THINKING DIFFERENTLY ABOUT PURCHASING

PORTFOLIOS: AN ASSESSMENT OF SUSTAINABLE

SOURCING
MARK PAGELL
York University

ZHAOHUI WU
Oregon State University

MICHAEL E. WASSERMAN
Clarkson University

Kraljic is widely viewed as a driving force behind the concepts of supply

management and purchasing portfolios. Kraljic proposed that supply man-
agement professionals needed to engage in a new approach, embracing
globalization, technology and risk. This article marked a critical juncture for
supply chain management. Almost three decades later, it is evident that the
purchasing portfolio concept has been widely adopted as an effective practi-
tioner tool and a well-accepted tenet in the supply chain management liter-
ature. However, a recently completed study yielded interesting evidence of a
potential shift in supply chain management, specifically, in sustainable
sourcing. We recently observed that a number of leaders in sustainable supply
chain management (SSCM) were not organizing purchasing portfolios in the
manner suggested by Kraljic. We found organizations buying what would
traditionally be leveraged commodities in a manner more appropriate for stra-
tegic suppliers. This unexpected observation suggests that the supply chain field
may face another critical juncture, this time related to SSCM. This manuscript
describes the observed phenomena and then, using an inductive approach,
enhances the existing theory to explain what was observed. The end result is a
modified sustainable purchasing portfolio model that should provide a stra-
tegic tool to help both academics and practitioners adapt to the new realities
of SSCM.

Keywords: environmental issues; procurement/purchasing processes; supplier manage-

ment; sustainability; social responsibility

INTRODUCTION emergence of supply chain management as a critical

Kraljic (1983) urged purchasing scholars and practi-
tioners to push forward and embrace the concepts of
supply management and purchasing portfolios. This
important paper advanced the proposition that pur-
chasing professionals needed to engage in a new ap-
proach that embraced globalization, technology and risk.
It can be argued that this paper marked a critical juncture
for supply chain management. Almost three decades
later, it is evident that Kraljic’s ideas enhanced the
driver of business performance. Today, the purchasing
portfolio is a well-accepted part of the supply chain lit-
erature (Gelderman and Van Weele 2005), and many
researchers have tested and refined the concept (e.g.,
Olsen and Ellram 1997; Gelderman and Van Weele
2003). The importance of Kraljic’s basic premise is also
indicated by the development of alternative approaches
to understanding buyer–supplier relationships, including
the industrial network approach (see Dubois and

January 2010 57
 Journal of Supply Chain Management

Pedersen 2002 for a concise critique of portfolio models
and a review of the industrial network approach).
Although interest in sustainable supply chain man-
agement (SSCM) is not new, evidence is growing that the
field is reaching a critical tipping point where wide-scale
adoption of sustainable sourcing practices may poten-
tially become a dominant dynamic in the supply chain
context (Jayaraman, Klassen and Linton 2007; Cruz
2008). We define SSCM and other key terms related to
sustainability in Table I. We explore the notion that the
present shift from supply chain management to SSCM
may require a significant change of strategies and tactics
in order to navigate changes in the business climate
rooted in societal needs for sustainability.
During the analysis of data collected as part of a study
on exemplars in SSCM (Pagell and Wu 2009), a signifi-
cant anomaly emerged related to the well-established
purchasing portfolio framework (Kraljic 1983; Gelder-
man and van Weele 2005). We observed that a number of
leaders in SSCM were not making purchasing decisions
in the manner suggested by Kraljic (1983) nor were these
firms acting in ways that alternative approaches (DuBois
and Pedersen 2002) would completely predict. In fact,
these firms were thriving despite their seemingly expen-
sive sourcing decisions; that is, these organizations trea-
ted suppliers of commodity inputs as if they were
strategic suppliers.
While other chains would buy potatoes, lumber, basic
metal parts and similar materials based on price, the
organizations observed made statements such as ‘‘we pay
a premium for what we get’’ when describing purchases
that their competitors would view as leveraged or of a
commodity nature. These same suppliers were also pro-
vided long-term contracts and access to supplier devel-
opment resources. And generally, a small number of
suppliers (where possible) were being used. In short,
managers who should have been leveraging their supply
base on multiple dimensions and exploiting relative
power over suppliers in commodity-type markets, were
instead developing the types of relationships typically
associated with strategically important inputs.
If the dominant approach to purchasing portfolios is
correct, these organizations should be performing at a
suboptimal level because of misallocated resources and
increased risk. But the opposite was the case. Not only
were these organization leaders in SSCM, they were also
generally doing very well on accounting-based profit-
ability metrics. All enjoyed positive net income and most
were experiencing revenue growth at levels greater than
industry averages. And while it could be argued that these
firms could be even more profitable if they had followed
the Kraljic (1983) approach, the managers of these en-
tities would claim the opposite. Specifically, our data
suggest that the behaviors observed are important drivers
of success and that, if firms reverted to leveraging these
suppliers, overall chain performance would decline
in terms of profits as well as environmental and social
impacts.
These observations suggest that the current state of
purchasing behaviors should be explored to determine
what might be changing, given the emergence of sus-
tainable supply chain practices. Our review of the litera-
ture suggests that the current theory in supply chain
management may neither adequately explain nor predict
the behavior observed with respect to sustainable sourc-
ing. In response to this possibility, this paper uses an

TABLE I
Definitions

Term Definition Possible Synonyms

Sustainable To be truly sustainable a supply chain would at Green supply chain management,
supply worst do no net harm to natural or social systems responsible supply chain management
chain while still producing a profit over an extended
management period of time; a truly sustainable supply chain
(SSCM) could, customers willing, continue to do business
forever (Pagell and Wu 2009).
Triple A measure of supply chain performance that Corporate social responsibility (CSR),
bottom line addresses not just profits, but also supply chain corporate social performance (CSP),
(Elkington impacts on social and environmental systems; a sustainability performance
1999) measure of the chain’s impacts on people, profits
and the planet (e.g., Kleindorfer et al. 2005). The
triple bottom line is then a measure of sustainability
performance (Pagell and Wu 2009).
Sustainable Managing all aspects of the upstream component Sustainable purchasing, green
sourcing of the supply chain to maximize triple bottom line purchasing, responsible purchasing,
performance. ethical purchasing

