Journal of Purchasing and Supply Management 24 (2018) 192–203

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Journal of Purchasing and Supply Management

journal homepage: www.elsevier.com/locate/pursup

A quantified Kraljic Portfolio Matrix: Using decision analysis for strategic T

purchasing
⁎
Robert T. Montgomerya, Jeffrey A. Ogdenb, Bradley C. Boehmkec,
a
Department of Mathematical Sciences, United States Air Force Academy, United States
b
Department of Marketing and Logistics, University of North Texas, United States
c
Department of Operational Sciences, Air Force Institute of Technology, United States

A R T I C L E I N F O A B S T R A C T

Keywords: Since its inception, the Kraljic Portfolio Matrix (KPM) has been widely used as a diagnostic and prescriptive
Purchasing portfolio purchasing tool. One of the primary weaknesses of the KPM is the qualitative nature of the model, which results
Kraljic Portfolio Matrix in a subjective method for weighting and positioning suppliers or commodities in the various quadrants. In an
Multi-objective decision analysis effort to help overcome this widely cited weakness, this research proposes an objective, quantitative decision
analysis approach to position products and services within the KPM. Single attribute value functions are used to
quantify the strategic purchasing attributes of the KPM. A multi attribute value function is then used to quantify
and rank-order products and services within the KPM based on the two strategic purchasing objectives. We
empirically demonstrate this approach using data from an organization with a $10 billion purchasing portfolio.
Furthermore, we illustrate how a cost-benefit view of the results help decision makers quickly and easily identify
the products and services most conducive to the implementation of commercial best practice purchasing stra-
tegies. A sensitivity analysis advocates the robustness of our approach.

1. Introduction
Purchasing strategies are a significant contributing factor to the
overall performance of a firm (Padhi et al., 2012). Not only has it been
argued that transitioning purchasing from a tactical to a strategic role
provides sustainable competitive advantage (Ellram and Carr, 1994;
Carter and Narasimhan, 1996; Chen et al., 2004), compelling evidence
supports the relationship between strategic purchasing and supplier
integration (Eltantawy et al., 2009), performance (Carr and Smeltzer,
2000; Carr et al., 2000; Cousins et al., 2006), power (Pazirandeh and
Norrman, 2014; Touboulic et al., 2014), and total cost of ownership
(Weber et al., 2010) among other benefits (Jennings, 2002). Conse-
quently, it has become widely accepted that establishing a strategic
purchasing approach is imperative for today's firm (Talluri et al., 2013).
Towards this goal, employing a purchasing portfolio approach has
become prevalent in both academia and within organizations to im-
prove strategic purchasing (Knight et al., 2014; Gelderman and Van
Weele, 2003; Gelderman and Weele, 2002; Wynstra and Ten Pierick,
2000). The most established portfolio model in literature and practice is
Kraljic's (1983) model known as the Kraljic Portfolio Matrix (KPM)
(Caniels and Gelderman, 2005). The KPM employs a 2 × 2 matrix
comprised of four portfolio quadrants to categorize purchases according
to a range of internal, product, profit and operational factors along with
external, supply market conditions (Gelderman and Semeijn, 2006).
The general idea behind the KPM is to minimize supply vulnerability
and maximize buying power while at the same time “matching external
resources provided by suppliers with the internal needs of the buying
firm” (Dubois and Pedersen, 2002, p. 36). Moreover, the KPM has been
found to provide additional benefits such as improving internal cross-
functional coordination (Gelderman and Semeijn, 2006), visualizing
and illustrating the purchasing strategy (Gelderman and Van Weele,
2005), and diversifying supplier power dependencies (Caniels and
Gelderman, 2007). Thus, the KPM approach has been argued to re-
present the single most diagnostic and prescriptive tool available to
purchasing organizations (Wagner et al., 2013).
However, the Kraljic model is not without its critics. One of the
primary weaknesses of the KPM is the qualitative nature of the model,
which results in a subjective method for weighting and positioning
suppliers or commodities in the quadrants (Knight et al., 2014;
Mohammad et al., 2011). In fact, Olsen and Ellram (1997) emphasized
that the weighting of each factor, which helps to determine the posi-
tioning, is the most important part of the implementation process, but
at the same time is one of the most subjective elements of the KPM
model and decision-makers must come to an agreement on these inputs.

⁎
Corresponding author.
E-mail addresses: bradley.boehmke@afit.edu, bradleyboehmke@gmail.com (B.C. Boehmke).

