portfolio approaches - liuc università cattaneomy.liuc.it/matsup/2009/y90102/2 portfolio approaches...

Percorso di Eccellenza in PROJECT MANAGEMENT

PORTFOLIO APPROACHESPORTFOLIO APPROACHES

Guido MICHELI & Enrico CAGNO02.2399.405602.2399.4054

Guido [email protected]@PoliMI.it

2

AgendaAgenda

Date Object Tutorial Examples Teamwork

Thursday 29/10Morning (4h) Project Procurement

(focus point)

Thursday 05/11

Morning(4h) Portfolio Approaches +Afternoon (4h)

Tuesday 17/11

Morning(4h) Supplier Selection +Afternoon (4h) & Vendor Rating

(hints)

Wednesday 02/12

Afternoon (4h) Project Work (follow-up)

Guido JL Micheli © LIUC - Portfolio Approaches

Guido JL Micheli © LIUC - Portfolio Approaches 3

Team WorkTeam Work

+ ResultsCommunication &Discussion

Guido JL Micheli © LIUC - Portfolio Approaches 4

Focusing available resources by means of Procurement Portfolio Approaches

The goalThe goal

Focusing resources in order to use the most fitting tools/strategies/practices (BSR, Outsourcing, e-Procurement, …)

Guido JL Micheli © 5LIUC - Portfolio Approaches

Focusing resourcesFocusing resources

Focusing resources• First: spending analysis (PARETO)


Low value… what about risk?

Val

ue p

er C

lass

Cum

mulative %

0%

20%

40%

60%

80%

100%

120%

€ 0

€ 100.000

€ 200.000

€ 300.000

€ 400.000

€ 500.000

€ 600.000

€ 700.000

Total Value Accum Value

Focusing resources – Overall TeamworkFocusing resources – Overall Teamwork

TeamworkGroups of 4/5 people• ABC classification• Items vs. classes of items …• Comments


Earliest portfolio approachesEarliest portfolio approaches

Earliest portfolio approaches• Kraljic Matrix is the most common approach and it represents

one of the first attempts at focusing the available resources on the actually demanding items.

• Key issues:– Procurement must be considered as strategic– Items to be procured have different levels of criticality (e.g.:

screw vs. bridge crane)– Resources (manpower - first of all -, time, money…) are never

enough… thus it is vital to use them in the best way!


KraljicKraljic

The dimensions• The dimensions identified by Kraljic to classify an item are:

– Importance for purchasing• Purchase volume• Added value

– Supply market complexity• Descriptive complexity• Specificity• Supply market concentration• Suppliers bargaining power

• Other• Purchase Frequency (-)• Environmental (-) / legal constraints (+)• Level of innovation (+)• Internal complexity (+)

– Is this description exhaustive?


Kraljic - TeamworkKraljic - Teamwork

Teamwork:Same groups of 4/5 people

• Each group must evaluate 36 practices (9 practices times 4 types)– Green: very useful or recommended– Yellow: modest impact, sometimes applicable– Red: useless, not applicable or even dangerous (avoid)

• Comments

• 30 minutes

• Discussion


Bottleneck

Parts standardizationRisk/Benefits sharing

Supply base enlargement / Global sourcingVolumes consolidation

Stressed NegotiationSuppliers development

Partnership and collaborationLife cycle cost

Multiple and Parallel sourcing

Strategic






Non critical






Leverage






Importance for Purchasing

Supp

ly M

arke

t Com

plex

ity

Low High

Low

High

Kraljic - TeamworkKraljic - Teamwork


Project-specific portfolio approachesProject-specific portfolio approaches

A Project Procurement perspective

PROCUREMENT

PROCUREMENT MANAGEMENT (& SRM)

MARKETINTERNAL

SKILLS AND CAPABILITIES

ITEM TO BE PROCURED

ITEM PROCURED

SS VR

TIME-WINDOW


A Project-specific portfolio approach: further dimensions• A more exhaustive description includes several dimensions:

– Time availability. Nowadays completion time is getting shorter and shorter. It is necessary to distinguish the items that have to be procured “in a hurry” from those that don’t have to be. This is a particularly important dimension when working for a project.

