Using the Kraljic Matrix in Procurement
You can buy the Powerpoint version of Kraljic that can be edited for your own presentations, available in A-Z Procurement Templates.
Putting aside category profiling, take the annual spend report and put them into the four different boxes according to the supply risk and potential profit impact of each.
- Strategic items are high profit and high supply risk
- Leverage items are high-profit impact and low supply risk
- Bottleneck items are low profit and high supply risk
- Non- critical items are low-profit impact and low supply risk
What is the current competitive landscape? Complete an annual review using Porters Five Forces
Know your strategic position
Add another column to the excel sheet and add “Buyer Influence”
- Exploit- Negotiate for a better deal
- Balance- Price and Quality should be weighted according to the needs of the contract
- Grow- Reduce the supply base risk by building up new suppliers or alternative products.
Concentrate on suppliers where 80% of the spend sits (hopefully this is within the top 20% of your suppliers). If not there is a separate exercise to consolidate your supply base.
For visual presentation, you can add suppliers to the boxes and include a legend key.
The Kraljic was first introduced In 1983, Peter Kraljic created a matrix called Kraljic portfolio purchasing model that could be used to analyse the purchasing portfolio of a company. This matrix helps a company gain an insight into the working methods of the purchasing department and how they spend their time on various products.
This tool shouldn’t be used just for the sake of it, be clever in using it for appropriate situations. Apply it to commodities when you need a visual tool to start a conversation or include it in a report.
Used in the right way the Kraljic Matrix can help purchasers maximise supply security and reduce costs, by making the most of their purchasing power. In doing so, procurement moves from being a transactional activity to a strategic activity.
You might also like Kraljic & Supplier Relationship Management