58 Volume 46, Number 1

 Thinking Differently about Purchasing Portfolios
inductive approach, similar to that used by Kraljic
(1983), to enhance the existing theory and help to ex-
plain and predict SSCM behavior. We start with Kraljic’s
(1983) foundational model, explore alternative models
and then return to the qualitative data from Pagell and
Wu (2009) to create an enhanced theory accompanied by
prescriptive advice for practitioners.
REVIEW OF THE LITERATURE
Researchers in operations management and supply
chain management often bemoan the fact that we have
not developed a great deal of theory, and/or that our
theories are not well linked to practice (e.g., Handfield
and Melnyk 1998). One model that has gained high
levels of acceptance in both the literature and practice is
Kraljic’s (1983) purchasing portfolio model (Kraljic
1983; Nellore and Söderquist 2000; Gelderman and van
Weele 2002; Caniëls and Gelderman 2007).
We believe that, although the Kraljic (1983) model is
not presented as a theory, it has the key components of a
theory. Kraljic’s model, and others that have built on it
(e.g., Hadeler and Evans 1994; Olsen and Ellram 1997),
start with the basic premise that in most organizations
the purchasing function has limited resources. Although
close and lasting partnerships with suppliers are a fre-
quent topic of discussion in the literature, the reality is
that partnerships are expensive to develop and maintain,
and create a number of risks (Bensaou 1999). Addi-
tionally, the benefits of a partnership are unlikely to be
greater than the increased transaction costs for generic
inputs (Williamson 2008). Different types of relation-
ships are needed for different types of purchases. In any
organization where purchasing buys multiple types of
inputs, limited purchasing resources must be optimized.
Translated into a theoretical statement, Kraljic’s pur-
chasing portfolio model states that when a purchasing
department allocates its limited resources in the proper
manner, purchasing performance will increase. The
‘‘why’’ component (Whetten 1989; Handfield and
Melnyk 1998) of this theory is implicit but intuitive.
Using resources in a manner that does not maximize
returns is wasteful. The ‘‘how’’ component (Whetten
1989) is presented in the four generic types of purchases
(strategic, bottleneck, noncritical and leveraged). For in-
stance, engaging multiple suppliers on a transaction-by-
transaction basis maximizes the return on assets associ-
ated with leveraged purchases. Long-term relationships
in this context would waste resources because there is
little to differentiate suppliers other than price and de-
livery date. This manner of buying leveraged items will
save limited purchasing resources for other activities and
should result in a low price for the input.
There is some indirect evidence to support the validity
of this theory. The high level of acceptance by practitio-
ners suggests that purchasing portfolios are intuitive and,
January 2010
at worst, do no harm. Empirical data link the use of a
portfolio approach to higher levels of purchasing so-
phistication (Gelderman and van Weele 2005). Finally,
the portfolio approach maps well onto transaction cost
economics (TCE) (Caniëls and Gelderman 2005, 2007).
The governance structures suggested by TCE have much
in common with the quadrants in Kraljic’s (1983)
model. And the goal of optimizing the limited resources
available to purchasing managers certainly translates to a
goal of minimizing transaction costs. Other models in
the sourcing literature use different terminology than
Kraljic but often reach similar conclusions. For instance,
Sanders, Locke, Moore and Autry (2007) present four
types of relationship that range from transaction-based to
alliance based (and again these map neatly onto the TCE
methods of governance).
According to Kraljic (1983), each of the four types of
inputs (strategic, leverage, bottleneck and noncritical) lies
in a quadrant built on two dimensions, the strategic
importance of the input on profitability and supply risk.
Strategic items should be purchased from a small num-
ber of suppliers (often one) with whom the buyer has a
close, trusting, long-term relationship. Supplier selection
for these inputs should be based on total cost, rather
than price. Leverage items are generally commodities for
which there are multiple homogeneous potential sup-
pliers, any of which can provide identical quality and
performance. These inputs should be purchased based
mainly on price, and perhaps availability, from multiple
suppliers with whom the buyer does not invest in a re-
lationship. Noncritical items (nonstrategic inputs sold by
many suppliers) should be sourced from multiple ven-
dors and purchased in a transaction-based manner based
on price. Bottleneck items, or inputs that are not strategic
but are only available from one supplier, should drive
organizations to mitigate risks and limit transaction costs
through contracting and focused inventory strategies.
Additionally, there are other models that explain pur-
chasing relationships between buyers and suppliers, in-
cluding the industrial network approach. Specifically,
Dubois and Pedersen (2002) provided a noteworthy
critique of Kraljic (1983) and offer a network-based,
rather than a power-based approach to buyer–seller re-
lationships. This industrial network approach suggests
that the Kraljic approach has shortcomings and neglects
some important types of relationships not directly ad-
dressed in any of the four quadrants. Also, Gelderman
and Van Weele (2003) found additional portfolio strat-
egies in addition to those offered by Krajlic. These addi-
tional strategies address the development of strategic
partnerships.
Finally, there has been interesting published research
on cooperation in buyer–supplier relationships (Parker
and Hartley 1997; Young and Wilkinson 1997; Forker
and Stannack 2000; Dubois and Fredriksson 2009). The
findings in these papers suggest that there are indeed
59
 Journal of Supply Chain Management
situations where behaviors like the ones we observed
might refute the behavior suggested by traditional ap-
proaches to purchasing portfolios. Thus, there is signifi-
cant research that suggests that a reexamination of
Kraljic’s matrix is justified and may be useful to both
researchers and practitioners.
The data used for this manuscript were not collected for
this purpose. Rather, these data were collected for Pagell
and Wu (2009), who explored a related but separate
topic. During the analysis for that manuscript, we ob-
served a distinct pattern of behavior that suggests that
current theories need to be enhanced. This is then a
purely inductive piece of research with the observations
being used to drive further the theory development. We
use TCE and the resource-based view (RBV) of the firm to
provide a theoretical explanation for what was observed.
The final component of the manuscript builds off the
theoretical explanation for the observations to create an
updated purchasing portfolio model.
Our aim is to contribute to this literature, not based on
the fact that earlier research was incorrect, but rather
because we are experiencing real economic and envi-
ronmental change. These changes have created the need
for researchers to reexamine past knowledge to help
managers modify a valuable tool for what is now almost
universally recognized as a vastly different global envi-
ronment.
Our observations suggest that the current state of pur-
chasing behaviors should be explored to determine what
might be changing given the emergence of sustainable
supply chain practices. The next section details the data
sources, observed behaviors and how they were observed.
The remainder of this manuscript attempts to explain
these unexpected behaviors and to propose possible
updates to purchasing portfolio models that account for
the newfound need for supply chains to be both profit-
able and responsible.
DATA COLLECTION AND ANALYSIS
Our previous research (Pagell and Wu 2009) was con-
ducted to determine what differentiated leading practi-
tioners of SSCM from exemplars in more traditionally
focused supply chain management. This paper uncov-
ered a series of important and novel practices in which
the leaders in SSCM were engaged. But the manuscript
was not intended nor was there space to explain why the
organizations engaged in the said behaviors. The current
paper is then an attempt to explain one of the more
anomalous and arguably important findings from the
previous research.
Data were collected from the supply chains of 10
different organizations see Table II. Decisions about the
number of cases to use as part of this type of research
were made following Eisenhardt (1989) and are consis-
tent with similar published studies (e.g., Pagell 2004; Wu
60 Volume 46, Number 1
and Choi 2005; Matos and Hall 2007). The level of
analysis at which this research was focused was the
supply chain as a whole. At two larger multinational
companies, data were collected from a single supply
chain rather than the entire firm.
A theoretical sampling approach was used across mul-
tiple industries, following Eisenhardt (1989), Miles and
Huberman (1994), Pagell (2004) and Matos and Hall
(2007). In the initial study, this was a limitation because
there were no controls for industry-specific contingen-
cies. However, in the present discussion, the multi-
industry nature of the data might be viewed as a strength,
in that the observed behaviors occurred across multiple
contexts.
The exemplar cases in the sample had a wide range of
expertise in sustainability. In order to assess company-
size effects, organizations in the sample included me-
dium-sized regional firms, a local restaurant chain and
three multinational companies. Both public and private
firms were included, and they included a wide range of
service and manufacturing operations. All of the firms
were industry leaders in terms of triple bottom line (TBL)
performance. All were profitable and enjoyed long-term
viability.
Of these ten organizations, eight had created business
models where improvements in environmental and/or
social performance enhanced operational performance
and profitability. The remaining two organizations had
better TBL performance than their competitors, but faced
trade-offs between profits and environmental perfor-
mance. Of the eight organizations that did not face trade-
offs, six were engaged in ensuring supply-base continuity,
a practice that appears counter to the existing theory and
seemingly vital to SSCM. While the focus of this manu-
script was to explain the behavior of the six organizations
that did engage in supply-base continuity, data from all
10 organizations were used in our effort to build a the-
oretical explanation for what was observed.
Data Collection
The research design used in Pagell and Wu (2009), and
thus used to collect the data used in this study, is mod-
eled after and follows published research in operations,
supply chain and organizational behavior (Eisenhardt
1989; Miles and Huberman 1994; Yin 1994; Handfield
and Melnyk 1998; Walton, Handfield and Melnyk 1998;
Carter and Dresner 2001; Montabon, Melnyk, Sroufe and
Calantone 2006). Table III uses the criteria suggested by
Yin (1994) to summarize the process we followed to
insure validity and reliability in this research effort.
This sample was designed to include supply chains with
a variety of capabilities; therefore, a semistructured pro-
tocol (Eisenhardt 1989) provided the flexibility to focus
on the unique aspects of each of the supply chains. The
initial protocol was designed to gain a broad under-
standing of the entire supply chain through interviews
 Thinking Differently about Purchasing Portfolios

