RESOLVING CONSTRAINTS IN COLLABORATIVE

PROCUREMENT THROUGH THE LENS OF A

PORTFOLIO PURCHASING MODEL:
A TRADITIONAL LITERATURE REVIEW
Shumank Deep1, Marcus Jefferies2, Thayaparan Gajendran3
1,2,3
School of Architecture and Built Environment, University of Newcastle, Australia

International Symposium on Frontiers of Infrastructure Finance-2017

14-15 December 2017

1
Contents
■ Background
■ Methodology
■ Observations from Review of Recent Literature
■ Research Gaps
■ Research Aims and Objectives
■ Current Concept in collaboration
■ How relationships become adversarial
■ Portfolio Purchasing Model
■ Influence of Antecedents of Power-dependence on Collaboration
– Governing Elements of Collaboration and Power Dependence
■ Project Appraisal Matrix
■ Conclusion
■ References

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Background
■The concept of collaborative procurement is defined as a collaboration between contractor, supplier
and subcontractor for a project.
■Research focus in between 2000-2012 was on idea of “Why to collaborate” and researchers were
mainly focused on:
– identification of critical factor affecting construction procurement selection in construction projects(Akintoye
et al., 2000; Alhazmi & McCaffer, 2000; Bresnen & Marshall, 2000; Ernzen & Schexnayder, 2000),
– supply chain in construction(Vrijhoef & Koskela, 2000; Palaneeswaran et al., 2001; Thunberg & Persson,
2014),
– Institutional refroms in construction(Winch, 2000; Zsidisin et al., 2000)
– utilisation of ICT (Gajendran & Brewer, 2012),
– public private partnership (Ahadzi & Bowles, 2004) .
■An the research focus changed to the idea of “What is affecting collaboration” in 2012-17 and
following aspects have been explored
– barriers of collaboration(Ey et al., 2014),
– risk allocation and resource dependency(Donato et al., 2015; Donato, 2016),
– critical factor for managing relationships (Pal et al., 2017),
– relationship quality(Jelodar et al., 2016; Jelodar et al., 2017).
■It was between 2012-17 most researches were aimed on the later theme and identified that the
phenomenon of collaboration is based on relational attributes of buyer supplier relationship
(Jelodar et al., 2017)
■All researcher equivocally obeserved that the variables like trust, commitment, relaiblity,
adversarial relations, opportunism, intrinsic behaviour and unfair risk allocation are the major
factor that impact collaboration to greater extent in a highly transactional project environment.
3
Methodology
■ Current study is a traditional literature review
■ Relevant articles reflecting constraints of collaboration, and portfolio
purchasing models were identified from: Scopus (2000-2017) and
Google Scholar (1983-2017)
■ Articles published in 2000-2017 were considered out which most of
them were published in 2016-2017.
■ To minimize duplication of references endnote reference manager
software was used
■ A total of 796 research articles were selected and were reduced to 93
through application of a systematic process
■ To frame research question and define research aim systematic
process was used

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Observations from review of Recent Literature
■ Construction industry is hesitant in adapting itself to change in scale of projects
and lags behind others (Ey et al., 2014)
■ Highly ambiguous project environment and arm’s length relationships result
in Adversarial relationships and opportunism (Caloffi & Gambarotto, 2016;
Chae et al., 2017)
■ Current state of collaboration will not be able to achieve value for money in near
future(Rahmani et al., 2017).
■ Varying level of commitment has been observed in collaborating parties mostly
due to presence of arm’s length relationships (Jefferies et al., 2014,Walker &
Rahmani, 2016,Børve et al., 2017,Davis et al., 2017) and only relational attribute
are insufficient to resolve such constraints.
■ Factors like breach of trust, lack of communication, arm’s length relationship,
commercial pressures, influences unfair risk allocation that results in
adversarial relationships and opportunism (Donato et al., 2015; Donato, 2016)
■ Current literature on procurement is mostly concerned about achieving
integration in relationship between client and contractor (Broft et al., 2016;
Badi et al., 2017; Caloffi et al., 2017; Sanderson et al., 2017) with a focus on
relational attributes.
■ There is a very little evidence of application of power-dependence utilization to
observe client contractor relationship. The available evidence only focus on use of
portfolio purchasing models in business expansion decision making for
organisation based in Europe(see Arantes et al., 2014; Arantes et al., 2015; Ferreira
et al., 2015), hence PPM is yet to be tested for Australian conditions

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Research Gaps
■ No one has yet explored influence of Power and
Dependence on collaboration in construction industry.
■ Very few evidences are available which use portfolio
purchasing model to make procurement selection
decisions.
■ Scarcity of literature focusing on relationship
asymmetry in contractor and subcontractor relationship in
construction projects.

