Aligning purchasing portfolio management with sourcing negotiation styles

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Aligning purchasing portfolio management with sourcing negotiation styles

Mingu Kang

School of Management, Zhejiang University, Hangzhou, PR China

Paul Hong

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 nature of power relationships influence the ways that buyers negotiate with their suppliers (Pazirandeh and Norrman, 2014). Since purchasing items in the KPM frame are characterized by diverse power and dependence situations, it is necessary for actors to apply not only

Sourcing negotiation

styles

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Received 24 September 2016 Revised 9 September 2017 Accepted 2 May 2018

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Management Decision Vol. 56 No. 11, 2018

pp. 2341-2356

© Emerald Publishing Limited

0025-1747

DOI 10.1108/MD-09-2016-0662

MD 56,11

2342

differentiated supplier relationships (Caniëls and Gelderman, 2007), but also appropriate types 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

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.

1. 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.

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