TABLE II
Observed Organizations

Company Description Level of Size/ Does the Market Process(es) at Which

Vertical Ownership Chain They Are
Integration Charge a Considered
Price Exemplars
Premium?

Organizations classified as engaging in supply base continuity in Pagell and Wu (2009)

Cleaning Regional producer Low Medium/ No Janitorial Product design
products and distributor of private service
cleaning products for providers
janitorial markets
Forest and Regional grower and High Large/ No Wholesale Operations
wood processor of forest private dimensional
products products lumber
Pizza Local pizza restaurant Medium Small/ Yes Retail food Supply chain
restaurants chain with four outlets private and design, operations,
beverage product design
Snack Multinational Medium Medium/ Yes Retail/ Operations,
foods producer and private consumer sourcing
distributor of organic food
and all natural snack
foods
Lighting National producer Low Medium/ Yes Consumer Operations,
products and distributor of private appliance distribution
lighting
Food and Global distributor of Low Large/ Yes Retail food Sourcing in the
beverage retail food and public and developing world,
beverages beverage supply chain
design,
certification

Organizations not classified as engaging in supply base continuity in Pagell and Wu (2009)
ElectronicNational e-scrap Very low Small/ No Consumer Supply chain
scrap collection and — virtual private and B to B design, reverse
recycling service chain logistics
IT Multinational IT Low Large/ No Consumer Operations,
equipment hardware and services public and B to B reverse logistics
provider
Paper National provider of Very low Small/ Yes Consumer Product design,
products nontraditional paper — virtual private and some sourcing
chain specialty
printing
Building Local sustainable Medium Medium/ Yes Homeowners Product and
renovation cabinetry and building private service design,
contractor operations

with top managers in different functions within each
supply chain. Specifically, interviews were requested with
a member of the top management team (typically, this
was the president or COO at small companies or the
head of the supply chain function at larger firms); the top
managers responsible for operations, purchasing, logis-
tics, marketing and research and development; managers
responsible for product and/or process design and
the manager responsible for sustainability. Additional
data about each case were also collected. At the seven

January 2010 61
 Journal of Supply Chain Management
TABLE III
Validity and Reliability
Criteria
Construct validity
Internal validity
External validity
Reliability
Based on Yin’s (1994) criteria.
organizations that had on-site production, the data col-
lection effort included facility tours. And finally, data on
all organizations in the sample were collected from
publicly available sources as available.
Although the research design specified seven respon-
dents, some of the respondents had multiple responsi-
bilities that overlapped the seven areas. Thus, fewer than
seven interviews per company were sometimes con-
ducted. Also, in a few cases, initial interviews made it
evident that additional data were needed, and more than
seven interviews were conducted. But, in all cases, mul-
tiple respondents were interviewed. The complete dataset
represents a range of respondents per organization of 4–
13 individuals. Typically, individual interviews lasted for
60–90 minutes and in most cases were conducted by at
least two members of the research team. The interviews
were recorded with the permission of the interviewee and
each interviewer also took notes independently. Follow-
ing each site visit, recordings were transcribed and field
notes were checked for accuracy and edited. The tran-
scripts, interviewer notes and secondary data were coded,
and in the event of discrepancies between sources, the
authors followed up with the respondents via emails,
phone calls and follow-up site visits in two cases, for
clarification.
Coding and Analysis
The data were coded, as noted by Pagell and Wu
(2009), to identify the extent to which practices relevant
to SSCM were adopted. The coding was conducted iter-
atively; each case was individually coded, and then the
coders discussed the coding results to assure consistency.
Coding was only considered complete when the coders
reached a consensus on each construct. Thus, inter-rater
reliability was forced to be 100 percent.
The data were analyzed using both within-case and
across-case analyses. Within-case analysis provided the
means to examine SSCM in a single context, and then
across-case analysis was used as a form of replication,
following Yin (1994), where the constructs of interest in
one context were tested in alternative contexts. The end
62 Volume 46, Number 1
Methods Used to Ensure
Multiple data sources/chain of evidence
Pattern matching/explanation building
Replication logic of multiple case studies
Case study protocol, recording of interviews,
multiple researchers collecting data,
multiple researchers coding data
result of the analysis in Pagell and Wu (2009) was the
identification of practices that were fundamental to
SSCM as practiced by the organizations studied. Pagell
and Wu (2009) identified these practices, offered a series
of propositions and provided a model of how the prac-
tices might interrelate. The paper did not explain why
organizations adopted any one practice or set of practices.
The present manuscript returns to the same data in an
attempt to explain the supply-base continuity practices
observed at six of the supply chains. It is of course pos-
sible that the practices observed are artifacts of the spe-
cific sample. However, even if only the six organizations
that are engaging in these practices were in our sample,
we are still obligated to question existing purchasing
portfolio models.
One of the tenets of good science is that falsification
can be accomplished with a single case or example. We
have six examples of organizations that are thriving by
not leveraging suppliers of commodity inputs, the op-
posite of what the literature predicts. Given that it is
highly unlikely that these are the only examples of such
firms, and more importantly the growing push for chains
to become more sustainable; it seems vital to try to
explain what we have observed from a theoretical
standpoint. The following section examines the practices
of the six organizations deemed to be engaging in supply-
base continuity, a term we will explain below. We then
use the existing theory to try and explain these practices
and to develop a revised purchasing portfolio model.
Finally, we use the remaining four cases that did not
display evidence of supply-base continuity, to test the
robustness and limits of our revised model.
RESULTS: A FOCUS ON SUPPLY-BASE
CONTINUITY
The organizations observed were engaged in a variety of
sourcing-management activities. Some of these processes
were familiar while others were not. But what was of
particular interest was a focus on what was termed
as supply-base continuity. The basic aim of supply-base
 Thinking Differently about Purchasing Portfolios
continuity is to ensure that all members of the chain not
only stay in business but also that they do so in a manner
that allows them to thrive, reinvest, innovate and grow.
Because of the nature of the data collection, the protocol
never directly addressed the supposition that supply-base
continuity was an important concern in SSCM, yet when
discussing sourcing management, respondents made
numerous comments such as:
We want the farmer in business. And that really is
our goal.
We are trying to take that element (price) out of the
equation, because for us, it’s not about price.
Our sort of philosophy, if you will, is that each sort
of aspect of the supply chain needs to be healthy
and prosper.
There is always something there for them to help
them create stability for their workforce, for their
families.
You know, part of David’s (company founder)
philosophy, which I think actually makes it a little
bit more of a hybrid, is that this coalition approach
looks at profit sharing among the members of the
coalition. You know, because one of the things you
lose by having vendors is the nationalistic approach,
the emotional feel for what you’re doing.
The owners have never encouraged me to try to beat
somebody down on price.
Perhaps one respondent summarized the notion of
supply-base continuity best when they said the goal is
common prosperity. Implicit in this notion is that the
suppliers’ employees as well as the communities where
suppliers operate are also able to thrive. There is no
supply-base continuity if suppliers’ employees are im-
poverished, or if the environment in the community
where the supplier operates is degraded by pollution.
On the surface, this focus on supplier continuity is
nothing new. When Japanese management techniques
were first introduced to North American managers (Liker
and Choi 2004), one of the practices that stood out was
the way first-tier suppliers were treated as partners; in-
teractions were collaborative and focused on value cre-
ation. This was in stark contrast to the adversarial model
of sourcing that was prevalent in North America.
The practices observed in this study are similar, but
significantly more comprehensive. First, the notion of
continuity places a high value on the social and
environmental outcomes of the supplier. Second, conti-
nuity extends to the entire chain, not just first-tier sup-
pliers. This is not to suggest that sustainable supply
chains are ones where partnerships are formed with every
supplier. Limited resources make a universal partner-
based approach impossible and the nature of some
purchases makes such an approach unnecessary. How-
ever, a focus on continuity seems to call into question the
January 2010
idea of leveraged suppliers (Kraljic 1983). Equally im-
portant, continuity has as much to do with how an or-
ganization survives as with making profits. Table IV
displays the basic practices that were observed as part of a
focus on supply-base continuity. The table also shows
how many of the six organizations were engaged in each
activity.
Of the practices in Table IV, the most surprising is
decommoditization. It makes sense for a focal firm in the
chain to try and move itself out of a commodity trap, but
multiple instances of focal firms willingly moving sup-
pliers out of the same position were observed. Rather
than leveraging the existence of multiple suppliers of
identical or nearly identical inputs into lower prices, the
managers in the sustainable supply chains studied were
knowingly paying above market prices to commodity
suppliers. For instance, Snack foods was buying large
quantities of potatoes. No single farm could supply all
their needs, but all the potatoes they would need could
be procured at wholesale markets for lower prices. The
portfolio approach would suggest a transaction/market-
based relationship in this setting. But the company in-
stead chose to create long-term contracts with multiple
suppliers (as few as possible to satisfy their needs) at
above market prices.
The owners/managers of the restaurant chain engaged
in similar behaviors in their purchases of produce. They
were explicit that this behavior was carried out to provide
for common prosperity, or prosperity across the chain.
Getting the best (lowest) price possible meant a decrease
in prosperity for the supplier and by extension the sup-
pliers’ employees and the communities where the sup-
pliers operated.
One of the most visible supply-base continuity prac-
tices was risk reduction for suppliers. Buyers reduced
suppliers’ risks in numerous ways. Pizza Restaurants had
the option of buying all of their produce at wholesale
produce markets, but instead chose to source from a
small number (three) of local growers. Pizza buyers sign
long-term contracts with each grower, in a business
where transaction-based interactions at a wholesale
produce market are universal. Pizza guarantees a certain
level of demand for the grower as well as a set price that is
higher than the market price. Pizza, thus, forms predict-
able stable relationships, with predictable associated costs.
Snack foods forms similar relationships with their
growers. Snack foods has helped a supplier that provides
third-party production of a low-volume product through
the organic certification process, going so far as to bear
the costs of this process for the supplier. Lighting Prod-
ucts holds their suppliers in China to North American
environmental and social standards, but they also help
with buying equipment and provide training in envi-
ronmental management. Lighting Products also pays the
suppliers significantly above-market prices, because oth-
erwise the suppliers would have incentives to externalize
63
 Journal of Supply Chain Management

