 What
is the Kraljic Model? Description
The Kraljic Matrix from Peter Kraljic was first described in an article
"Purchasing must become Supply Management" in the Harvard Business Review
(Sep-Oct 1983). The Kraljic Model can be used to analyze the purchasing portfolio
of a firm.
The Kraljic framework is based on two dimensions for classifying a firm's
purchased materials or components (see figure):
- Profit Impact: "The strategic importance of purchasing in terms
of the value added by product line, the percentage of raw materials in total
costs and their impact on profitability".
- Supply Risk: "The complexity of the supply market gauged by supply
scarcity, pace of technology and/or materials substitution, entry barriers,
logistics cost or complexity, and monopoly or oligopoly conditions".
The model then distinguishes between the following 4 product categories:
- Leverage Items.
- Definition: Leverage Items are products that represent a high percentage
of the profit of the buyer and there are many suppliers available. It
is easy to switch supplier. The quality is standardized.
- Buyer-seller power situation: buyer dominated, moderate level of interdependency.
- Recommended purchasing strategy: Tender, vendor selections, targeted
pricing, umbrella agreement with preferred suppliers. Call-off orders
are then placed as an administrative formality.
- Strategic Items.
- Definition: Strategic Items are products that are crucial for the
process or product of the buyer. They are characterized by a high supply
risk caused by scarcity or difficult delivery.
- Buyer-seller power situation: balanced power, high level of interdependency
- Recommended purchasing strategy: Strategic Alliance, close relationships,
early supplier involvement,
Co-Creation, consider
Vertical Integration,
long-term value focus.
- Non-critical Items.
- Definition: Non-critical Items are products that are easy to buy and
also have a relative low impact on the financial results. The quality
is standardized.
- Buyer-seller power situation: balanced power, low level of interdependency
- Recommended purchasing strategy: reduce time and money spent on these
products by enhancing product standardization and efficient processing.
- Bottleneck Items.
- Definition: Bottleneck Items are products that that can only be acquired
from one supplier or their delivery is otherwise unreliable and have a
relative low impact on the financial results.
- Buyer-seller power situation: supplier dominated, moderate level of
interdependency.
- Recommended purchasing strategy: Volume insurance contract,
Vendor Managed Inventory,
keep extra stocks, look for potential suppliers.
Origin of the Kraljic Model. History
The portfolio model concept was originally developed by Markowitz (1952),
who used it as an instrument for managing equity investments. Kraljic (1983)
was the first to bring portfolio models into the purchasing area.
Usage of the Kraljic Matrix. Applications
- Analyze purchasing portfolio.
- Focusing purchasing departments to spend their time on those products
that matters most.
- Outsourcing of Non-critical Items
and Leverage Items.
Steps in the Kraljic Model. Process
- Prepare portfolio analysis.
- Determine criteria for Profit Impact and Supply Risk
- Decide the detail level of the portfolio analysis (Article or article
group level? For department, business unit or entire corporation?)
- Fill in the Kraljic Matrix.
-
Analyze and discuss the results.
-
Define purchasing portfolio strategy and improvement actions
per quadrant of the Kraljic framework.
-
Implement and monitor strategy.
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Software Procurement & Automotive SPICE
"From the perspective of an OEM buyer, managing the commodity group, electronics and software, what experience do my fellow 12manage colleagues have with using automotive SPICE (Software Process Improvement and Capability Determination) as a means to assess a non tangible product?
What areas do you feel are still open to further investigation & research? Thank you for your much welcomed feedback." |
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Controlling the Supply Chain in an Unstable Environment
"What basic parameters should be controlled in an unstable economic (and political) environment. Should I go project to project? Or what else?
Presently I am managing the supply chain in power generation sector. We have supply and maintenance contracts for industrial power generators. Please advise." |
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Example of 4 Product Categories
"I don't manage to draw up a clear difference between the 4 categories of product. I am operating in the milling industry. We buy raw materials, packing materials, spares and stationery. Which is which? Thanks for your input..." |
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Sustanability strategies
"How to integrate environmental criteria into purchasing decision models, especially Kraljic's one ?
" |
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Beyond the Steady State
"What impact will the emergence of a service free public sector, that is failure immune or failure compensated, have on emergence in bottleneck markets, and what are the sustainability issues?" |
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Generic Purchasing-Decision Model
"I am looking for more information about the Generic Purchasing-Decision Model. It's main phases are:
1) Need Identification,
2) Information Search,
3) Evaluation of Alternatives,
4) Purchase and Delivery, and
5) After-purchase Evaluation.
Who can provide some more details on this model? Thank you!" |
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Compare with the Kraljic Model:
Co-Creation |
Outsourcing |
3rd Party Logistics (3PL)
| Vendor Managed Inventory
| Value Chain |
Vertical Integration
| Value Stream Mapping
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Five Forces model
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