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Research Aim and Objectives
■ The aim of this study is to determine that how portfolio purchasing models could
enhance the level of collaboration.
■ To achieve this aim following objectives are required to be fulfilled
– Determine the relationship between antecedents of Power-Dependence and
Elements that govern collaboration
– Develop a project appraisal matrix using Portfolio Purchasing Model for
classification of procurement decisions

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Current Concept of Collaborative Procurement
Lack of Arm¶s Length Communication Commercial Exercise of Reward
Opportunism Regionalism
Trust Relationship Failure Pressures and Coercive power

Barriers of
Collaboration

Adversarial Coercive Client

relationships & Poor Project Performance
Sceptical Contractor

Supply
Chain Risks

Reliability of Supplier/ Commitment of Supplier/ Logistical Unfair Risk

Cost overruns Sub-Contractor Sub-Contractor Risks Allocation

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How Relationships become adversarial

Sub-
Contracor

Main Contractor Passes Risk down the Hierarchy

As a result of Ambiguity
 Reliability is doubtful
 Lack of Commitment
 Logistical Failures
Principal Consultant Main Contractor  Breach of Trust
Sceptical About profit Margin and results in Regionalism
 Excessive
Dependence on
insurance
 Cost Overrun
 Disputes

Main Contractor Passes Risk down the Hierarchy

Causses of Strained Relationship

 Client·s own interests
 Opportunism
 Lack of trust Supplier
 Miscommunication
 Unfair Risk Allocation

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Portfolio Purchasing Model
■ The Kraljic portfolio purchasing modal was proposed by Peter Kraljic in 1983, but due to its
robustness its yet quite popular in several industries for making purchase
decisions(Gelderman & Weele, 2002; Gelderman & Van Weele, 2003, 2005)
■ The modal aims at maximising the supply security and reduce cost, by exercising the
purchasing power’s of an organisations(Caniëls & Gelderman, 2005; Caniëls & Gelderman,
2007)
■ The modal transforms procurement from a transactional activity to an strategic
event(Gelderman & Van Weele, 2003; Caniëls & Gelderman, 2007; Gelderman et al., 2016).
■ Though the model was criticised for it subjectivity but its observed that all criticism was
based on theoretical assumption and lack empirical evidence and qualitative theoretical
underpinning(Gelderman & Van Weele, 2005)
■ The modal explains different strategies a buyer could adopt, depending upon which they can
classify their procurement decisions(Vwerhwyden, 2003)

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Portfolio Purchasing Model
Exploit buying power Terminate partnership, find New supplier
Kraljic portfolio purchasing model (Caniëls & Gelderman, 2005) (partner of convenience) Accept the Locked-in
Partnership
Profit impact/Supply risk Low High Develop Strategic Partnership
Maintain Strategic Partnership

Leverage Strategic
High
Exploit purchasing power Form Partnerships High
Leverage Strategic
7
Non-critical Bottleneck 8
Low
Ensure Efficient supply Assure Supply 6
9
5
Profit
Impact

Standard Strategic recommendations (Gelderman & Van Weele, 2003)
Classification Categories Holding the position
Leverage Maintain partnership
Bottleneck Maintain Safety Stocks
Non-Critical Individual ordering
Maintain a Strategic Partnership
Strategic
Accept a locked-in partnership
2
Moving to another Position 1
3
Develop strategic partnership
4
(Moving to Strategic)
Non-critical Bottleneck
Low
Find a new supplier
Low High
(Moving to non-critical)
Supply Risk
Collection of requirements Reduce dependence and risk, find other
Individual ordering, Pursue
(moving to leverage) solutions
efficient processing
Accept the dependence, reduce the
Terminate the partnership
Proofing requirements negative consequences
(moving to leverage)

Strategic decision for all categories in Kraljic’s PPM Quadrant (Gelderman

& Van Weele, 2003)

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 Influence of Antecedents of Power-dependence on Collaboration
Governing
Antecedents of Power dependence Researchers Supporting the Idea
Elements
 Importance of Product or Service
 Buyer’s Knowledge of Market Abusafiya and Suliman (2017); Apa and Sedita (2017); (2017); Bai et al. (2017); Barman and
Trust  Switching Costs Charoenngam (2017); Brito and Miguel (2017); Bylund and McCaffrey (2017); Caloffi et al.
 Experience and Commercial Importance of Supplier/Subcontractor (2017); Carmeli et al. (2017); Chae et al. (2017); Chand et al. (2017)
 Reputation of Supplier/ Sub-contractor in the market
Arantes et al. (2014); Ardeshir et al. (2014); Caridi et al. (2014); Dike and Kapogiannis
 Number of Potential Suppliers in the Market
(2014); Ekeskär et al. (2014); Ey et al. (2014); Chae et al. (2017); Danesh et al. (2017); Daniel
 Current State of Competition
Commitment et al. (2017); Davis et al. (2017); de Araújo et al. (2017); Dixit et al. (2017); Leviäkangas et al.
 Cartelisation in Supply Market
(2017); Mello et al. (2017); Nguyen and Watanabe (2017); Trautrims et al. (2017); Yang et al.
 Reputation of Supplier/ Sub-contractor in the market
(2017)
 Importance of Product/Service
Ateş et al. (2015); Doloi (2015); Eriksson (2015); Gressgård and Hansen (2015); Hesping and
 Experience and Commercial Importance of Supplier/Subcontractor
Schiele (2015); Janipha et al. (2015); Lessing and Brege (2015); Love et al. (2015); Muir Jr
Reliability  Buyer’s Market Knowledge
(2015); Nair et al. (2015); Ruparathna and Hewage (2015); Walker et al. (2015); Aitken and
COLLABORATION