TABLE IV
Elements of Supply-Base Continuity

Element of Continuity Description Number

Involved
(Out of
Six)

Decommoditization Explicitly treating a supplier and/or entire chain that provides a 6

commodity (lots of substitutes/competition mainly on price) as if it
supplied a rare/strategic input. Buyers give long-term contracts and
pay above market prices for items that are usually bought on a
transaction-by-transaction basis for the lowest possible price.
Traditional supplier Training suppliers to be better suppliers for the focal firm. Benefits 5
development accrue to both the buyer and the supplier.
Reducing supplier risk Helping suppliers to mitigate some or all of the risk associated in 4
making supplier’s products and/or processes more sustainable.
Nontraditional supplier Training suppliers to be better suppliers to other customers. Benefits 3
development directly accrue to supplier and perhaps competitors.
Transparency All chain members provide full accounting of flows of money to origins. 2

their social and environmental impacts. The end result is
that when a supplier takes a risk to become more sus-
tainable, the buyer is bearing some or all of that risk,
making it easier for suppliers (especially small suppliers)
to change. This is not unusual when buying strategic
inputs, but most of the examples we saw were for inputs
where multiple interchangeable suppliers were available,
inputs that would have been classified as leveraged in
Kraljic’s (1983) purchasing portfolio.
Supplier development was also an important part of
the concept of continuity. Both traditional and nontradi-
tional forms of supplier development were observed. An
argument can certainly be made that supplier develop-
ment is practiced simply out of self-interest. But devel-
opment requires an investment in assets specific to the
suppliers. And again, these suppliers were the ones that
the existing theory suggests should be leveraged, not in-
vested in. Finally, many of the development activities
seemed to give more benefits to the supplier than the
buyer.
Food and beverage had opened farmer support centers
where they trained farmers, many of which were very
small. Food and beverage also supported microcredit to
help farmers survive from harvest to harvest. Cleaning
products would work with chemical suppliers (again,
commodity suppliers) to create less harmful inputs. And
at times, Cleaning products had gone to another industry
to find a supplier that they would ‘‘train’’ to service the
janitorial supplies industry. The restaurant chain helped
local growers predict market demand so that they would
grow crops for which there would be demand. Snack
foods trained their suppliers on the use of all-natural
ingredients. Much of this training provided benefits to
the suppliers in dealing with other customers as well.
For instance, food and beverage’s suppliers were now
able to provide higher quality to other supply chains.
Providing growers in Pizza Restaurant’s market with more
detailed demand data not only increased the likelihood of
access to hard-to-get produce but also increased prices for
other products of which growers were presently growing
too much. Cleaning products’ suppliers were now able to
provide the same ‘‘greener’’ input to Cleaning products’
(generally larger) competitors as well. So while these
supplier development activities benefited the buying firm,
they also provided significant benefits to the supplier.
And a few organizations were engaging in supplier
development activities that seemed to only benefit the
supplier. These organizations were engaging in behaviors
that helped suppliers to provide for other organizations
(often competitors). Like paying above-market prices,
this practice helped suppliers to do more than survive.
For instance, Snack foods helped to train the sales staff
at suppliers to sell to the all-natural and organic markets.
These suppliers had already gained entry into Snack
foods. What they wanted was information on how to sell
to Snack foods’ competitors, information that Snack
foods provided. This is another example of common
prosperity; the focal firm that is supplying the informa-
tion will have stronger competitors, but they will also
have a stronger supplier.
The last activity observed associated with continuity
involved increased transparency related to the flows of
money in the chain. Organizations were demanding
detailed information on the amounts paid to each

