Archive: December, 2015

New kid on the block (Sourcing Portfolio Analysis)

These days there is no shortage of advice for procurement practitioners in blogs, white papers and, less often, books. I was keen to read Andrew Cox’s latest book, Sourcing Portfolio Analysis, because he is a well-known academic and the book promised to offer an alternative to the approaches developed by Kraljic and Porter.

Purchasing Portfolio Analysis was developed by Kraljic in 1983 and is the most commonly used purchasing tool. It reduces the overall sourcing decision-making process to positioning within a simple four-box matrix. In this matrix, practitioners locate their categories of spend in order to identify which pre-defined approach to use. Cox’s critique of the tool runs to many pages, however, his key complaints are that it’s too simplistic and the model is static.

Porter’s Five Forces methodology was developed in 1979 and offers a more detailed approach than Kraljic to analysing supply market complexity.  Porter identified five forces that affect supply markets. Again, Cox’s critique runs to many pages, however, the main issue is that the approach focus on structural factors such as size of the market, number of competitors and capacity utilisation but ignores information based factors such as information asymmetry, lack of transparency and buyer incompetence.

Cox believes that that “gravest error” of Kraljic and Porter is that “buying organisations have sourcing relationships with suppliers, not with supply markets”. To address this error, Cox has developed the Sourcing Portfolio Analysis (SPA). Like Kraljic, this a positioning tool, however, rather than four boxes, there are 16. Categories of supply are mapped against buyer/supplier power and criticality. Categories of supply can move from one position to another enabling a more dynamic model.

The author calls for a “paradigm shift” in thinking about how to undertake category management and the development of appropriate sourcing strategies. This revolution is predicated on the use of SPA as a more effective tool for enabling managers to make choices about the most appropriate sourcing strategies and tactical levers to use when seeking improvements in value for money from suppliers.

Cox’s students and former students at Birmingham University Business School and IIAPS’s will claim that “Sourcing Portfolio Analysis” is essential reading. At over 300 pages, I doubt many will read it thoroughly. I think the model is just too complicated for most organisations to consider. It is not realistic to expect practitioners to consider 165 “power attributes” before deciding on the sourcing strategy. I would recommend IIAPS white paper called Power Positioning & Sourcing Portfolio Analysis but even that runs to 19 pages.

Despite the justified criticism, you get the feeling that Cox envies Kraljic’s success. If SPA has any hope of matching that success then it needs to be a lot more accessible.