http://dx.doi.org/10.1016/j.pursup.2017.10.002
Received 2 December 2016; Received in revised form 4 October 2017; Accepted 9 October 2017
Available online 31 October 2017
1478-4092/ Published by Elsevier Ltd.
R.T. Montgomery et al.
To address this Padhi et al. (2012) argue for less subjective methods for
positioning purchases on the matrix; however, advancements with this
concern have been slow. Other concerns with the KPM exist such as
weakness in the measurement of dimensions and variables (Olsen and
Ellram, 1997; Nellore and Soderquist, 2000), lack of prescriptive sug-
gestions for proactively changing the existing power dependence (Cox,
1997; Gelderman and Weele, 2002), disregard for the supplier side
(Lilliecreutz and Ydreskog, 2001; Kamann, 2000), and the failure to
account for interdependencies between products (Olsen and Ellram,
1997; Ritter, 2000) and between agent relationships (Dubois and
Pedersen, 2002). Nevertheless, even among these critics, there is wide
consensus that the KPM model provides a useful tool for describing and
differentiating purchasing situations and developing appropriate sour-
cing strategies (Knight et al., 2014).
The purpose of this paper is to address some of these concerns. We
propose the use of decision analysis to provide a systematic quantitative
approach to making better decisions (Keefer et al., 2004). By in-
corporating decision analysis, we advance the KPM model to become
more objective in nature. Specifically, we propose the use of multi-
objective decision analysis (MODA) as a quantitative framework to
objectively position purchases in the KPM matrix along with identifying
which products and services to begin strategic sourcing efforts with. We
demonstrate our approach by positioning major products and services
procured by an organization which sources over $10 billion per year for
products and services across 79 locations. Consequently, this paper
contributes to the literature in two ways:
1. Providing a novel approach to objectively and quantitatively posi-
tion products and services within the KPM.
2. Providing decision makers an approach to identify those products
and services that are optimal candidates to begin strategic sourcing
initiatives.
The outline of this paper follows. First, we provide a succinct
overview of purchasing portfolio models and the current gap in the
literature for quantitatively positioning items within the KPM. We then
outline our proposed methodology along with the use-case application
of our approach to a subset of the organization's products and services.
We then discuss the results and insights garnered from our analysis and
end the paper with a short discussion of recommendations, future work
and concluding statements.
Fig. 1. Kraljic Portfolio Matrix.
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Journal of Purchasing and Supply Management 24 (2018) 192–203
2. Literature review
2.1. Modern purchasing portfolio approaches
Modern portfolio theory dates back to 1952 when Markowitz (1952)
introduced a framework for assembling a portfolio of assets to balance
expected return for a given level of risk. The concept of portfolio models
subsequently diffused into the strategic management (i.e. Pethia and
Saias, 1978), marketing (i.e. Wind and Claycamp, 1976), and produc-
tion (i.e. Wagner, 1980) literature followed by the purchasing domain
(i.e. Kraljic, 1983; Turnbull, 1990).
Purchasing portfolio models provide an approach for differentiating
suppliers (Padhi et al., 2012; Mota and de Castro, 2005; Buvik and
Reve, 2001) and commodities (Olsen and Ellram, 1997; Nellore and
Soderquist, 2000). Purchasing portfolio models have received con-
siderable attention from academia and within organizations
(Gelderman and Van Weele, 2003). This attention is driven by the re-
cognition that the ability of the firm to manage supplier relations has
been empirically linked to obtaining and sustaining a competitive ad-
vantage (e.g. Chen et al., 2004; Dyer, 1996). Moreover, suppliers have
played an increasingly significant role in the success of firms (Wagner
and Johnson, 2004). However, all suppliers cannot be dealt with in the
same way and the literature supports the need to differentiate supplier
relationships through differentiation schemes offered by purchasing
portfolio models (Gelderman and Mac Donald, 2008; Lilliecreutz and
Ydreskog, 2001).
Kraljic (1983) introduced the first comprehensive portfolio ap-
proach for purchasing and supply management (Gelderman and Van
Weele, 2003). Although other models have been developed (i.e.
Tryggvason and Johansen, 1996; Dubois and Pedersen, 2002; Kamann,
2007), Kraljic's KPM approach has become the dominant methodology
built upon in literature and the foundation for purchasing strategies for
many organizations (Lamming and Harrison, 2001; Gelderman and Van
Weele, 2003). Kraljic's approach leverages a portfolio matrix that
classifies products on the basis of two dimensions: the external di-
mension (‘Supply Risk/Complexity’) concerns the factors regarding
suppliers and supply market, while the internal dimension (‘Importance
of Purchase’) relates to the importance and value impact of a given
product (Dubois and Pedersen, 2002). Each dimension needs to be as-
sessed against a number of variables where an overall classification
score (‘low’ and ‘high’) is established. The result is a 2 × 2 matrix and a
classification in four categories: non-critical, leverage, bottleneck, and
strategic items as illustrated in Fig. 1. This categorization allows com-
modities to be classified in a way that minimizes the supply risk while
maximizing purchasing power and value to the firm (Padhi et al.,
2012).
There are several variants to the KPM; however, most alternatives
build on and extend the KPM by focusing on the factors and variables to
be measured. Table 1 illustrates only a few variants published in the
purchasing literature.
Positioning commodities in this matrix form not only enables
managers to visually see trade-offs between items, but the classification
also allows firms to develop distinctive management approaches for
each category. In fact, Gelderman and Semeijn (2006) and Gelderman
and Van Weele (2003) identified three generalized supplier strategies to
associate with the purchasing strength versus supply market strength
power positions:
1. Exploit: leverage buying power; whether through aggressive or
collaborative means1
2. Balance: implement neither aggressive nor conservative purchasing
1
It is important to note that extant supplier relationship management research has
shown that collaborative approaches are sometimes more effective than adversarial ap-
proaches in generating lower procurement prices (see Henke et al., 2009, 2014).
R.T. Montgomery et al. Journal of Purchasing and Supply Management 24 (2018) 192–203

Table 1
Example variants in purchasing portfolio classification dimensions.

Classification dimensions

Internal factors External factors

Kraljic (1983) Importance of purchase Complexity of supply market

Volume, purchased, percentage of total purchase cost, impact on Availability, number of suppliers, competitive demand, make-or-buy
product quality and business growth opportunities, storage risks and substitution possibilities
Olsen and Ellram (1997) Strategic importance of the purchase Difficulty of the purchasing situation
Competence factors Product characteristics
– purchase influences the firm's core competencies – novelty
– purchase improves knowledge of buying organization – complexity
– purchase improves technological strength of buying organization Supply market characteristics
– suppliers' power
Economic factors – suppliers' technical/commercial competence
– volume/monetary value of purchases Environmental characteristics
– value added of purchase – risk
– criticality and leverage purchases gains with suppliers – uncertainty
Image factors
– supplier image/brand name
– environmental/safety impact of purchase
Bensaou (1999) Buyer's specific investments Supplier's specific investments
Tangible investments Tangible investments
– buildings, tooling, equipment – plant/warehouse location/layout, specialized facilities
Intangible investments Intangible investments
– people, time, effort, best practice, knowledge – sending guest engineers, developing info. systems
Gelderman and Mac Profit impact Supply risk
Donald (2008) Volume purchased, expected growth in demand, percent of total Market conditions, availability/scarcity, number of suppliers, competitive
purchase cost, impact on product quality, business growth demand, make-or-buy opportunities, storage risks, substitution possibilities,
on-time delivery, cultural differences, lack of logistical knowledge, supply
interruptions, duty/customs regulations, shortage of qualified personnel,
import complexity, payment conditions
Lee and Drake (2010) Competitive priority Risk in the supply market
Quality Component risks
– component durability, reliability, innovation – evaluator assessed risk scores for each component
Availability
– flexibility of volume & modification, technological capability
Cost
– cost of purchasing, inventory, quality
Time
– delivery speed & reliability, development speed
Padhi et al. (2012) Profit impact Supply risk
Impact on profitability, criticality of purchase, value/cost of purchase Market risk, performance risk, complexity risk

* Modification of Lee and Drake's (2010) classification dimension table.

approach 2.2. Quantitative approaches for positioning

3. Diversify: search for new suppliers or substitutes
In addition to the variations in what determines the positioning of
products, the KPM has also been used to shift products within the
matrix. For example, Gelderman and VanWeele (2005) illustrated how
practitioners have used the matrix to encourage new market entrants,
which moves an item from strategic to leverage status, and to set goals
for sourcing improvements.
The simplicity and flexibility of the KPM design has been a sig-
nificant contributing factor to its popularity. Moreover, empirical stu-
dies have corroborated the usefulness and validity of KPM and pur-
chasing portfolio analysis in practice. Caniels and Gelderman (2007,
2005) assessed the credibility of the KPM and the factors applied to
measure supply risk and value impact. Leveraging data from Dutch
purchasing professionals, they found theoretical and real situations that
largely satisfy the purchasing strategies while assigning different com-
modities to the KPM (Padhi et al., 2012). Wagner and Johnson (2004)
used interview and archival data for multinational companies and
found a strong relationship between the portfolio approach and com-
petitive advantages obtained. Bensaou (1999) and Lilliecreutz and
Ydreskog (2001) found that firms benefit from entering into a variety of
relationships with different suppliers as directed by a KPM porfolio
approach. Ipso facto, purchasing porfolio analysis has been found to be
one of the top purchasing and supply tools used in industry, second only
to vendor rating (Cox and Watson, 2004).
However, one of the KPM's main critiques revolves around the
question: How does a purchasing manager position a product or service
within the matrix? Most of the research regarding the KPM involves the
framework itself (Olsen and Ellram, 1997; Dubois and Pedersen, 2002),
movement within the framework (Gelderman and Van Weele, 2003;
Caniels and Gelderman, 2007; Nudurupati et al., 2015), application of
the framework to industry (Syson, 1992; De Haan et al., 2003;
Gelderman and Semeijn, 2006; Gelderman and Mac Donald, 2008; Liu
and Xu, 2008; Lee and Drake, 2010; Ferreira and Kharlamov, 2012;
Nudurupati et al., 2015), strategies for the matrix categories (Caniels
and Gelderman, 2007), and buyer-supplier relationships that underpin
management decisions prior to or after placement (Olsen and Ellram,
1997; Nellore and Soderquist, 2000; Caniels and Gelderman, 2007; Cox,
2001). In fact, Padhi et al. (2012), state that “positioning commodities
in the KPM suggested in the literature are mainly based on subjective
judgment of the decision makers to position the commodities in the
different quadrants…They lack analytical rigor, where subjective po-
sitioning of commodities may lead to erroneous outcomes”. Wagner and
Johnson (2004) add that “Despite the abundance of research on re-
lationship patterns and their impact on company performance, the
‘how-to’ question has been widely neglected”. Ramsay (1994) identifies
an “absence of a conceptual framework to facilitate an analytical ap-
proach”. Padhi et al. (2012) add that “positioning of the items in the
portfolio matrix by the purchasing managers are subjective and makes