Projects duration: from 36 to 24 monthsProcurement: critical items acquisition start BEFORE the

project itself!!!!


Reliability of the Supplier …Critical path of the projectLong lead time acquisitions…



– Quality request. This dimension concerns the required performances of the item to be purchased.

Quality is a QUALIFIER!

Plant performance

Commissioning OK

Project Success (ON TIME!!!!!)




– Reference level. It is about the obligation to select the suppliers within a number provided by the customer.

Typical of the EPC: Emergent Countries National Governments as clients (Middle/Far-East)?



A Project-specific portfolio approach • A scheme of the model


StrategicClassification

Internal Criticality

Value importance

- Time availability- Quality request

Market

- Number of suppliers - Reference level

Kinds of productsFirm’s Strategy

TOTAL CRITICALITY


A Project-specific portfolio approach • A zoom on the evaluation of the total criticality


HIGH VALUEMEDIUM CRITICALITY

HVMC

HIGH VALUEHIGH CRITICALITY

HVHC

LOW VALUELOW CRITICALITY

LVLC

LOW VALUEHIGH CRITICALITY

LVHC

Internal Criticality

Valu

e im

port

anceHIGH VALUE

LOW CRITICALITYHVLC

LOW VALUEMEDIUM CRITICALITY

LVMC


A Project-specific portfolio approach • The outcome is a set of ‘n’ extended matrix, where ‘n’ depends on

the number of kinds of products. For every kind of products, the matrix can be depicted in the following way:


LVLC HVLC LVMC HVMC LVHC HVHC

TOTAL CRITICALITY

MA

RK

ETC

OM

PET

ITIV

E

M

ON

OPO

LY

std.

non

std

.

s

td.

n

on s

td.


Supply Strategies and ToolsSupply Strategies and Tools

The use of a Project-specific portfolio approach • The outcome of the innovative model (a set of ‘n’ extended matrix,

where ‘n’ depends on the number of kinds of products) allows to identify the best strategies and tools for each item to be procured. Particularly:

– Buyer-Supplier Relationships– Outsourcing of one or more phases of the procurement process – E-Procurement tools

– … (Supplier Selection, Expediting, VR policies, …)



The use of a Project-specific portfolio approach • A scheme

LVLC HVLC LVMC HVMC LVHC HVHC

TOTAL CRITICALITY

MA

RK

ETC

OM

PET

ITIV

E

M

ON

OPO

LY

std.

non

std

.

s

td.

n

on s

td.

Buyer-Supplier Relationships

Outsourcing

E-Procurement tools



The use of a Project-specific portfolio approach– Buyer-Supplier Relationships

Medium-term Relationships (agreements)

Partnerships

Short Term

Medium Term

Long Term

Spot Relationships (price-oriented)

Tactical Relationships

Low Criticality

High Criticality

Resources, Commitment

and Integration

with Suppliers



The use of a Project-specific portfolio approach– Outsourcing of one or more phases of the procurement process– Strenghts:

• It allows to focus on more strategic phases of the whole process• A portion of the costs of a firm can get variable

– Weaknesses• Less control on the outsourced phases • Loss of Know-how in medium/long term