64 Volume 46, Number 1

 Thinking Differently about Purchasing Portfolios
specific member of the chain, flowing all the way back to
the origin of the chain. This additional information
provides the focal firm with an increased insight on
chain-wide activities and should support continuous
improvement. However, the main reason for demanding
this information (and hence creating the costs to capture
it) was to help to ensure that suppliers (especially farmers
in food supply chains) could earn a fair price, and hence
make a reasonable living. Transparency makes it difficult
for distributors to make excessive profits and increases
the price of commodities. But in return, the supplier is
more likely to be available in the future and to have the
resources to make continuous improvement. This is an-
other example of the idea of common prosperity.
With the possible exceptions of decommoditization
and the nontraditional aspects of supplier development,
the practices observed are more evolutionary than revo-
lutionary. The revolution, if there is one, comes from
combining these practices into a focus on supply-base
continuity with its aim of common prosperity. Some
might argue this is just good supply chain management;
hence, it is important to once more recognize that the
suppliers who are sharing in the common prosperity in
these examples are almost all suppliers that are easily
replaced, suppliers that would be leveraged in Kraljic’s
model and that are generally leveraged by the competi-
tors of our respondents.
Using Bensaou’s (1999) terminology, what we ob-
served was buying firms that were either in a market ex-
change setting (no significant investment from either
side) or a captive supplier situation (the supplier has
significant asset-specific investments, the buyer does not)
making investments that shifted the nature of the rela-
tionship in a manner that increased buyer costs in pur-
suit of common prosperity. Another way to describe the
shift toward common prosperity is to note that buyers
were essentially giving power to their suppliers (see for
instance, Caniëls and Gelderman 2007). While many
would suggest that outright bullying of suppliers or using
buying power in a ‘‘muscular’’ fashion (Williamson
2008) is wrong, we are aware of no literature that spe-
cifically says to willingly give power and the associated
benefits to these types of suppliers, and this behavior
certainly seems to contradict the goal of maximizing
shareholder wealth.
INDUCTIVE THEORETICAL DEVELOPMENT
A review of the relevant literature in supply chain
management, strategic management and environmental
management suggests that multiple theories may provide
an explanation for the sourcing behaviors observed.
Given that our results run counter to many years of re-
search, this paper casts a broad theoretical net in an effort
to explain better the focus on the supply-base continuity
that we have observed. The most relevant theoretical
January 2010
perspectives for developing explanatory and predictive
understanding of sustainable purchasing portfolios in-
clude TCE (Williamson 1975, 1979, 2002, 2003, 2008),
the RBV of the firm (Wernerfelt 1984; Barney 1991; Pet-
eraf 1993; Teece, Pisano and Shuen 1997; Eisenhardt and
Martin 2000; Winter 2003) and stakeholder theory (ST)
(Freeman 1984; Donaldson and Preston 1995; Jones
1995). From these theories, we derive an explanation for
what we observed and then propose changes to existing
purchasing portfolio models to reflect the needs of sus-
tainable supply chain managers. We follow McIvor
(2009) in cautioning that, although integrating some of
these theories is useful, these theories may provide con-
tradictory guidance and we take due caution in building
a theory based on divergent theoretical frameworks.
Transaction Cost Economics: The Short-Term
Explanation
One explanation for what we observed is that rela-
tionship-based sustainable sourcing strategies in what
have traditionally been leveraged contexts are a short-
term phenomenon; the observed nonprofit maximizing
decisions are visible artifacts of market imperfections
based on information asymmetries that TCE suggests
would soon be rectified through the contracting process
(Williamson 1975, 1979, 2003). The end result will be a
return to behaviors predicted by the traditional pur-
chasing portfolio literature, as more information on
SSCM becomes available.
TCE suggests that there are costs that are unexplained
by simple market dynamics of supply and demand, even
for commodities (Williamson 1975). First, there are po-
licing and enforcement costs of insuring sustainability.
These are often reflected either through supply certifica-
tion, a rigorous reporting and audit process and/or rep-
utational resources. Second, there are often search and
information costs, in this case incurred because a tradi-
tional commodity item may now have certain environ-
mental characteristics that are not completely transparent
on an open market.
Examples of these costs might include identification of
corn grown from non-GM seed, iron made from a high
percentage of recycled content, or wood from sustainably
managed forests. However, as the sustainable character-
istics of former commodity goods develop recognition
and value in the marketplace, increasing demand for
these goods should follow. Certification and reporting
costs will then become more diffused both across sup-
pliers and also between buyers and sellers, as these fac-
tors become expected features of all instances of the
commodity. Likewise, as these types of goods become
more ubiquitous, search and information costs should
also decline. The end result of this would be a shift back
to equilibrium where sustainable supply becomes a
part of the commodity features as all suppliers adopt
green practices and respond to changing regulation and
65
 Journal of Supply Chain Management
stakeholder expectations. One would then expect a shift
back to behavior where these suppliers are again being
leveraged.
If what was observed is a short-term change, the im-
plication for supply chain managers is that those man-
agers who have developed relationship-based contracts
in what were formerly commodity markets should pre-
pare to change their purchasing strategy at some point in
the future when the information asymmetries are miti-
gated. It would be logical to assume that managers of
these firms should monitor the context and be vigilant
for market dynamics (pricing information, etc.) that
would suggest return to a stable state.
The simplicity of this argument is attractive, but the
data suggest it is, at best, incomplete. The sampled firms
had been engaging in these anomalous behaviors for
extended periods of time (often decades). And some of
the behaviors, such as the nontraditional supplier de-
velopment activities are clearly not aimed at reducing an
information asymmetry. While we acknowledge the
limitations of our small sample, our data suggest that
something more long-term is occurring and that there are
structural benefits that are accruing to organizations that
behave strategically with commodity suppliers. This may
mean that there are firm-specific benefits accruing to
organizations that either control or develop the skill to
accrue these nontraditional relationships with com-
modity suppliers. To explore this line of reasoning, re-
source-based theories of the firm are discussed next.
Resource-Based Theories: The Long-Term
Explanation
A second possible explanation is that relationship-
based sustainable sourcing strategies in noncritical re-
source contexts are a long-term structural shift in mana-
gerial decision making; RBV theory would suggest that
the anomalous behavior we observed would lead to the
building of dynamic and unique competencies that can
create economic rents (Barney 1991; Peteraf 1993). More
importantly, these factors are aligned with a sustained
competitive advantage. Part of the rationale for the re-
source-based explanation is that what is deemed as a
commodity based on the traditional bottom line of
profits, may not be a commodity when TBL becomes the
measure of success. Hence, while the organizations we
observed were buying in markets where suppliers were
undifferentiated on price and quality, there were poten-
tially large differences in suppliers’ social and/or envi-
ronmental impacts.
This logic suggests that even though there may be
strictly economic reasons to leverage commodity-based
suppliers, that other asymmetries stemming from the
unique asset that the relationship represents may provide
long-term competitive advantages, which allow compa-
nies to earn above-normal returns. A recent article by
Hunt and Davis (2008), that looked specifically at supply
66 Volume 46, Number 1
chain management and resource-based theory, con-