194
R.T. Montgomery et al.
the portfolio models imprecise”. Knight et al. (2014) reiterate the lack
of analytical rigor, the difficulty in measuring the matrix dimensions,
and the argument “for less subjective methods for positioning purchases
on the matrix”. Lee and Drake (2010) argue that lack of “the synthe-
sizing of qualitative and quantitative measures” promote arbitrary
classification of purchases. Olsen and Ellram (1997) emphasize that
categorizing of “purchases in a portfolio model…is very subjective, and
perhaps the most important part” of the implementation process and
urge the use of quantitative methodologies.
Although not exhaustive, a review of literature identified only five
attempts to use quantitative techniques to position items with the KPM.
Three of the five techniques (Olsen and Ellram, 1997; Liu and Xu, 2008;
Padhi et al., 2012) rely on the concept of importance weights or im-
portance scoring. A review of the decision analysis literature reveals
there may be a better approach. The problem with importance weights
is that they may not take into account the range between the least- and
most-preferred options on each attribute (see Von Winterfeldt and
Edwards, 1993). Rather, swing weighting has become a common ap-
proach to more accurately capture the importance trade-space of given
attributes (Parnell et al., 2013). There is a unique difference between
importance weighting and swing weighting. “Importance weights are
used to reflect the general importance of one attribute over another…
without regard to…the difference between the worst and the best value
points of each attribute” (Watson and Buede, 1987, p. 200). Watson and
Buede further state that “when this difference from worst to best is not
explicitly referenced in assessing weights, we obtain some general no-
tion of importance, which is subject to great variation and argument
among decision-makers” (Watson and Buede, 1987, p. 200). Dillon-
Merrill et al. (2008) argue that “importance weights do not take into
account the range between the lowest and the highest levels of the
value measures” resulting in the potential for important measures to not
be important to the decision. Keeney (2009) adds that “when we
quantify objectives by simply asking for their relative importance,
considerable misinformation about values is produced and a substantial
opportunity to understand values is lost”. However, the use of swing
weighting ensures we capture the full value preference structure rather
than simply an arbitrary score or at best a hierarchy of importance.
Swing weighting also protects against the potential for loss of in-
formation, misunderstanding of decision-maker belief, and even loss of
trade-offs between values.
Zhenfeng et al. (2007) apply factor analysis techniques to the di-
mensions of the KPM. However, the model lacks sufficient detail in
derivation of variable scoring and positioning of items. In all, the ability
to extend this model for practical use is limited and its ease of im-
plementation is inadequate.
The remaining quantitative method used to position items with the
KPM is the Analytical Hierarchy Process (AHP) (Lee and Drake, 2010).
This approach is not without its flaws. From a general methodological
viewpoint concerning AHP, Watson and Buede (1987) argue that al-
though definitions for levels of importance are articulated, incon-
sistencies between importance pairings are common and additional
methods must be used to resolve differences. They add that “instead of
getting a decision-maker to wrestle with his values, the AHP tells him
what they ought to be” (Watson and Buede, 1987). They further
highlight that AHP fails to provide clarity between attributes by using
“a somewhat arbitrary representation of words by numbers which may
be implying an underlying judgment structure which the decision-
maker is unaware of and may disagree with” (Watson and Buede,
1987). Dyer (1990) remarks that “the AHP, as it is traditionally applied
to the evaluation of alternatives, generates rank orderings that are not
meaningful with respect to the underlying preferences of the decision
maker”. Kirkwood (1996) adds that “the [AHP] approach seems overly
complex with its need for sometimes extensive pairwise comparisons of
alternatives and extensive mathematical calculations to determine
rankings. These characteristics seem to obscure, rather than illuminate,
the trade-offs involved in making decisions with multiple objectives”.
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Journal of Purchasing and Supply Management 24 (2018) 192–203
The discussion above highlights what can be considered a gap in
literature to date. The necessity to identify and apply a quantitative
method to position items within the KPM is therefore a pressing need,
prior to undertaking subsequent analysis.
3. Methodology
3.1. Context
The data used for this research comes from a large organization's
procurement function whose primary goal is to leverage its enterprise
reach in order to capitalize on strategic sourcing opportunities that will
maximize value and savings to the organization and stakeholders. From
2010 to 2014, this organization's procurement function spent nearly
$43 Billion in support of its operations. This figure represents nearly
11% of the total 2010–2014 budget of this organization. As the orga-
nization continues to face ongoing operations in multiple locations, the
increased scrutiny by senior leadership to improve strategic sourcing,
and the looming threat of an overburdened economy, the need to un-
cover areas ripe for value maximization and reduced supply chain risk
cannot be overstated. Thus, this research was guided by the desire to
apply the KPM strategic sourcing model to this organizational context
to allow the enterprise to develop distinctive management approaches
for its sourcing activities. To accomplish this the organization required
an objective and quantitative approach to position items within the
KPM and identify the products and services offering the highest po-
tential for value maximization while minimizing supply chain risk
through strategic sourcing. Consequently, the methodology employed is
for the purpose of positioning items within the matrix and identifying
optimal candidates to begin strategic sourcing initiatives.
3.2. Multi-objective decision analysis
The KPM is, in essence, a multi-objective decision model. Kraljic
indicates that a trade-off exists between two factors: supply risk and
value impact. The location of a commodity or service within the KPM
represents this trade-off. Kraljic argues that an organization can fully
exploit its buying power and achieve greater value gains when supply
risk is minimized and value measures are maximized (Kraljic, 1983).
This occurs when items fall within the Leverage quadrant of the KPM.
On the other hand, items that fall outside of the Leverage quadrant offer
less value impact or increased supply chain risk exposure to the firm
and require a different approach, or strategy, for purchasing. The
general idea behind the KPM is to minimize supply vulnerability and
maximize value impact while at the same time “matching external re-
sources provided by suppliers with the internal needs of the buying
firm” (Dubois and Pedersen, 2002, p. 36). Thus, an assumption is made
regarding an overall direction of preference towards the Leverage
quadrant since it is in this quadrant that a purchasing organization is
most likely to achieve maximum value improvements while minimizing
risk exposure.
Relative to the exemplar organization, the objective to minimize
supply risk was interpreted as minimizing supply market complexity.
Risk, according to literature, is restricted to situations in which both the
set of possibilities and the probability distribution over this set are
known whereas decisions under uncertainty are usually made on
grounds other than logical calculation (Loasby, 2001). Kraljic uses the
term risk to identify a supply market that is comprised of many factors
that affect its complexity rather than outcomes with an associated
probability and consequence. Parnell et al. (2013) add that risk neu-
trality is often seen in Government and non-profit decision making.
Therefore, we narrow our focus to a risk-less model with a fundamental
objective to Minimize Supply Market Complexity. This also serves to
simplify the model by eliminating the requirement to incorporate risk
attitude. Furthermore, for the objective to maximize value, the ex-
emplar organization sought to Maximize Strategic Impact. The ability of
R.T. Montgomery et al.
an organization to carry out its particular operations and processes is
critical to the success of the organizations strategy and the centralized
purchasing function of the organization providing the data for this re-
search is pivotal to the strategic success of its various locations.
Thus, for the exemplar organization the fundamental objectives
decision-makers were focused on included:
• Objective 1: Minimize Supply Market Complexity
• Objective 2: Maximize Strategic Impact
Within the exemplar organization, individual products and services
acquired are referred to as Product and Service Codes (PSCs). Given the
two fundamental objectives and their respective direction of pre-
ference, Multi-Objective Decision Analysis (MODA) is implemented as a
framework to quantitatively position PSCs within the KPM.
We recall that the terms minimize and maximize connotes the di-
rection of preference of the decision maker for a particular objective. In
our case, a less complex supply market is preferred over a more com-
plex supply market and higher strategic impact is preferred over less
strategic impact. No manipulation of the market or the organization's
strategy is required or intended when positioning a PSC. However, the
direction of preference is a requirement when using MODA and is vital
to our methodology as will be seen in the following sections.
3.3. Measuring attributes
The alternatives for this research are simply the set of PSCs, or
procurement items, that the organization desires to position within the
KPM. Although there are 1702 PSCs involved in contracts, the organi-
zation supplied a subset of PSCs for this analysis that accounts for 80%
of 2010–2014 spend. Specifically, we seek to position 138 PSCs selected
by the organization.
3.3.1. Supply market complexity attribute
Supply market complexity can be measured by various attributes
such as market structure, concentration, risk, and price trends (i.e.
Zsidisin, 2003; Bozarth et al., 2009; Bode and Wagner, 2015). To cap-
ture these characteristics of a market, organizations can develop in-
ternal algorithms to measure and aggregate this information (i.e. Olsen
and Ellram, 1997; Lee and Drake, 2010) or leverage external ap-
proaches (i.e. Blome et al., 2014; Heckmann et al., 2015). The IBIS-
World Buyer Power Score is one such external resource. IBISWorld is a
research organization whose reports delve into supply markets for a
particular good or service. The IBISWorld Buyer Power Score is com-
prised of three components: price trends, market structure, and market
risk (IBISWorld, 2015). Each consists of factors such as availability of
substitutes, market share concentration, and product specialization.
Switching costs are also considered. These factors are weighted, scored,
and aggregated to produce an overall buyer power score, which ranges
between 1.00 and 5.00 with increments of 0.01. A higher score in-
dicates greater buyer strength and a less complex market. The current
organization has used the IBISWorld Buyer Power Score metric for
several years to monitor the complexity of its supply market. The or-
ganization obtains IBISWorld reports for each PSC as part of their
market research efforts. Therefore, let X be the IBISWorld Buyer Power
Score, which represents our measure of supply market complexity.
A value function for this attribute provides a value score such that
0≤vx (x ) ≤ 1. A single attribute value function (SAVF) is all that is re-
quired since a single attribute was identified to measure this funda-
mental objective. Kirkwood (1996) identified two possible SAVFs:
piecewise linear and exponential. To select the appropriate function,
interviews were conducted with members of the purchasing function of
the organization who are experts in strategic sourcing and have ex-
perience using the KPM. The goal of the interviews was to identify and
build a value preference structure for each attribute by eliciting values
using the fractile method as explained by Howard and Abbas (2015).
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Journal of Purchasing and Supply Management 24 (2018) 192–203
Elicitation sessions determined the exponential SAVF to best represent
value preference. Thus, let A be the set of PSCs and x i be the IBISWorld
Buyer Power Score for PSC i ∈ A . Let x 0 and x* be the lowest and
highest preferred value of attribute X respectively. The corresponding
values represent anchor points whereby vx (x ) is scaled from 0 to 1 such
that vx (x 0) = 0 and vx (x *) = 1. Consequently, let vx (x i ) be the SAVF of
exponential form whereby each x i is an input and ρx be the exponential
constant for vx (x i ) :
1−e[−(xi − x
0)/ ρ ]
x
vx (x i ) = 0
∀i∈A
1−e[−(x * − x )/ ρx ] (1)
3.3.2. Strategic impact attribute
The Resource-based view posits that organizations achieve strategic
impact through their resources (Barney, 1991). However, it has been
recognized that tangible and intangible assets cannot provide compe-
titive advantages by themselves (Mahoney and Pandian, 1992). Hansen
et al. (2004) argue that it is not simply the possession of valuable and
inimitable resources, but how leadership manages these resources is
just as important. Thus, the ability of a manager to “orchestrate” its
resources is fundamental to executing the organization's strategic ob-
jectives and achieving competitive advantage (Sirmon et al., 2011).
Unfortunately, in many large bureaucratic enterprises, government
entities, and non-profit organizations, forced budget reductions remove
managers’ control of resource orchestration (Scheidt, 1978; Furlong,
2012; Boehmke, 2015). In fact, “peanut butter spread” reductions are
often made where all units and functions experience a common re-
duction (Boehmke et al., 2016a, 2016b). Yet in times of budget in-
creases, managers across the organizational hierarchies are free, to an
extent, to exercise judgment in purchasing decisions to align resources
with strategic objectives. Thus, in times of normal or increasing budget
activities, managers will direct their spend activities towards those re-
sources they believe will have the largest strategic impact to their
specific mission.
In conversations with senior leadership from our exemplar organi-
zation, which is a large bureaucratic enterprise, this practice was con-
sidered the norm. Furthermore, in our conversations with senior lea-
dership and management at various levels within the organization, it
was commonly discussed that managers applied budget increases first
to the organization's most strategically critical goods and services.
Thus, in coordination with management, we leverage this assumption/
finding to deduce which PSCs were most critical to the organization by
identifying those PSCs that experienced the largest post-budget-cut re-
bound in spend. To do so, we targeted the change in spend from 2013 to
2014. Spend data from the organization shows that 2013 included
significant budget cuts of approximately 13%. However, the 2014
budgets for spend increased by nearly 6%. This trend was visible at the
most aggregate levels (total organization and total department spend)
down to the most disaggregated levels (sub-unit level spend).
Consequently, as 2014 budgets increased, we identified those PSCs that
experienced the largest post-budget-cut rebound in spend. To do so, we
calculate the percent change of spend for each PSC from 2013 to 2014.
We also calculate overall organization spend over the same period,
compute the deviation between the two, and scaled from 0 to 1.
Therefore, let Y be the delta between the overall organization spend
slope and PSC spend slope from 2013 to 2014. Those PSCs with values
closer to one represent spend that aims to maximize strategic impact.
A value function for this attribute provides a value score such that
0≤vy (y ) ≤ 1. Due to the single attribute measured a SAVF is sufficient to
measure this fundamental objective as well. Elicitation also determined
the exponential SAVF to best represent the value preference. Thus, let pi
be the percent change of PSC i ∈ A spend from 2013 to 2014 and let I
be the percent change of total organizational spend from 2013 to 2014.
Therefore, yi is the delta between total organizational and individual
PSC spend slopes such that yi = pi −I ∀ i ∈ A . Furthermore, let y 0 and y*
be the lowest and highest preferred value of attribute Y respectively.
R.T. Montgomery et al. Journal of Purchasing and Supply Management 24 (2018) 192–203

Fig. 2. The organization's modified KPM.

The corresponding values represent anchor points whereby vy (y ) is value. The results are the swing weight values for wx and wy , which
scaled from 0 to 1 such that vy (y 0 ) = 0 and vy (y *) = 1. Consequently, allows us to calculate the interaction swing weight wxy = 1−wx − wy .
vy (yi ) is the SAVF of exponential form whereby each yi is an input and ρy Thus we can calculate the multi-attribute value function (MAVF) as
be the exponential constant for vy (yi ) : outlined by Keeney and Raiffa (1993):
0 )/ ρ ]
1−e[−(yi − y y V (x , y ) = wx vx (x ) + wy vy (y ) + wxy vx (x ) vy (y ) (3)
vY (yi ) = 0
∀i∈A
1−e[−(y * − y )/ ρy ] (2)

4. Results and analysis

3.4. The KPM
4.1. Single attribute value functions
After solving each single attribute value function, we obtain a
[vx (x i ), vy (yi )] ordered pair for each PSC. This ordered pair allows us to The range of the IBISWorld Buyer Power Score is from 1.00 to 5.00
plot each PSC on the organization's modified KMP shown in Fig. 2. The in 0.01 increments. Thus, to build the value preference structure for the
coordinate plane is also divided into 4 equal quadrants. Partitions occur supply market complexity attribute we anchored the IBISWorld Buyer
at vx (x ) = 0.5 and vy (y ) = 0.5 under the assumption that vx (x ) < 0.5 Power Score attribute measure at a Low of x 0 = 1.00 and a High of
minimizes supply market complexity and vy (y ) > 0.5 maximizes stra- x* = 5.00 representing a value preference score of vx (x 0) = 0 and
tegic impact. These partitions divide the coordinate plane into the four vx (x *) = 1 respectively. The organization representatives stated they
quadrants that represent the four quadrants of the KPM. Plotting each prefer to operate in a market where companies score a 4.00. A series of
[vx (x i ), vy (yi )] score, that is each PSC, using Fig. 2 will help the orga- questions revealed this score represents 90% of the overall value.
nization identify the full trade space among PSCs, allow comparisons Therefore, let vx (4.00) = 0.90 . Consequently, the fitted exponential
between current contracting strategies with KPM-suggested strategies, curve for the supply market complexity attribute (Eq. (1)) formed the
and provide key information as to which PSC and its associated con- curve displayed in Fig. 3 where the IBISWorld Buyer Power Score (x-
tracting strategy requires further analysis. axis) relates to the computed value score (y-axis).
This curve was used to calculate the supply market complexity at-
3.5. Multi-attribute value function analysis tribute score for each PSC. Table 2 provides summary statistics for this
attribute across all assessed PSCs. The higher-than-average attribute
Last, we identify the weights associated with the two fundamental score is a result of relatively high IBISWorld Buyer Power Scores which
objectives. Given that Kraljic identifies a unique relationship between indicate a stronger than average buyer's market.
both axes of the matrix, a multilinear function must be created rather
than a simple additive value model, which has been the subject of the
extant literature. This allows us to capture the preference structure and
relative importance between the two objectives (Goodwin and Wright,
2001). This is also critical in helping to understand the relative im-
portance of each measure and its dependency on the difference between
the worst and the best value points of each measure (Dillon-Merrill
et al., 2008; Parnell et al., 2013). Furthermore, as will be illustrated in
Section 4.4, we can perform sensitivity analysis on these swing weights
to gain even further robustness in our preference structure trade-space.
Weights associated with each attribute and their interactions are
determined following Keeney and Raiffa (1993). First, we identify
[vx (x 0), vy (y 0 )] = 0 as the worst possible value and [vx (x *), vy (y *)] = 100
as the best possible value. Next, we determine which attribute the or-
ganization prefers to swing to its best case while keeping the other
attribute at its worst case and elicit its value. We then determine the
value of the opposing situation, swinging the other attribute to its best
Fig. 3. SAVF used to measure supply market complexity.
case while keeping the first attribute at its worst case and elicit this

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Table 2 Table 4
Supply market complexity SAVF summary sta- PSCs scoring 1.00 for the strategic impact attribute.
tistics.
PSC PSC description FY10–14 spend
Type Value
Z111 Z111 (MAINT-REP-ALT/OFFICE BLDGS) $ 1,076,718,071
Min 0.496 5999 5999 (MISCELLANEOUS ELECTRICAL AND $ 581,355,705
Max 0.980 ELECTRONIC COMPONENTS)
Average 0.811 7025 7025 (ADP INPUT/OUTPUT AND STORAGE DEVICES) $ 463,261,524
Std Dev 0.089 7050 7050 (ADP COMPONENTS) $ 360,901,960
Modea 0.894 Z2LB Z2LB (REPAIR OR ALTERATION OF HIGHWAYS/ $ 295,950,703
ROADS/STREETS/BRIDGES/RAILWAYS)
a 7021 7021 (ADP CENTRAL PROCESSING UNIT (CPU, $ 288,628,522
Mode count = 11.
COMPUTER), DIGITAL)
6350 6350 (MISCELLANEOUS ALARM, SIGNAL, AND $ 195,729,063
SECURITY DETECTION SYSTEMS)
5410 5410 (PREFABRICATED AND PORTABLE BUILDINGS) $ 99,097,618
2590 2590 (MISCELLANEOUS VEHICULAR COMPONENTS) $ 70,531,561
7020 7020 (ADP CENTRAL PROCESSING UNIT (CPU, $ 52,812,639
COMPUTER), ANALOG)
7045 7045 (ADP SUPPLIES) $ 50,673,186
7195 7195 (MISCELLANEOUS FURNITURE AND FIXTURES) $ 48,489,014
4910 4910 (MOTOR VEHICLE MAINTENANCE AND REPAIR $ 36,842,295
SHOP SPECIALIZED EQUIPMENT)
7220 7220 (FLOOR COVERINGS) $ 34,467,701
4210 4210 (FIRE FIGHTING EQUIPMENT) $ 34,300,942
7290 7290 (MISCELLANEOUS HOUSEHOLD AND $ 31,732,507
COMMERCIAL FURNISHINGS AND APPLIANCES)
7490 7490 (MISCELLANEOUS OFFICE MACHINES) $ 18,721,944
4120 4120 (AIR CONDITIONING EQUIPMENT) $ 16,654,569
3590 3590 (MISCELLANEOUS SERVICE AND TRADE $ 9,465,937
EQUIPMENT)

Fig. 4. SAVF used to measure strategic impact.
To build the value preference structure for the second attribute,
fractiles of the distribution were elicited. We anchored the spend slope
delta at a Low of y 0 = −2.00 and a High of y* = +1.00 representing a
value preference score of vy (y 0 ) = 0.00 and vy (y *) = 1.00 respectively.
The organization representatives agreed that a match between PSC
spending and organizational spending, a spend slope delta of yi = 0 ,
generated 90% of the overall value. Therefore, let vy (0.00) = 0.90 . In
other words, PSC spending that followed overall organizational spend
was indicative of a PSC that was very important to the organization
given that budget cuts to that particular PSC were not implemented.
Consequently, the fitted exponential curve for the strategic impact at-
tribute (Eq. (2)) formed the curve displayed in Fig. 4 where the spend
slope delta (x-axis) relates to the computed value score (y-axis).
This curve was used to calculate the strategic impact attribute score
for each PSC.
The high average attribute score (Table 3) indicates that this set of
PSCs represents items considered critical to the organization's strategic
mission and should be reflected in position on the KPM. Given that the
organization performed a thorough analysis to create this prioritized
list of PSCs most conducive for cost reduction, 62.3% of PSCs scoring
higher than 0.900 along with a mode of 1.000 is both sensible and
valid. Of note, 19 of the 138 PSCs analyzed scored a 1.000. To state this
Table 3
Installation mission impact SAVF summary statistics.
Type Value
Min 0.587
Max 1.000
Average 0.912
Std Dev 0.074
Modea 1.000
Nr. PSC's 138
N.r > 0.90 86
% PSC's > 0.90 62%
a
Mode count = 19.
another way, 19 PSCs are considered 100% critical to the organization's
strategy. Table 4 identifies the 19 PSCs and their associated total spend
for 2010–2014. Although this small subset of PSCs represents only 2.5%
of total spend for the organization, their combined total spend from
2010 to 2014 is over $3.7 billion.
To further examine attribute results, the top 50 scores for each SAVF
were examined to determine if PSCs were present in both sets of scores.
15 PSCs were identified and their attribute scores along with
2010–2014 total spend are given in Table 5. This list can be considered
a good starting point for the organization to compare current pur-
chasing strategies versus commercial best practice since this set of PSCs
is both important to the organization's strategy and in a strong buyer's
market. Additionally, we expect to see this set of PSCs in a position
within the KPM that connotes the potential for leverage supplier stra-
tegies.
4.2. Prioritized PSCs and the KPM
Using MODA as a framework provides a unique analytical method
to score the attributes associated with each axis of the KPM. Combining
the SAVF scores for each attribute, each [vx (x i ), vy (yi )] – pair re-
presenting each PSC is positioned within the KPM as shown in Fig. 5.
Positioning the PSCs in the KPM illustrates that 137 of the 138 PSCs
are positioned in the Leverage quadrant. Additional analysis revealed
that 106 PSCs scored 0.75 or higher for both attributes, which is out-
lined in Table 6. Further investigation regarding this phenomenon
discovered that the organization's selection of PSCs for analysis was
based on a specific set of key performance indicators (KPIs) that iden-
tified what the organization considered to be the best opportunity for
strategic impact. The combination of KPI score and annual spend was
used to produce the prioritized list of 138 PSCs. Thus, we should expect
to see them in the Leverage quadrant. Further investigation into this set
of PSCs revealed that items procured to run the organization's various
locations are more often than not common goods and services of which
markets exist beyond the organization's needs. Thus, we should expect
to see a bulk of PSCs congregating to the left and even to the upper left
of the matrix. Moreover, in Kraljic's (1983) seminal work, he used an

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Table 5
PSCs with top 50 scores for both SAVFs.

PSC PSC description SAVF 1 score SAVF 2 score Grand total

J059 J059 (MAINT/REPAIR/REBUILD OF EQUIPMENT-ELECTRICAL AND ELECTRONIC EQUIPMENT COMPONENTS) 0.94 0.87 $ 1,779,285,662.29
7030 7030 (ADP SOFTWARE) 0.97 0.87 $ 1,703,974,283.28
5840 5840 (RADAR EQUIPMENT, EXCEPT AIRBORNE) 0.97 0.87 $ 776,035,548.60
7035 7035 (ADP SUPPORT EQUIPMENT) 0.95 0.86 $ 640,005,251.47
5999 5999 (MISCELLANEOUS ELECTRICAL AND ELECTRONIC COMPONENTS) 1.00 0.86 $ 581,355,704.54
7025 7025 (ADP INPUT/OUTPUT AND STORAGE DEVICES) 1.00 0.94 $ 463,261,524.44
J066 J066 (MAINT/REPAIR/REBUILD OF EQUIPMENT-INSTRUMENTS AND LABORATORY EQUIPMENT) 0.96 0.86 $ 418,840,837.44
7050 7050 (ADP COMPONENTS) 1.00 0.86 $ 360,901,960.23
7021 7021 (ADP CENTRAL PROCESSING UNIT( CPU, COMPTER), DIGITAL) 1.00 0.92 $ 288,628,521.76
8415 8415 (CLOTHING, SPECIAL PURPOSE) 1.00 0.90 $ 162,601,633.63
J049 J049 (MAINT/REPAIR/REBUILD OF EQUIPMENT-MAINTENANCE AND REPAIR SHOP EQUIPMENT) 0.97 0.86 $ 115,220,071.38
7020 7020 (ADP CENTRAL PROCESSING UNIT (CPU, COMPUTER), ANALOG) 1.00 0.92 $ 52,812,638.83
7045 7045 (ADP SUPPLIES) 1.00 0.92 $ 50,673,185.57
AC56 AC56 (R & D-DEFENSE SYSTEM: WEAPONS (MANAGEMENT/SUPPORT)) 0.96 0.89 $ 50,299,696.91
7490 7490 (MISCELLANEOUS OFFICE MACHINES) 1.00 0.98 $ 18,721,943.72

Fig. 5. The organization's PSCs positioned in the KPM. Fig. 6. Revised KPM based on median attribute scores.

Table 6 leadership perceives the x and y attributes as equally weighted.

Further assessment of leverage quadrant breakdown.
Partition nr. SAVF 1 range SAVF 2 range
1 (0.75, 1.00) (0.75, 1.00)
2 (0.75, 1.00) (0.50, 0.75)
3 (0.50, 0.75) (0.50, 0.75)
4 (0.75, 1.00) (0.75, 1.00)
example of a company that positioned 5000 items. Only 75, or 1.5%
were positioned on the right side of the matrix (the strategic or bot-
tleneck quadrants). However, this initial assessment helped to confirm
that the objective quantitative approach applied aligned with the or-
ganization's internal analytic processes to identify strategically im-
portant PSCs. Furthermore, that the bulk (106 of 138) of the PSCs are in
the upper left of the Leverage quadrant, the organization should be able
to leverage its buying power to maximize strategic impact while
minimizing supply chain risk with these PSCs. However, the question
remains – of these PSCs, which should the organization focus on first to
maximize strategic impact while minimizing supply chain risk?
4.3. Identifying the cost-benefit trade space
One approach to address this concern is to let the cutoff points be
produced by the data rather than using the arbitrary 0.50 cutoff value.
In Fig. 6 we adjust the cutoff values to the median attribute score values
such that vx (x ) = 0.82 and vy (y ) = 0.92 . As a result 33 PSCs fall into the
upper left quadrant, which could be considered the leverage quadrant
of the leverage quadrant. This may provide the organization with a
reduced set of PSCs to focus on; however, this still assumes that
To address this concern, weights are elicited for both single attribute
Count value functions by using the process outlined in Section 3.5. Recall that
[vx (x 0), vy (y 0 )] = 0 and [vx (x *), vy (y *)] = 100 . These two points re-
106 present opposing ends of the KPM in the Bottleneck and Leverage
25
quadrants respectively. To determine weights, values are elicited for the
2
4 following scenarios: [vx (x *), vy (y 0 )] and [vx (x 0), vy (y *)], which also re-
present opposing ends of the KPM in the Noncritical and Strategic
quadrants respectively. The weight associated with the Strategic quad-
rant represents a scenario where an item is extremely important to the
mission but is only found in a very complex market. The weight asso-
ciated with the Noncritical item represents an item not important to the
mission yet abides in a non-complex, buyer-empowered market. Either
scenario is not preferred by the organization's representatives. Value
preference elicitation sessions revealed they preferred to swing attri-
bute Y (Strategic Impact) to its best while holding attribute X (Supply
Market Complexity) at its worst over the opposing situation. The value
they assigned to this swing was 52%, thus wy = 0.52 . The same held for
the opposing situation. Swinging attribute X to its best while holding
attribute Y represented a value of 48% to the team, thus wx = 0.48. Ipso
facto, wxy = 0.00 .
Therefore, these weights are used per Eq. (3) to produce a rank-
order list of PSCs with regard to the hierarchical set of evaluation
measures. The PSCs with the highest MAVF score indicates products
and services that have the highest impact to mission and is in the “best”
buyer's market. Table 7 identifies the top 25 PSCs with the highest
MAVF score. These PSCs can be considered the most likely candidates
for the organization to start applying commercial best practice strate-
gies to reduce costs.
We can obtain further insight by examining the cost-benefit trade

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Table 7
Top 25 PSCs with highest MAVF scores.

PSC PSC description FY10–14 spend MAVF score

7490 7490 (MISCELLANEOUS OFFICE MACHINES) $ 18.72 0.991

7025 7025 (ADP INPUT/OUTPUT AND STORAGE DEVICES) $ 463.26 0.973
5836 5836 (VIDEO RECORDING AND REPRODUCING EQUIPMENT) $ 54.37 0.965
7045 7045 (ADP SUPPLIES) $ 50.67 0.963
7020 7020 (ADP CENTRAL PROCESSING UNIT (CPU, COMPUTER), ANALOG) $ 52.81 0.960
7021 7021 (ADP CENTRAL PROCESSING UNIT (CPU, COMPUTER), DIGITAL) $ 288.63 0.960
7520 7520 (OFFICE DEVICES AND ACCESSORIES) $ 24.17 0.955
8415 8415 (CLOTHING, SPECIAL PURPOSE) $ 162.60 0.949
5810 5810 (COMMUNICATIONS SECURITY EQUIPMENT AND COMPONENTS) $ 594.46 0.937
5985 5985 (ANTENNAS, WAVEGUIDES, AND RELATED EQUIPMENT) $ 628.88 0.936
5999 5999 (MISCELLANEOUS ELECTRICAL AND ELECTRONIC COMPONENTS) $ 581.36 0.935
7050 7050 (ADP COMPONENTS) $ 360.90 0.934
7010 7010 (ADPE SYSTEM CONFIGURATION) $ 666.54 0.932
AC56 AC56 (R & D- DEFENSE SYSTEM: WEAPONS (MANAGEMENT/SUPPORT)) $ 50.30 0.927
5805 5805 (TELEPHONE AND TELEGRAPH EQUIPMENT) $ 363.59 0.923
5840 5840 (RADAR EQUIPMENT, EXCEPT AIRBORNE) $ 776.04 0.922
V126 V126 (TRANSPORTATION/TRAVEL/RELOCATION-TRANSPORTATION: SPACE TRANSPORTATION/LAUNCH) $ 3745.18 0.921
7030 7030 (ADP SOFTWARE) $ 1703.97 0.920
J049 J049 (MAINT/REPAIR/REBUILD OF EQUIPMENT-MAINTENANCE AND REPAIR SHOP EQUIPMENT) $ 115.22 0.914
R706 R706 (SUPPORT-MANAGEMENT: LOGISTICS SUPPORT) $ 5572.89 0.912
D316 D316 (IT AND TELECOM-TELECOMMUNICATIONS NETWORK MANAGEMENT) $ 716.58 0.912
J066 J066 (MAINT/REPAIR/REBUILD OF EQUIPMENT-INSTRUMENTS AND LABORATORY EQUIPMENT) $ 418.84 0.911
R497 R497 (SUPPORT-PROFESSIONAL: PERSONAL SERVICES CONTRACTS) $ 391.60 0.911
AJ16 AJ16 (R & D-GENERAL SCIENCE/TECHNOLOGY: PHYSICAL SCIENCES (MANAGEMENT/SUPPORT)) $ 126.75 0.910
J059 J059 (MAINT/REPAIR/REBUILD OF EQUIPMENT-ELECTRICAL AND ELECTRONIC EQUIPMENT COMPONENTS) $ 1779.29 0.909

space. Fig. 7 plots these most-likely candidate PSCs based on total cost
and MAVF score. The non-dominated PSCs are marked accordingly with
the assumption that the organization prefers to maximize the “benefit”
(MAVF score) of those PSCs with the largest cost impact to the orga-
nization. The non-dominated PSCs form the Pareto optimal set, or ef-
ficient frontier, of PSCs. Seven non-dominated PSCs are identified as the
“Pareto Optimal Set”. When considering value preferences and overall
spend, this set of seven represents the optimal set of PSCs for the or-
ganization to begin strategy comparisons and implement commercial
best practice purchasing strategies.

Fig. 7. Non-dominated PSCs within the cost-benefit trade space.

