Tools & Tips
Kraljic’s Matrix explained
Kraljic’s Matrix is a procurement model that helps organizations identify the most effective way to manage their purchasing activities. It was developed by Peter Kraljic in the 1980s, and has since become a popular tool for strategic procurement planning.
The matrix is a two-dimensional framework that classifies products or services into four categories based on two key dimensions: the level of supply risk and the level of profitability impact. The four categories are:
- Bottleneck Items: These are products or services that have a high supply risk and a high profitability impact. They are critical to the organization’s operations, and any disruption in supply can have a significant impact on the bottom line. These items require careful management and a focus on building strong relationships with suppliers.
- Strategic Items: These are products or services that have a high profitability impact but a low supply risk. They are important for the organization’s success, but there are many suppliers available, so the risk of supply disruption is low. These items require a focus on price and quality to ensure the best value for money.
- Leverage Items: These are products or services that have a high supply risk but a low profitability impact. They are not critical to the organization’s operations, but the risk of supply disruption is high. These items require a focus on negotiating with suppliers to reduce costs and increase reliability.
- Non-Critical Items: These are products or services that have a low supply risk and a low profitability impact. They are routine items that are easily sourced from multiple suppliers. These items can be managed through simple procurement processes.
Kraljic’s Matrix provides a framework for organizations to identify the items that require the most attention and resources in their procurement process. By classifying products or services into these four categories, organizations can develop customized procurement strategies to manage each category effectively. For example, bottleneck items may require a focus on developing long-term partnerships with suppliers, while leverage items may require a focus on cost reduction strategies.
In conclusion, Kraljic’s Matrix is a valuable tool for organizations looking to develop a strategic procurement plan. By identifying the level of supply risk and profitability impact for each product or service, organizations can develop targeted procurement strategies to manage their purchasing activities effectively.