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Makena Maureen, Kenya
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Criteria for Supplier Categorization
I need criteria to categorize my suppliers so as to give the most priority to the most strategic suppliers. In what way can I categorize these vendors?
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Koen Vandermarliere
Business Consultant, Belgium
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Criteria to Categorize your Strategic Vendors
Hi Maureen, thanks for your question,
I'm sure that you can do that by using Kraljic's procurement positioning matrix. You need to assess 2 things with regards to the vendors or the products (depending if you are doing this exercise on supplier level or on commodity level):
- The PROFIT IMPACT: importance of the business you do with each vendor, and
- The importance of SUPPLY RISK involved working with each supplier.
The suppliers with the highest risk and highest profit impact are strategic suppliers, high risk and low value are leverage suppliers that you should try to evolve to strategic.
Does this help? To get more in depth please provide more info on your business, etc.
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Ivy
Teacher, Netherlands
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Sub-Categorizing Kraljic Strategic Vendors
While the standard Kraljic Matrix identifies "Strategic" as a single group, you can apply advanced sub-categorization to the Strategic Items group using following three dimensions:
- THE BUYER-SUPPLIER POWER BALANCE (THE "INVERSE MATRIX")
By overlaying the supplier's perspective of you as a customer (often called the Supplier Preferencing Matrix), you can sub-categorize suppliers based on mutual importance:
- