Eskom Procurement Book 2015

PROCUREMENT AS A SUPPORT AND STRATEGIC FUNCTION WITHIN COMPANIES

Users of the matrix segment their purchase requirements across two dimensions, i.e., the number of active suppliers in the marketplace and the value of the good or service to the buying organisation. For some requirements an active supply market might consist of three or four suppliers. For other items there may be dozens of qualified suppliers. The concept of value also does not have a specific definition. Value can be a function of total dollars spent on an item, or it could be a relatively inexpensive item that has a disproportionate effect on product or service performance. Perhaps the most important reason for using a tool such as the portfolio matrix is its prescriptive nature. Once a supply manager or team quantifies the total spend for each commodity or category, the good or service can be positioned within the most appropriate quadrant. This will help identify (1) the type of supplier relationship to pursue, (2) whether to engage in a win-lose or win-win negotiation and relationship approach, (3) whether to take a price or cost analytic approach, (4) the types of supply strategies and approaches that should work best given the placement of an item, and (5) how best to create value across different purchase requirements. The portfolio matrix contains four quadrants where we position or place goods and services. Part of the value that supply managers bring is an understanding of their organisation’s purchase requirements and then knowing how to pursue an appropriate supply strategy. There is also value in understanding how to shift items across quadrants to realise even greater value. The goods and services in the transaction quadrant have a lower total value with a limited supply market. Reducing the transactions cost of the purchase is the primary way for supply professionals to create value here, usually through electronic systems or procurement cards. Even when an item has many potential suppliers the cost of comparing sources outweighs the value resulting from the search. Any price analysis that occurs is cursory due to the low value of the good or service. In reality, relationships are not even a concern in this quadrant. The number of suppliers that reside in this quadrant should not be a major concern to supply managers. It is simply not worth the effort to get bogged down with transaction items and suppliers. Reducing the transactions cost of a purchase is the primary way to create value in this quadrant.

4.4.2.1 Transaction Quadrant

4.4.2.2 Market Quadrant

The market quadrant includes standard items or services that have an active supply market, lower to medium total value, many suppliers that can provide substitutable products and services, well-defined specifications, and low supplier switching costs. Commodity chemicals, fasteners, corrugated packaging, and other basic raw materials that do not have an unusually high dollar value are

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