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4.4. Assessing robustness with sensitivity analysis
To assess the robustness of our results we performed sensitivity
analysis on the swing weights assigned to each single attribute value
function. Sensitivity analysis allows us to see the impact on the MAVF
score when adjusting the weights within a given range and provides
feedback regarding biases in the modeling and elicitation procedures
(Hamalainen, 2004). Consequently, we assessed results when wx ranged
between 0.38–0.58 and wy ranged between 0.42 and 0.62. For every
combination of weight adjustments, we consistently identified 12 of the
138 PSCs with the highest MAVF score indicating them as most likely
candidates for initial strategy comparisons. In fact, four PSCs never
changed position. These results strengthen the case that the underlying
MODA framework is robust and that we have adequately captured the
value preferences for procured goods and services. Past research sup-
ports the argument that multi-attribute utility modeling typically yields
valid mathematical representations of the preferences of decision-ma-
kers (Fischer, 1979).
4.5. Assessing non-prioritized PSCs
Lastly, to further examine our MODA framework, we assessed
eleven PSCs that were not part of the organization's originally prior-
itized set of 138. Fig. 8 plots these PSCs based on their respective SAVF
scores. We observe two PSCs (6635 and R704) that are positioned in the
Leverage quadrant. They represent a combined annual spend of nearly
$25M. However, these two PSCs were not originally prioritized by the
organization's internal approach to be considered for strategic sourcing
initiatives. This was due to the fact that the organization's internal
analysis used overall spend with their KPI scoring criteria as a means to
prioritize PSCs. Although we understand the organization's desire to
focus its efforts on PSCs that have large impacts on its overall budget,
our analysis highlights that these prioritization criteria may result in
potential missed opportunities for strategic sourcing. In fact, this dis-
cussion promotes positioning PSCs within the KPM using the MODA-
framework as an effective starting point a priori to implementing the
organization's usual internal analysis.
We also identify PSC G002, positioned in the Strategic quadrant. A
score of 0.00 was assigned for the supply market complexity SAVF due
to IBISWorld not providing any market research for this type of service.
This seems to indicate that a “buyer's market” may not exist. Therefore,
according to our scoring criteria, we assumed this is a complex market
in which to operate and the organization confirmed this assumption.
This, along with the fact that spending remained steady from 2010 to
2014, resulted in G002 being positioned in the Strategic quadrant.
Although G002 is only responsible for an average of $3.6M of annual
spend for 2010–2014, the KPM appropriately positions it in the Strategic
Fig. 8. KPM for non-prioritized PSCs.
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Journal of Purchasing and Supply Management 24 (2018) 192–203
quadrant. Again, by not considering KPM position first and only relying
on the combination of KPI score and overall spend, the organization
may not be able to identify PSCs that should require further in-
vestigation as a result of its divergence from the Leverage quadrant.
Finally, after calculating the MAVF scores for these non-prioritized
PSCs and including them in the Cost–Benefit Trade Space plot, we find
that the Pareto Optimal Set does not change. Again, this is due to the
low FY10-14 spend of the non-prioritized PSCs. We noted that although
non-prioritized PSCs may not land in the Pareto Optimal Set, the ag-
gregate spend of non-prioritized PSCs within the Leverage quadrant
should not be overlooked. We emphasize that the Leverage Quadrant is
the starting point for finding PSCs with high potential for maximizing
value impact while minimizing risk exposure. The KPM helps identify
such PSCs. The Pareto Optimal set simply identifies which of those PSCs
to select first for implementing strategic sourcing efforts.
5. Discussion and summary
Strategic purchasing is a critical element of success for today's or-
ganization and applying a purchasing portfolio approach has become
one of the dominant purchasing strategies. Moreover, Kraljic's portfolio
matrix has become the fundamental structure that most purchasing
portfolio strategies rely upon. However, within the extant literature,
positioning products and services within the different quadrants of the
KPM is primarily based on subjective judgment of the decision makers.
This has left two important questions unresolved:
1. How does a purchasing manager quantitatively and objectively position a
product or service within the matrix?
2. Which products and services should the organization focus on first when
implementing a strategic sourcing initiative?
5.1. Contributions
The proposed approach helps to address the current gap in the KPM
literature regarding the necessity to identify and apply a quantitative
method to position items within the KPM. With limited applications of
quantitative techniques to position items within the KPM, our method
expands the objective and quantitative rigor that can accompany a KPM
application. Furthermore, our approach goes beyond the quantitative
positioning of product and services in the KPM, but also provides a
rigorous approach to quantitatively and objectively rank-order products
and services for strategic sourcing initiatives.
Specifically, we introduce the use of MODA into the KPM literature
base to capture the value preferences of decision makers. First, we
applied a SAVF to objectively quantify the dimensions and attributes of
the products and services. We then leverage swing weights and a MAVF
to rank-order the products and services to identify those, which re-
present the most likely candidates for strategic sourcing opportunities.
A cost-benefit comparison further refined this list by identifying the
Pareto optimal set of products and services most conducive to strategic
sourcing opportunities. A sensitivity analysis and validation set as-
sessment was performed to ratify the robustness of our methodology.
Our approach is managerial relevant since it not only improves the
objectiveness, quality, and confidence of positioning products and ser-
vices within the KPM matrix, but it also helps decision makers identify
those products and services that are optimal candidates to begin stra-
tegic sourcing initiatives. Due to the ease of implementation, organi-
zations can quickly implement our solution. Furthermore, by leveraging
the swing weights and sensitivity analysis, procurement managers will
understand how the solution space changes based on managerial pre-
ferences. This allows managers to identify those products and services
that consistently appear optimal for strategic sourcing initiatives re-
gardless of preference structure.
The organization whose data was used for this research acknowl-
edged that the objective and quantitative approach proposed and
R.T. Montgomery et al.
demonstrated by this research represents a simpler and faster approach
than the subjective approaches advocated in the literature. The lea-
dership also acknowledged that this approach led to higher quality and
more insightful results than the approaches they had used in the past.
The management team is excited about the time and effort savings that
this new approach represents. They also view this approach as a way of
providing objective continuity across leadership changes and between
the various levels of leadership within their organization.
5.2. Limitations and future research
Despite the rigor of our analysis, we accept that certain limitations
exist that might entice further research. First, our analysis leverages a
SAVF for each of the attributes (value impact and supply complexity)
assessed. Future research can expand this approach by incorporating
MAVFs so that multiple measures could be used to value a given at-
tribute. Moreover, future research can strive to incorporate new attri-
butes that potentially contribute to the two dimensions. Furthermore,
our research focuses on quantifying the attributes of procured products
and services and indicating where strategic sourcing efforts should
focus first. However, our research does not identify the appropriate
procurement strategy techniques that should be applied to these iden-
tified opportunities. Future research should seek to link the results of
our quantified approach to specific procurement strategies to provide
decision makers with a complete purchasing portfolio framework.
An additional limitation of this analysis is the lack of support for the
cutoff values that produce the four KPM quadrants. Future research
should analyze possible cutoff value approaches, whether they are de-
termined from statistical properties of the data such as median, mean,
standard deviations, or quantiles, and see how these change the inter-
pretation of the results or perspective. This may provide significant
insight into whether the current arbitrary 0.50 cutoff is reasonable or if
alternative approaches are more appropriate depending on the business
context. Lastly, this analysis relies on the data from a single organiza-
tion. Future research should strive to replicate the approach advocated
here using data from other organizations to perhaps strengthen the
overall generalizability of the approach, to verify whether or not the
assumptions made hold true in other contexts, and to determine whe-
ther or not the cutoff values utilized are equally applicable to other
organizations.
5.3. Concluding remarks
Many organizations only leverage a fraction of what could poten-
tially be managed and saved through strategic sourcing. Strategic
sourcing even one additional percent of the spend of large organizations
could equate to billions of dollars of value improvement. Implementing
strategic sourcing via a purchasing portfolio framework, organizations
have the opportunity to more aggressively leverage their buying power
and select appropriate sourcing strategies and tactics. With Kraljic's
portfolio matrix being the most widely used diagnostic and prescriptive
purchasing portfolio framework, this research greatly contributes to
this framework by providing a more quantitative and rigorously
grounded matrix. This provides purchasing managers an objective,
quantitative approach to identify products and services ripe for stra-
tegic sourcing initiatives.
Appendix A. List of abbreviations
AHP Analytical Hierarchy Process
KPI Key Performance Indicator
KPM Kraljic Portfolio Matrix
MAVF Multi-Attribute Value Function
MODA Multi-Objective Decision Analysis
PSC Product and Service Code
SAVF Single-Attribute Value Function
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