Phase 3: Strategic Positioning
Next the company positions the materials identified
in phase 1 as strategic in the purchasing portfolio
matrix (see Exhibit IV). It can then identify areas
of opportunity or vulnerability, assess supply risks,
and derive basic strategic thrusts for these items. The
purchasing portfolio matrix plots company buying
strength against the strengths of the supply market
and can be used to develop counterstrategies vis-àvis
key suppliers—an approach sometimes called
“reverse marketing.”
The cells in the purchasing portfolio matrix correspond
to three basic risk categories, each associated
with a different strategic thrust. On items where
the company plays a dominant market role and suppliers’
strength is rated medium or low, a reasonably
aggressive strategy (“exploit”) is indicated. Because
the supply risk is slight, the company has a better
chance of achieving a positive profit contribution
through favorable pricing and contract agreements.
Even so, it has to take care not to exploit the advantage
so aggressively that it jeopardizes long-term supplier
relationships or provokes counterreactions by
insisting on rock-bottom prices in times of market
discontinuity.
On items where the company’s role in the supply
market is secondary and suppliers are strong, the
company must go on the defensive and start looking
for material substitutes or new suppliers (“diversify”).
It may have to increase spending on market
research or supplier relations, or even consider backward
integration through major investments in R&D
or production capacities. In short, the company needs
its supply options.
For supply items with neither major visible risks
nor major benefits, a defensive posture would be over conservative
and costly. On the other hand, undue
aggressiveness could damage supplier relations and
lead to retaliation. In this case, a company should pursue
a well-balanced intermediate strategy (“balance”).
Usually, a company will find itself in different roles
with respect to different items and suppliers. When longer-term contract obligations, for example, or higher
prices—in order to ensure an adequate supply.