collaborative negotiation
for strategic items; and accommodative negotiation for bottleneck items. The findings also
suggest that effective negotiation decision adapts to other environmental factors such as
switching costs, buyer’s supplier dependence and the available alternative suppliers.

High Leverage items Strategic items

• Dominant use of • Dominant use of
competition collaboration
• Optional use of • Optional use of
collaboration accommodation
when perceiving high when perceiving high
Profit impacts

switching cost dependence on supplier

• Dominant use of
accommodation
• Optional use of
collaboration or
competition when
alternative suppliers
Figure 2. are available
Negotiation styles Low Non-critical items Bottleneck items
in Kraljic’s
purchasing portfolio Low High
Risk factors
5.2 Managerial implications Sourcing
Certainly, technological innovation in the form of real-time IT applications and analytic negotiation
software power improves productivity of purchasing and sourcing functions. However, in styles
increasingly complex sourcing contexts, these advancements alone may not do away with
negotiation practices. The findings of this study provide several practical insights into
implementing effective sourcing negotiation practices.
First, in order to achieve effective negotiation outcomes, sourcing professionals need to 2353
understand the KPM logic and its categorization approach based on supply risk and profit
factors, and then should adopt negotiation styles according to the different types of sourcing
items. Specifically, competitive negotiation for leverage items, collaborative negotiation for
strategic items and accommodative negotiation for bottleneck items can be used as a
preferred and appropriate negotiation style. However, practitioners do not necessarily apply
those preferred negotiation style for each quadrant of KPM every time. Instead of applying a
single and fixed approach, practitioners need to flexibly adjust their negotiation styles
according to switching costs of changing suppliers, the buyer’s level of dependency on
suppliers, and the availability of alternative suppliers. For instance, in the case of a high
switching cost of changing suppliers, collaborative negotiation might be a more appropriate
approach for leverage items. Also, practitioners are more likely to change the purchasing
situations of bottleneck items by increasing the level of standardization and/or increasing
purchasing volume. Through such approaches, bottleneck items can be moved to other
quadrants of KPM and,. subsequently, buyers can change the negotiation style from
accommodative into collaborative or competitive approach.
Second, when engaging in price reduction negotiations, sourcing professionals need to
focus more on leverage items than strategic and bottleneck items. Generally, suppliers of
strategic and bottleneck items have a relatively strong bargaining power over buyers. Thus,
if sourcing professionals misguidedly pursue a competitive negotiation for strategic or
bottleneck items without due consideration of the supply risk factors and positional power
of suppliers, these buyers may fail to achieve their intended price-reduction goals and may
sacrifice long-term relationships with suppliers. In contrast, since buyers, not suppliers,
have more bargaining power when negotiating for leverage items, sourcing professionals
can achieve price reduction goals with relatively low negotiation failure risks.
Lastly, this study also provides insights into the effective negotiation in China. Overall, our
findings suggest that collaboration is not only the dominant negotiation style for strategic
items, but also the strongest second category for leverage and bottleneck items, indicating
that Chinese sourcing professionals tend to apply a collaborative negotiation for all
purchasing items. Studies show that people from more collectivist societies tend to choose
cooperative rather than competitive behavior (Cox et al., 1991) and managers from collectivist
backgrounds tend to trust and reciprocate more with partners that are part of their network
(Buchan et al., 2002). China is generally known to be a high collectivist culture (Huo et al., 2015)
and we would thus expect Chinese buyers to act more cooperatively in the circle of close
business associates. This result reflects overall Chinese negotiation styles that tend to avoid
confrontation, competition and conflict in favor of pursuing harmonious relationships
(Kirkbride et al., 1991; Shi and Wright, 2003; Zhao, 2000). Therefore, if foreign sourcing
professionals exclusively focus on getting the best deal by exploiting purchasing power
advantages and exercise a competitive negotiation for leverage items, they may “win some
battles but lose the war.” At the expense of a short-term gain, they may not be able to develop
long-term collaborative partnerships with Chinese suppliers and thus paradoxically lose their
sustainable competitive advantage. Although power and dependence are important variables
in understanding buyer-supplier relationships (Caniëls and Gelderman, 2007), sourcing
professionals should also pay attention to understanding the benefits of collaborative
negotiation and building long-term relationships with suppliers in the context of China.
MD 5.3 Limitations and future research directions
56,11 It is worth mentioning that this study is not free from limitations. First, we did not provide
any statistical evidence to support propositions about the relationship between KPM
and negotiation styles. Our propositions are made on the basis of experiment test and
group discussions with 77 participants and a single case study. Although our study
provides valuable insight into negotiation styles with high internal validity, we caution the
2354 generalizability of our findings. In future studies, the propositions we presented here can be
tested with large survey data for generating empirical evidence with high external validity.
Future studies may further examine how different negotiation styles are adopted in diverse
purchasing contexts (e.g. cultural dimensions, power relationships, cognitive and behavioral
aspects of negotiation participants, etc.). Such studies would provide rich research
opportunities to align negotiation theories with increasingly complex strategic sourcing
management practices.

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Corresponding author
Changsuk Ko can be contacted at: kochangsuk@163.com

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