Against the many new articles and books being produced on the changing face of procurement and the importance of value creation and collaboration, Andrew Cox’s new book “Sourcing Portfolio Analysis” came out earlier this year. The book is essentially a series of prescriptive 2 X 2 and 8 X 8 matrices that establish different typologies for supplier segmentation, that ostensibly can lead to improved sourcing outcomes. This work builds on much of the prior strategic positions concepts introduced by Michael Porter’s Five Forces analysis in his book Competitive Strategy (1980), as well as Peter Kraljic’s “Segmentation Matrix” published in the Harvard Business Review (1983), as well as Professor Cox’s own articles, working papers, and book chapters (which consume 3 pages of the reference section of the book). Unfortunately, the most up-to-date reference apart from his own that are cited are from 2008, and it is clear that there is a major gap in Cox’s use of more modern research paradigms that are related to relational contracting and negotiation. In fact, the subtitle for the book, “Power Positioning Tools for Category Management and Strategic Sourcing” gives it all away. This book is essentially about how to gain more power over suppliers in negotiating contracts. Cox has taken the tools of Porter and Kraljic, and put them on steroids. The author spends the entire book focused on building even more detailed segmentation matrices within segmentation matrices to define different types of sourcing environments. This results in several new terms that he is able to try to segment into relationship typologies. This results in a variety of different typologies that are not only completely confusing, but indeed meaningless! Take, for example, this one:
Reciprocal – Supplier Development + Supply Chain Sourcing: Full lean / agile / agilean supplier collaboration at the first tier + arm’s-length sourcing from within the supply chain, in which neither party maximizes their share of value.
Or another good one:
Buyer Dominant – Supplier Development + Partial Supply Chain Management: full lean/agile/agilean supplier collaboration at the first tier + information-based collaboration only within the supply chain, in which the buyer maximizes their share of value from all suppliers in the chain.
A good example of this type of relationship would be……???? This is the type of mumbo-jumbo you might hear from a newly minted supply chain consultant who has had too much coffee at breakfast!
What bothers me about this book is that it is entirely focused on power, and how a buyer can reduce their dependence on suppliers, and therefore “receive better value for money deals”. The notion that dependence may not be a bad thing, so long as it is goverened through effective contractual mechanisms, performance measurements, open exchange of information, and mutual benefits is entirely lacking from the context of relationships developed by Cox. While I am in agreement that driving competition in any type of supply chain relationship is a good thing, it can involve increasing dependence through long-term mutually beneficial relationships. For example, my experience with Honda is that they often seek to build “supplier for life” relationships, that are focused on robust should-cost models, target costing, supplier development, and continuous improvement strategies in collaboration with suppliers. In another industry, oil and gas, I have witnessed supplier relationships that span ten years or more that are based on complete open books cost plus strategies that seek to drive demand management and improvement strategies. These types of relationships do not exist in the world of Cox’s two by two Sourcing Portfolio matrices.
Unfortunately, the typologies identified here fail to provide even a single set of practical examples or cases that define exactly what is meant. And that is a telling problem with this book – these are theoretical models that have worked well, but which cannot be readily identified in practice. Perhaps this may be due to the fact that Professor Cox has had engagements primarily with organizations that are already in a position of power. His work was used for a long time within IBM, a large buyer, and which was known primarily for its ability to leverage spend and drive touchless procurement technologies. A great deal of focus and writing on procurement has been on the relatively simple context of a large and powerful buying organisation, procuring an uncomplicated product or service from an acquiescent supplier. But the world is not limited to IBM and 2 by 2 categorizations.