Exploring the adoption of Kraljic’s Portfolio Model in the upstream oil and gas company : a case study of an upstream multinational oil and gas company operating in Southeast Asia

Abstract

Oil and gas companies are involved in complex and challenging operations due to the circumstances faced in the environment where oil and gas companies operate. In this industry, companies rely heavily on their suppliers to execute their operational activities. However, many researchers have criticised the sourcing and supplier relationship management approach adopted in the industry as being weak, inefficient, and lacking a structured methodology to derive value-add for the companies. Therefore, for oil and gas companies to be competitive in the marketplace, it is imperative to adopt appropriate Procurement strategies required to deal with suppliers in the entire supply chain system to reduce cost and improve resilience to weather the constant market volatility of the oil price fluctuation. These strategies should be tailored to match the required criticality of the goods and services. This study aimed primarily at exploring the adoption and/or adaptation of Kraljic’s (1983) Purchasing Portfolio Model (KPM) in the procurement process to determine how this tool can be leveraged to devise procurement strategies to support the Oil Company within the oil and gas industry context. A case study methodology was adopted for this research by considering an oil and gas company operating in Southeast Asia (which opted to remain anonymous and is named in this study as an Oil Company). Primary data was collected via semi-structured interviews with six participants involved in the decision-making for the supplier selection and relationship management process. A qualitative thematic analysis technique was adopted to analyse the data. The analysis outcome strongly evidenced that although Kraljic’s model has been prevalent in other industries and also adopted in the oil and gas sector, however, to be effective, this tool will require some adaptation. Furthermore, the study identified that the lack of detailed sourcing guidelines was the most predominant from the weaknesses identified with KPM. Therefore, this gap led to the development of a Guideline with a simplified step-by-step Sourcing Guide based on KPM. The Guideline should aid practitioners of the case study company and other oil and gas companies in developing strategies that can reduce cost and supply chain risks.