Kraljic Matrix as part of your strategic procurement development

Posted on: October 10, 2017, by :

This picture describes the kraljic matrix. Top left corner with high financial risk and low supply risk are your leverage products. Top right corner (high financial impact and high supply risk) is the corner of strategic products and thus strategic partnerships. The bottleneck products are in the lower right corner, with a high supply risk but limited financial impact. Alternatives must be developed. The lower left corner are the routine products, with a relative low financial impact and a low supply risk.

On the picture above, made based upon the article of Kraljic (Kraljic, P. (1983). Purchasing must become supply management. Harvard business review, 61(5), 109-
117. ), a short description is given of the portfolio-management. Even as it is almost 35 years later, this approach is still actual, however it deserves some further explanation as to why this is relevant.

In approaching a new supply base for an employer, the first thing I do is looking at how I can place all suppliers in these quadrants. However, that doesn’t immediately define the strategy as to what Kraljic proposes. Instead, the main strategy and the largest value to be added is in eliminating the two righter quadrants of the table.

We don’t want strategic products as these are notoriously hard to manage in a locked-in, interdependent supply-chain. Instead, the strategy here should be to talk with customers, colleagues from for example engineering and alternative suppliers to make sure that these products are not designed into the product.

There is however of course an exception: from a sales perspective, your employer or company wants to be in the position where your products are placed with your customer in the strategic corner. This means that when you are able to supply very specific, expensive products (e.g. electric components for cars, such as Bosch or Continental), you need to make sure that you do not lose these capabilities.

Furthermore, we have the bottleneck-products. These products are generally cheaper (hence the less financial impact), however can still create a locked-in situation and prove to be very expensive to resolve in case anything goes wrong.

To limit the amount of risks you run into, a first thing to do is to assess the actual risks. Analyze the balance sheets, profit and loss accounts and the cash flow statements. If the supplier doesn’t provide these, use D&B or Creditsafe or similar service providers that dig up this information from Chamber of Commerces and such.

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