cluded that a unique set of purchasing strategies can in-
deed be viewed as a source of competitive advantage.
Consistent with this finding, the closer relationships
observed in this research appear to serve as the founda-
tion for the development of resources that potentially
drive a competitive advantage. For instance, by investing
in their Chinese supplier of metal parts (a commodity),
Lighting products is treating the supplier differently than
other buyers that base decisions mainly on price. This
unique relationship should lead to, for instance, in-
creased trust between the parties and a deeper under-
standing of what the buyer expects, especially when it
comes to the noneconomic elements of performance. In
other words, the investment, which certainly does in-
crease asset specificity for what could be treated as a
commodity purchase, also creates the foundation for a
novel relationship that can be leveraged in unique ways.
In many cases, the unique benefits may accrue to the
noneconomic portions of the TBL. Thus, it is clear that
Lighting products is paying more on a piece rate basis;
however, the footprint of their supply chain is signifi-
cantly lower and the supplier is able to provide em-
ployees and the surrounding community a higher quality
of life. And the supplier has extra financial resources that
can be reinvested into the company, perhaps in ways that
would lead to additional advantage to the entire supply
chain.
The implications here are that (a) each relationship is
potentially a resource that is firm-specific, creates value in
the marketplace and is difficult to imitate (Barney 1991)
and (b) the ability of managers to recognize and form
relationships to improve sustainability may be an even
more valuable asset that results in a sustainable advan-
tage in making responsible and profitable supply chain
decisions.
The data collected in this study, again small sample size
notwithstanding, suggest that this explanation, like the
TCE explanation, is limited. Although some of the be-
haviors observed clearly fit within the notion of building
long-term, dynamic capabilities that will be difficult to
imitate, others (such as traditional supplier develop-
ment) are seemingly being carried out mainly to address
short-term information asymmetries. This suggests that
there is a third, hybrid explanation.
ST: The Hybrid Explanation
While both TCE and RBV theories can explain some of
what was observed, our data suggest that the relation-
ship-based sustainable sourcing strategies observed in
noncritical resource contexts represent a composite of
both short-term and long-term changes in managerial
decision making. This type of change might be driven by
changes in relevant stakeholder weights, consistent with
the ST approach to resource allocation (Freeman 1984).
 Thinking Differently about Purchasing Portfolios
That is, shifting stakeholder value composites are driving
the behaviors observed.
Some of the behaviors observed, including the more
traditional forms of supplier development, are likely due
to a shift in stakeholder expectations. As these expecta-
tions solidify and as additional suppliers learn to meet
them, a return to leveraged buying would be expected,
because all suppliers would need to possess these attri-
butes.
However, some of the other aspects of continuity, es-
pecially those linked tightly to common prosperity such as
transparency and risk sharing, do more than just address a
lack of information. They fundamentally alter the rela-
tionship with the supplier and provide the opportunity to
create relationship-specific knowledge, which, in TCE, is
viewed as an extra cost, but in RBV is viewed as the source
of competitive advantage. And in this case, the advantage
may come not just from increased monetary profits but
rather from an increased ability to extract above-average
rents on social and/or environmental performance.
These behaviors are then engaged in both to address
short-term market imperfections, as per the TCE theory,
and the growing recognition that the long-term com-
petitive environment is changing, as would be suggested
by the RBV theory. In this explanation, managers are
working to evolve their capabilities to match the new
competitive realities in order to actively attempt to build
a sustainable competitive advantage. In fact, Williamson
(2008) suggests that a hybrid form of contracting (in this
case, a collaborative relationship with commodity sup-
pliers) might be expected as managers survey the com-
petitive landscape and weigh the costs and benefits of
various contracting types.
This approach suggests that managers are integrating
existing resources and capabilities, a global supply chain
orientation focusing on short- to medium-term cost re-
ductions, with a sustainable supply chain orientation
focusing on long-run cost reduction. This is clearly a
reconfiguration of existing assets and suggests the
beginning of a new era. In short, sustainable sourcing
behaviors are in some part transitory as managers catch
up with market and regulatory demands (both existing
and expected), but these behaviors may also signal a
powerful long-term shift as managers grapple with new
purchasing patterns at the microlevel, which represent
shifting competitive dynamics at the macro level.
Supply chain managers are then working under con-
ditions that suggest a modified purchasing portfolio
model, with a major focus on leveraged items. The fol-
lowing sections develop such a model.
IMPLICATIONS FOR PURCHASING
PORTFOLIOS
Our hybrid explanation has some significant implica-
tions for the purchasing portfolio theory. And while our
January 2010
focus is on organizations that are trying to create more
sustainable supply chains, we believe that what we are
proposing would apply any time there is a major shift in
stakeholder expectations. Here, this shift is evidenced by
the increased expectation to address performance, not
just in economic terms, but rather from a TBL perspec-
tive. We also note that much of Kraljic’s (1983) model (as
well as those that followed) stand up well in this new era.
TCE suggests that when the main driver for the be-
haviors observed is information asymmetries, treating of
leveraged suppliers as strategic suppliers is going to be a
short-term phenomenon. This is premised on an as-
sumption that the underlying performance of the sup-
pliers on all but one aspect of the TBL is presently similar,
or will quickly return to such a state once the informa-
tion asymmetry is resolved.
However, in those situations where the suppliers are
fundamentally different on the environmental or social
components of sustainability, and/or where investments
in the relationship can lead to long-term differences on
these aspects, RBV suggests that there can be long-term
advantages to investing in relationship-specific assets
with what traditional portfolio models consider a leve-
raged supplier. The key managerial issue will be differ-
entiating between these situations because poor choices
can lead to high levels of asset specificity in the wrong
relationships and/or missed chances to invest in re-
sources. Of nearly equal importance will be that those
managers who have developed relationship-based con-
tracts, in what will one day again be commodity markets,
should prepare to change their purchasing strategy at
some point in the future when information asymmetries
are mitigated and leverage is again the preferred strategy.
Purchasing portfolio models then need to be updated to
account for these changes (see Table V and Figure 1).
This model, represented in Figure 1 and detailed in
Table V, has a temporal element. First, during the tran-
sitory period where organizations are changing from
optimizing a supply chain based on profits to optimizing
a supply chain based on the TBL, the leveraged category is
subdivided into three categories. Second, while the other
categories are on the surface unchanged, they need up-
dating to reflect a focus not just on profits, but rather on
the TBL. Hence, while Kraljic categorized based on sup-
ply risk and profit risk, we categorize based on supply risk
and TBL risk (risk to the chain’s economic, environ-
mental and/or social performance). Finally, our revised
model also accounts for the likelihood of information
asymmetry to change in the short term.
Many of Kraljic’s categorizations remain unchanged in
the modified model. When all of the risks are low, the
item is still noncritical and the goal of sourcing should be
efficiency and low transaction costs. When supplier risk is
high but the impact on all of elements of the TBL is low,
the item is still a bottleneck item and the goal of sourcing
is risk reduction, generally through alternative sources,
67
 Journal of Supply Chain Management

