What is sourcing portfolio analysis? Discuss the model and the strategies and tactics associated with each quadrant

Question

What will be an ideal response?

Answer 1

Answer: In portfolio analysis, the products or services to be sourced are assigned to one of four strategic quadrants, based on their relative complexity and/or risk impact to the firm and their value potential. In general, the more money a company spends on a particular good or service, the higher its value potential. Depending on what quadrant a product or service is assigned to, the buying firm can then identify the most appropriate sourcing strategy, tactics, and actions.
The four quadrants are Routine, Leverage, Bottleneck, and Critical.
The "Routine" Quadrant. Products or services in the routine quadrant are readily available and represent a relatively small portion of a firm's purchasing expenditures. Typical examples include office supplies and cleaning services. The sourcing strategy therefore becomes one of simplifying the acquisition process, thereby lowering the costs associated with purchasing items in this quadrant. Specific actions can include automating the purchasing process, reducing the number of suppliers used, and using electronic data interchange (EDI) or purchase cards to streamline payment.
The "Leverage" Quadrant. Products or services in the leverage quadrant tend to be standardized and readily available, and they represent a significant portion of spending. The sourcing strategy therefore focuses on leveraging the firm's spending levels to get the most favorable terms possible.
The "Bottleneck" Quadrant. Bottleneck products or services have unique or complex requirements that can be met only by a few potential suppliers. In this case, the primary goal of the sourcing strategy is to not run out; in effect, the goal is to ensure supply continuity. This might involve carrying extra inventory to protect against interruptions in supply or contracting with multiple vendors to reduce supply chain risks.
The "Critical" Quadrant. Like bottleneck items, products or services in the critical quadrant have complex or unique requirements coupled with a limited supply base. The primary difference is that these items can represent a substantial level of expenditure for the sourcing firm. In cases such as this, the sourcing firm will spend considerable time negotiating favorable deals and building partnerships with suppliers, as well as preparing contingency plans in case of an interruption in supply.