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Analyzing and capturing lessons learned in procurement strategy : a Kraljic portfolio matrix analysis of the Maasvlakte power plant 3 project

Nijhoff, Ebony (2013) Analyzing and capturing lessons learned in procurement strategy : a Kraljic portfolio matrix analysis of the Maasvlakte power plant 3 project.

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Abstract:E.On is Europe’s largest private energy provider. At this moment E.On is building a power plant at the Maasvlakte (MPP3), in the Netherlands. Commissioned by the financial project manager of the project, the procurement strategies of the MPP3 project were analyzed by means of the following main research question: “What are the lessons learned for future projects in procurement strategy based on a Kraljic Portfolio matrix analysis and applied at the project Maasvlakte Power Plant 3?”. Hence, the goal of this study was to give E.On recommendation on how to arrange the procurement function in future projects in terms of procurement strategies. The KPM model was developed by Kraljic (1983) to group products by means of profit impact and supply risks. Putting these to variables on two axes result in a matrix which can be divided into four quadrants; strategic quadrant, leverage quadrant, bottleneck quadrant, and non-critical quadrant. Each quadrant proposes a different procurement strategy for the products which fall within the given quadrant; strategic items; long-term relationship, leverage items; competitive bidding, bottleneck items; securing the supply, and non-critical items; low costs Even though the original model is proven over time to be a trustworthy tool to analyze procurement portfolios, it has never been applied in an project environment. By adding project environment specific variables to evaluate the procurement portfolio, the impact of project specific values were taken into consideration to arrange the portfolio. The variables of the model were: Vertical axes: It is difficult to make an estimation of the profitability impact, and the value added by the product line, because the construction of the power plant is still ongoing. Therefore it was chosen to only use one variable for the measurement of profit impact. This is the strategic importance of procurement in terms of the percentage of raw materials in total costs. Because the procurement of the MPP3 project took place based on so called ‘lots’, the contract cost per lot were weighted in terms of the total contract costs, in percentages. In terms of project management this is called the “CAPEX index”. Van Weele (2005) states that in sum twenty percent of the products will be responsible for eighty percent of the total costs. This is the break-line between the “high” and “low” CAPEX index. Horizontal axes: In the original model of Kraljic the horizontal axes is determined by weighting the ‘supply risk’. This is the risk based on the product complexity and/or the supply market. Because the model which was built for this research will be used in a project environment, specific project environmental variables were used as well. To overcome some of the disadvantages of the weighted factor method, limited factors were used to determine all the project dependencies per item. The only requirement was that all the information which was needed for each variable had to be available, otherwise it would be impossible to complete the model with the chosen variables. Some of the factors were extracted of the original model of and some were extracted from project management theory. The factors are; (1) product complexity, (2) supply market, and (3) project dependence.
Item Type:Essay (Master)
E.on Benelux, the Netherlands
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
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