Procurement is an important process for a business or a company that focuses on providing the right quality and quantity of products to people. It is important that a business is aware of how the procurement process will affect the whole purchasing strategy that they are using with their products or services. Using the Kraljic Matrix is one way to help make the process easier and smarter. This strategy helps companies to use to minimize the vulnerability of their supply chain while simultaneously maximizing the buying power that they can have from the goods that they are offering.
The Quadrants of the Kraljic Matrix
Kraljic Matrix is divided into 4 quadrants that will show the potential result of the profits that a certain business can have when it is on one axis and see how vulnerable the business will be, with the suppliers’ disappearance from the other side of the axis. The four quadrants are: Strategic Items, Leverage Items, Bottleneck Items and Non-Critical Items. For those businesses whose purchasing managers are interested in incorporating the use of the matrix into their business, it is important that they know the most and the least critical parts of the Kraljic Matrix as well as those that show high and low impact on the business’ strategy.
- Strategic Items
These products are those that are included in the critical needs of the buyer because of the fact that these products may either be difficult to deliver, hard to find, costly, or directly impact the profitability of the company. Although all quadrants work together to make up the complete picture, because of the very nature of this quadrant and its relation to the business’s bottom line, this should be the quadrant to examine in depth first.
- Leverage Items
You will notice that this quadrant is also on the right side of the matrix with a high financial risk involved in the items that fall here, but it is at the bottom so the supply risk is low. Therefore even though the financial impact on the business is very high, the strategies and considerations for these items are different because of the wide variety of options available to procure them. Items in abundant supply tend to work well with competitive bidding as a part of the overall strategy.
- Bottleneck Items
This is the first of the two on the left side so you know it has a low financial risk. However, being on the top means the risk to the supply is greater with possibly only 1 or 2 vendors out there with the specific items needed. As a result of the reduced financial impact, these items are a little safer to explore other options. It is a sound strategy to nurture the relationship with the vendor while at the same time investigating and looking into other resources.
- Non-Critical Items
The products in this quadrant are at the bottom left so that means low financial risk and low supply risk. A perfect example of this would be basic office supplies such as paper, pens, binders, tape, etc. The challenge is that in many cases, the fees associated with shipping, transporting and receiving them are more than the items themselves! Obviously, competitive bidding on the price of the items themselves won’t be of much assistance. Instead, strategies should revolve around reducing the need and use of these administrative/office supplies and finding a way that makes sense to get the items the business does need from point A to B without added expense. This could involve some type of sharing
By using the Kraljic Matrix, a business can better understand the potential profit in relation to the supply chain weaknesses and vulnerabilities. By being aware of the four quadrants, there is no doubt that purchasing managers will have an easier time dealing with their procurement processes. They can make better strategy decisions, work on those relationships that are key to the financial success of the business, and identify items of lesser importance that may work better finding alternative sourcing or even outsourcing.
