A Portfolio Approach to Supplier Relationships

By: Rasmus Friis Olsen & Lisa M. Ellram

The purpose of this study is to describe the use of portfolio models in understanding supplier
relationships. To assist in managing different kinds of supplier relationships, researcher develops
a normative portfolio model. Portfolio approach is use in strategic planning and in marketing and
purchasing. In this article, I agree with authors conclusion where he said that the Portfolio
model and methodology described have some limitations. Primarily, the model focuses on
manufacturing companies purchasing a variety of products and services. These could easily be
adapted for a service, government or not-for-profit organization only.
There are three steps in Portfolio Model of Supplier Relationship, which is:
Step 1 Analysis of the company purchase
This step is to categories the companys purchases according to the strategic importance of the
purchase (e.g.: competence factor, economic factors and image factors) and difficulty of
managing the purchase situation such as in product characteristic, supply market and
environmental characteristic.
Step 2- Analyze the supplier relationship
In this step, another portfolio model is used based on the relative supplier attractiveness and the
strength of the current supplier relationship.
Factor influencing the relative supplier attractiveness are:
1. Financial and economic factor;
2. Performance factor;
3. Technological factor;
4. Organizational, cultural and strategic factor and
5. Other factors
Factor describing the strength of the relationship are:
1. Economic factors;
2. Character of the exchange relationship;
3. Cooperation between buyer and supplier and
4. Distance between buyer and the supplier.
Step 3 Develop action plan
Usually this step is divided by cell. Some guidelines on how to establish on order of priority
among the resulting action plan provided.
The relationship can be strengthened by enhancing the communication, providing the supplier
with more volume or involving the supplier in product development or value analysis.
Future research includes an extensive empirical testing of the usefulness of the portfolio
approach and the normative suggestions in this study. The research methodology should begin
with case studies to capture the important aspects of the implementation process. Longitudinal

studies in a company could provide information about the usefulness of the portfolio approach. It
is difficult to compare the use of the portfolio approach in different companies, because several
company-specific factors, such as technology, norms, and values, will influence the management
of the company' s supplier relationships. A related area is the development of measures of
success for supplier relationships. One aspect of the success of supplier relationships is the
relative supplier attractiveness, i.e., the extent to which the current supplier is more attractive in
terms of performance, strategic fit, etc., compared with other suppliers. Allocation of resources
and the strength of the relationship could also be important measures of the success of the
supplier relationship management.

Highlight the Key Lessons Learned

Suggestions on How to the Author(s) Point
If possible, suggest alternative rationale in the case study
If possible, broaden orexpand their key points with other examples,
Personal or work related.
Students are also expected to discuss the case study in class regardin their insights
Gained from the case study.