TABLE V
Revised Purchasing Portfolio Categories

Kraljic New Supply Risk to Profits, the Short-

Category Category Risk Environment and/or Society Term
State?

Strategic Strategic High At least one is high No

BottleneckBottleneck High All low No
Noncritical
Noncritical Low All low No
item item
Leveraged True Low One is high, others low No
Commodity
Leveraged Transitional Presently high due to information One is high, others low Yes
commodity asymmetry — will return to low
Leveraged Strategic Buyer moves from Low to high At least one is high No
Commodity

safety stocks and other similar supply chain management
tools.
The strategic category has a seemingly small change but
it is actually significant. No longer is the emphasis just on
risk to profits, but now managers must consider risks to
one or more elements of the TBL. Hence, for instance,
supplier nonconformance due to unsafe working condi-
tions might have minimal direct short-term profit pen-
alties but could have devastating effects on the firm’s
social performance. The possible risks have expanded but
the recommendations remain the same for strategic
suppliers.
It is in Kraljic’s leveraged category where the most
change is evident. Rather than a single category of
leveraged suppliers, three categories now exist. First are
true commodities, which retain most of the elements
of what were leveraged items. These are purchases where
the supplier risk is low and will stay low, and where
suppliers only have a high impact on one element of
the TBL. These would then be cases where suppliers are
easy to replace and where differentiation between sup-
pliers is carried out mainly on a single criterion. Tradi-
tionally, the criterion would have been price, but in
sustainable chains, the suppliers might be differentiated
on environmental impact, with prices all being about
the same.
The second category is the transitional commodity. These
relationships would reflect markets where short-term
information asymmetries force managers to make some
investments in asset specificity for what was once a
commodity and what will again be a commodity once
the asymmetry is corrected. Supplier risk is then tempo-
rarily high. This would be where TCE provides guidance.
As information asymmetry decreases and additional
suppliers have the new attributes that stakeholders ex-
pect, supply risk decreases. As the new stakeholder ex-
pectations becomes the norm, purchases in this category
will migrate back to the true commodity category.