The use of a Project-specific portfolio approach– E-Procurement tools

Pre-Purchasing

Purchasing

Post-Purchasing

e-DESIGNe-INTELLIGENCEe-SOURCING

e-BUYING

e-AUCTION

e-BIDDING

e-CATALOG

e-ESCROW

P-CARDe-PAYMENT

e-RATINGe-LOGISTICSe-FULFILLMENT


Class of items

Kindof product

Project Criticality ValueMarket

Time

Cost

Quality

In-Group Acquisitions

Reference

# Suppliers

Application – Alstom Power ItalyApplication – Alstom Power Italy

• Classes of items vs. items

• Project-oriented

• Goal: fitting strategies/tools


Competitive

Market

Crit

ical

ity fo

r Pro

ject

Crit

ical

ity fo

r Pro

ject

Low

Hig

h

High Value

Partnership Medium-term

Tatical Spot

Competitive

Market

Oligopolistic

Crit

ical

ity fo

r Pro

ject

Crit

ical

ity fo

r Pro

ject

Low

Hig

h

Application – Alstom Power ItalyApplication – Alstom Power Italy


• Area of a bubble: value

• Colour of a bubble: class of items

Monopolistico

Competitive

Market

Oligopolistic

Crit

ical

ity fo

r Pro

ject

Crit

ical

ity fo

r Pro

ject

Low

Hig

h

Low Value

Medium-term Tactical

Tactical Spot

Complex Systems

Tailor-made materials

Complex Systems


Servizi Materiali Standard


Sistemi Complessi

Materiali Non Standard

Sistemi Complessi




Oligopolistic CompetitiveMarket

Crit

ical

ity f

or P

roje

ctC

ritic

ality

for

Pro

ject

Low

Low

Hig

hH

igh

E-Procurement Buyer-Side

Marketplace

Intensity of Relationship

- Outsourcing opportunity +

Partnership

Spot

Tactical

Medium-term

Seller-Side

Application – High ValueApplication – High Value


Complex Systems


Complex Systems




Sistemi Complessi


Sistemi Complessi





Crit

ical

ity f

or P

roje

ctC

ritic

ality

for

Pro

ject

Low

Low

Hig

hH

igh

E-Procurement Buyer-Side

Marketplace

Intensity of Relationship

- Outsourcing opportunity +

Medium-term

Spot

Tactical

Tactical

Seller-Side

Application – Low ValueApplication – Low Value

Higher Outsoucing opportunity


• 3 Projects of industrial plants for energy production

• Global value ~ 450 Mln €

• # Orders: 3.000 (> 20.000 Order lines)

• Considered 70% of the global value

• 306 item codes grouped in 47 Classes

Application – Spending AnalysisApplication – Spending Analysis



General ind. materialsField materials

Nuts & Bolts

ChemicalsPiping

Electric Components

Civil Components

Tools SW

Varnishings

Consultancy

Commissioning

Administration

Valves

ICT Consultancy

Tech.Systems

Boilers

Civil works

Electric Installations

Assembling

Transportsi

Analysis SW

Cathodic Prot.Comm. Sys.

Clock Sys.

Transformers

Actuators

Pumps

Containers

Electric Panels

HVAC

DCS

Frames

Handling tools

Transducers

Engines

De-superheater

U.P.S.

Valves

Mixers

Filters

GeneratorsHeat exchangers

Compressed air

Crit

ical

ity f

or P

roje

ctC

ritic

ality

for

Pro

ject

Low

Hig

h

Complex Systems


Standard Materials

Services

Supervision

Fire Protect.

Application – Spending AnalysisApplication – Spending Analysis


Complex Systems

Tailor-made Materials

Complex Systems


17,7%2,90%

5,99%1,30%

14,67%1,64%

7,72%1,57%

Services Standard Materials


17,48%51,87%

Complex Systems


Complex Systems




Value%#Orders%

15,58%13,74%


Crit

ical

ity f

or P

roje

ctC

ritic

ality

for

Pro

ject

Low

Low

Hig

hH

igh

Complex Systems


Complex Systems


4,13%1,26%

0,58%0,65%

3,69%1,19%



1,13%0,17%

2,00%1,02%

1,71%2,08%

Complex Systems


Complex Systems


0,61%0,2%

0,77%0,17%

0,23%0,24%

1,45%3,58%



0,00..%0,3%

1,80%1,77%

2,77%14,62%


High ValueHigh Value Low ValueLow Value

Application – ResultsApplication – Results


Portfolio approach to project procurementSame groups of 4/5 people• ABC classification• Items vs. classes of items• Suggested supply strategies/tools/practices• Comments

Overall TeamworkOverall Teamwork


portfolio approaches - liuc università cattaneomy.liuc.it/matsup/2009/y90102/2 portfolio approaches...

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