What is portfolio analysis used for in procurement?

Portfolio analysis in procurement is a strategic tool primarily used for understanding and managing the risk-return profile of various suppliers and procurement categories. The focus on calculating risks and returns allows organizations to identify which suppliers and categories offer the best balance of cost versus potential risk.

This process involves categorizing suppliers and products in terms of their strategic importance, financial impact, and market volatility. By analyzing these factors, procurement professionals can make informed decisions that align with the organization's overall objectives, ensuring that they are investing resources wisely and strategically.

While evaluating supplier relationships, determining piece prices, and assessing the quality of goods are important aspects of procurement, they do not encompass the overarching purpose of portfolio analysis, which is fundamentally about understanding the risk associated with different procurement choices and optimizing the return on investment across the supplier base. This strategic approach empowers organizations to allocate resources where they can achieve the most significant impact while managing exposure to potential risks.