FIGURE 1
The Sustainable Purchasing Portfolio Matrix

The Sustainable Purchasing Portfolio Matrix

Supply Risk
High Low
High
Threat to Triple Bottom Line

Strategic
Strategic
Commodity
Transitional
Commodity
True
Commodity

Bottleneck Non-Critical
Item
Low

68 Volume 46, Number 1

 Thinking Differently about Purchasing Portfolios
In the short term, this may be the most difficult cate-
gory to manage. During the transitional phase, these
suppliers will be treated much like strategic suppliers. But
once the transitional phase is over, as evidenced by a
significant reduction in information asymmetry and the
ability of most suppliers to equally address the vast ma-
jority of the new stakeholder criteria, we would expect
the buyers to be able to again use their leverage. Recog-
nizing the transition will be the key to avoiding either
unnecessary costs or risks.
The final category is the strategic commodity. These types
of relationships would reflect critical commodities that
transcend simple market economics. These commodities
would have noneconomic attributes that could be leve-
raged into a long-term competitive advantage.
Previous researchers have noted the desirability of
moving suppliers from one category to another, generally
to reduce risk (e.g., Caniëls and Gelderman 2005).
However, moving a supplier out of the leveraged category
and into the strategic commodity category is a move that
will be counter-intuitive to many managers because in
this case, management makes a conscious decision to
increase supply risk from low to high by increasing in-
vestment in individual suppliers. By investing in what
would have been either a true or transitional commodity,
the buyer is betting that increased asset specificity will
lead to higher performance on multiple dimensions of
the TBL. The true and transitional commodity suppliers are
generally undifferentiated with the exception of price or
its social and environmental equivalents. On the surface,
the strategic commodity supplier fits the same description.
However, over time, the investment will make the sup-
plier a valued resource that is able to provide a superior
performance on multiple dimensions of the TBL. It is this
common prosperity along multiple dimensions of the
TBL that will make this investment worthwhile over the
long term.
Probing the Limits of the Proposed Model: The
Remaining Four Cases
Case studies can be used in numerous ways including
describing a phenomenon, explaining phenomenon
and/or testing the robustness and limits of a theory (Yin
1994). The Pagell and Wu (2009) study was mainly de-
scriptive. The majority of the present manuscript has
focused on the six supply chains engaged in supply-base
continuity and is explanatory. We now use the remaining
four cases to probe the limits and robustness of the
modified purchasing portfolio model we propose.
The element that these remaining cases have in com-
mon is that they did not engage in the practices Pagell
and Wu (2009) linked to supply-chain continuity. Be-
cause there was no clear pattern of behavior across these
four organizations, each organization is dealt with indi-
vidually. This subsample is used to look for evidence that
supports, places limits on or even falsifies the proposed
January 2010
purchasing portfolio model. This subsample can also
point to alternate ways to achieve some or all of what the
organizations examined previously are attempting.
IT Hardware wanted their existing plastic suppliers to
start providing material with at least some recycled con-
tent, but the existing suppliers all refused, preferring to
continue supplying 100 percent virgin plastic. IT Hard-
ware needed a mechanism to transition suppliers to
providing recycled content. They developed a new sup-
plier with a focus on using recycled content. But they did
not stop using the existing suppliers. Instead, the new
supplier is a very high-profile way to push the existing
suppliers to change or lose business. But by continuing to
use existing suppliers, IT Hardware is also sending a
message to their new supplier that just because the new
supplier is getting attention and resources now, the new
supplier cannot count on keeping this business in the
future.
This, then, suggests that there are multiple ways to deal
with commodities that are transitional. The primary
method observed was to develop a single strategic rela-
tionship where traditional theory would predict multiple
suppliers. But an alterative method may be to create a
new, more sustainable supplier to compete with existing
suppliers.
Electronic Scrap does not engage in the practices that we
identified as being linked to supply-base continuity.
However, they are concerned with the common pros-
perity of their suppliers, which are providing basic recy-
cling services, transportation and/or very low-skilled
labor. These are suppliers that can be leveraged.
Yet, instead of a leveraged model, the company engages
in profit sharing with suppliers, which the owner of the
organization refers to as ‘‘coming together . . . common
tasks, common enterprise.’’ Profit sharing with suppliers
(especially those that are easy to replace) is not only
novel, but it is also a strong example of the notion of
common prosperity or continuity. Electronic scrap then
provides additional support for the notion of continuity
itself, although they go about providing it in a unique
manner.
Building Renovation views their suppliers as an impedi-
ment to sustainability goals. Even though their material
suppliers are providing commodity inputs in the form of
building materials, top management notes that they
often end up ‘‘creating the supply chain themselves’’ in
order to get the materials they desire. This behavior also
seems to fit the revised portfolio model.‘‘Creating’’ a new
supply chain is dramatic, but it is really just a unique
form of the transitional commodity, especially if one
assumes that sustainable building materials will one day
be a commodity.
On the other hand, these newly created supply chains
could create new and novel building materials and
ways of creating structures. Hence, this could also be evi-
dence of a form of the strategic commodity. Regardless,
69
 Journal of Supply Chain Management
Building Renovation is ‘‘creating’’ supply chains for what
are presently deemed as commodity inputs by the vast
majority of their competitors, even competitors who
claim to be green.
Paper Products uses a single strategic supplier for each of
their main inputs. Thus, one could note that they are a
small organization buying very unique inputs, and hence
need to form partnerships with these suppliers; these are
strategic suppliers in the traditional sense. From that
perspective, the case offers nothing to support the pro-
posed modified purchasing portfolio model, but also
does not falsify it.
However, their major purchases are substitutes for
commodity items. For instance, the critical difference
between this organization’s paper and paper from other
sources is that they create their paper using mainly agri-
cultural waste. Presently, only one company will collect,
prepare and transport this material in the manner needed
by Paper Products, which is one of the only companies, if
not the only company, using this material to make paper.
Similarly, there are numerous pulp and paper mills in
North America. But creating pulp and paper out of these
materials requires scarce skills and an ability to undertake
significant experimentation. Hence, these relationships
could also be viewed as strategic commodities in that
Paper Products is developing long-term relationships to
develop new materials and processes in what, for their
competitors, are commodity markets.
Paper Products is a recent start-up, and hence the first
argument is probably a better fit for their situation. But if
they were an existing paper company attempting to create
unique products, the second explanation would fit. This
clarifies a nuance of the revised model. The buyer–
supplier interactions over the long term for strategic
commodities and traditional strategic inputs are very
similar, if not identical. What differs is that strategic com-
modity relationships start out as leveraged relationships.
Rather than falsifying the concept of supply-base con-
tinuity, each of the four cases provides some support for
our framework. Electronic Scrap provides additional
support for the idea of common prosperity suggesting
that the basic concept underlying the model is robust,
but that there may be other practices that our initial study
did not identify.
Paper Products provides evidence that the strategic
commodity and leveraged commodity categories are
most appropriate for existing supply chains. IT Hardware
and Building Renovation have unique transitional
mechanisms, once more suggesting that the basic model
is robust, but that there may be multiple paths for
dealing with a commodity market’s transition.
CONCLUSIONS
This manuscript attempts to build a revised theory of
purchasing portfolios that grew out of a series of unex-
70 Volume 46, Number 1
pected observations. Being able to capitalize on unan-
ticipated insights is one of the core strengths of
qualitative research. However, the nature of the data is
also a key limitation of the study. We did not set out to
study this phenomenon; rather this manuscript attempts
to explain what was not foreseen. Supply-base continuity
certainly seems to be prevalent in this sample, but this is
a sample of 10 organizations, many of whom are com-
peting in unique ways. They had to be profitable to be
included in the initial study, but their very profitability
could also mean that they have slack resources that allow
them to engage in continuity, resources that might not be
available to all organizations. Future research needs to
explicitly address the notion of continuity in a much
larger sample that includes a wide range of organizations,
not all of them profitable, to test our propositions.
However, our results also suggest that future large
sample research should not be carried out until the
constructs in our model are better understood. Among
the four organizations that did not display evidence of a
concern for supplier continuity as described by Pagell
and Wu (2009), there were two engaging in transitional
behaviors. This suggests that there are multiple ways to
transition an existing commodity market from its present
state to a ‘‘sustainable’’ state. Future research needs to
delve deeper into this issue.
Additionally, future research needs to examine conti-
nuity in more settings to gain a deeper understanding of
the practices that are linked to it. Electronic Scrap was not
categorized as being concerned with continuity in Pagell
and Wu (2009) because the organization did not engage
in any of the identified practices linked to continuity. But
the organization did have a very unique means of trying
to ensure what, on reflection, does appear to be supply-
chain continuity. The subsample of four cases then sug-
gests that the basic idea of the revised purchasing
portfolio model is robust, but that further research is
needed to help define all of the associated practices.
The purchasing portfolio is an important tool for
managers, and an accepted component of supply chain
theory. The evidence from our case studies suggests that
when organizations pursue common prosperity as part of
a larger effort to create a sustainable supply chain, they
will make investments in supplier continuity that seem to
contradict existing purchasing portfolio models.
TCE and resource-based theories offer suggestions as to
how existing portfolio models need to be changed to re-
spond to the increased emphasis on SSCM. And ST
provides the rationale to determine when TCE or re-
source-based approaches are most appropriate. The re-
vised portfolio theory offered here integrates several key
attributes from all three theories. First, it is explicitly
recognized that performance is comprised of all elements
of the TBL, not just profits. Second, it is recognized that
when stakeholders dramatically change both expected
attributes of a chain and the relative emphasis they place
 Thinking Differently about Purchasing Portfolios
on that attribute, there will be a transitional period.
During this period, information asymmetries may pro-
vide incentives to treat suppliers who, based on Kraljic
would have been categorized as leveraged, in new ways.
However, as more information becomes available and
more suppliers have the required attributes, the theory
assumes that the buyers will migrate back to a leverage
model because suppliers will generally be undifferenti-
ated on all but one aspect of the TBL.
It is important to note that the theory developed in this
paper is directed at the transition to sustainable supply
chains, but it seems logical to propose that a similar
mechanism would be at play during any significant
change in stakeholder expectations and/or emphasis.
Therefore, it seems reasonable to suggest that the notion
of transitional commodities should apply outside of the
shift to more sustainable supply chains.
The final attribute of the revised theory, and the one
that is both the most counter-intuitive and best grounded
in observations, is the notion of the purposeful increase
in supplier risk. Most examinations of purchasing port-
folios are explicit that one of management’s goals is to
reduce the risks associated with suppliers (e.g., Gelder-
man and van Weele 2002). And some authors have gone
so far as to create models of how to move suppliers into
less risky categories. This focus on risk reduction is a re-
sult of the strong TCE emphasis in the original pur-
chasing portfolio theory. Risk reduction does indeed
provide certainty and can reduce transaction costs.
However, the organizations we observed were pur-
posefully increasing asset specificity and the associated
supplier risk in certain, unexpected, situations. By ex-
plicitly recognizing opportunities both to reduce risk and
associated transactions costs, and identify opportunities
to create new and potentially valuable capabilities, the
revised purchasing portfolio actually moves closer to
Kraljic’s original goal. The incorporation of resource-
based theories provides an explicit mechanism for pur-
chasing to enhance the competitive position of the
supply chain, rather than just limiting risk. These find-
ings suggest that we are indeed at a critical juncture for
supply chain researchers and managers, and it is time to
reevaluate and update the traditional approach to pur-
chasing portfolios to represent a lasting shift in emphasis
to environmentally aware sourcing decisions.
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Mark Pagell (Ph.D., Michigan State University) is an
associate professor in the Schulich School of Business
at York University in Toronto, Ontario (Canada). His
primary areas of research interest include sustainable
supply chain management, human resource issues
(such as employee safety in operational environments)
and operational responses to environmental uncertainty.
The results of Dr. Pagell’s research have been published
in outlets such as the Journal of Operations Management,
Production and Operations Management, the International
 Thinking Differently about Purchasing Portfolios

Journal of Production Economics, the Journal of Supply
Chain Management and the International Journal of
Production Research. Several of his papers have won
awards, most notably as the ‘‘best paper’’ from the
International Journal of Operations and Production Man-
agement in 2005, and the Journal of Operations Manage-
ment in 2002.
Zhaohui Wu (Ph.D., Arizona State University) is an
assistant professor in the College of Business at Oregon
State University in Corvallis, OR. Dr. Wu is currently
teaching and conducting research in interorganizational
relationships and green supply chain strategy with U.S.
aerospace, automotive, food/beverage and telecommu-
nications companies. Before that, he worked as a buyer at
Lord Corporation, a U.S. aerospace company, and as a
project manager at CMEC, a Chinese international trade
company.
Michael E. Wasserman (Ph.D., Michigan State Uni-
versity) is assistant professor of organizational studies at
the Clarkson University School of Business in Potsdam,
NY. His primary research interests are the strategic impact
of outsourcing, the strategic alignment of supply chain
strategies, and the measurement of value across organi-
zations. Dr. Wasserman currently teaches strategic
management and entrepreneurship courses at the un-
dergraduate, graduate and executive levels.

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