 Current State of Competition

Paton (2017); Chae et al. (2017); Chen and Wang (2017); Pal et al. (2017)
 Reputation of Supplier/ Sub-contractor in the market
 Importance of Product/Service
 Number of Potential Suppliers in the Market
Huo et al. (2016); Jean et al. (2016); Jelodar et al. (2016); Sariola and Martinsuo (2016); Wang
 Current State of Competition
Nature of et al. (2016); Chae et al. (2017); Daniel et al. (2017); Davis et al. (2017); Grandinetti and
 Cartelisation in Supply Market
relationship Grandinetti (2017); Guo et al. (2017); Hänninen et al. (2017); Jelodar et al. (2017); Tan et al.
 Switching Costs
(2017); Wu et al. (2017a); Wu et al. (2017b)
 Experience and Commercial Importance of Supplier/Subcontractor
 Reputation of Supplier/ Sub-contractor in the market
 Importance of Product/Service
 Number of Potential Suppliers in the Market Ateş et al. (2015); Doloi (2015); Kang and Jindal (2015); Manu et al. (2015); Suprapto et al.
Behaviour  Current State of Competition (2015); Yazhuo (2015); Barman and Charoenngam (2017); Komurlu and Arditi (2017); Pal et
 Switching Costs al. (2017)
 Reputation of Supplier/ Sub-contractor in the market

 Number of Potential Suppliers in the Market

 Buyer’s Market Knowledge
Market Arantes et al. (2014); Du et al. (2016); Badi et al. (2017); Hänninen et al. (2017); Santandrea
 Current State of Competition
Conditions et al. (2017); Shen and Cheung (2017); Terho et al. (2017)
 Cartelisation in Supply Market
 Experience and Commercial Importance of Supplier/Subcontractor

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Governing Elements of Collaboration and Power Dependence
Factors governing Antecedents of
Collaboration Importance of Power-dependence
Product/Service
Number of
Potential
Suppliers in the
Trust Market

Commitment Importance of Buyer¶s Market

Trust Product/Service Knowledge

Number of Potential
Relaibility Commitment Suppliers in the
Market
Current State of
Relaibility Current State of Competition
Competition
Nature of Nature of
Relationship relationship Experience and
Commercial Importance
of Supplier/Subcontractor Cartelisation in
Behaviour
Supply Market
Market Reputation of Supplier/
Conditions Sub-contractor in the
Behaviour market Switching Costs

Experience and
Market
Commercial Importance
Conditions
of Supplier/Subcontractor

Reputation of Supplier/
Sub-contractor in the
market

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Project Appraisal Matrix
Supply Risk

Low High

High

Leverage (Tactical) Strategic

A number of suppliers are available in the market and current
supplier or sub-contractor could be easily substituted with
another following possibilities arise:
 Select supplier organisation by asking favourable quotes to
gain competitive advantage
 Appoint a number of supplier or subcontractors to perform
same task, but limiting the percentage of work to be
accomplished by them, but it has it own consequences i.e.
variable quality, conflicts etc
Decisions to establish a partnership with the contracting party
and share their IP or prefer to work with them . Decision
depends on the following situation:
 The product or service is vital and give an competitive
advantage
 Small Number of Suppliers are available
 The supplier is offering a better value as compared to other
and ensures efficient logistics

Profit
Impact

Non-Critical (Conscious) Bottleneck(Dilemma)

The products and services falling under this category
are comparatively stable and opportunistic behaviour
will be of no help for the buyer. These are possible
outcomes in this categories:
 Limited competitive advantage
 Streamlined workflow
 High satisfaction Supplier/Sub-contractor
 Efficient supply chain can be easily established
In this situation Principal must be conscious about working
with the most trusted supplier. However the decision should be
made considering:
 The balance of competitive advantage should be established
keeping in mind the associated constraints.
 Inventory Maintenance costs.
 Volume insurance for major risk
 Effective communication should be maintained with the
suppliers

Low

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 Conclusion

■ Portfolio Purchasing Model enhances collaboration by realization of

bargaining capacity and purchasing power
■ Minimizes Supply Risks therefore assures equitable allocation of risk and
removes collaboration constraints
■ Strategic recommendations by Gelderman & Van Weele, 2003, impact
partnering decisions through visualisation of importance of various
products and services.

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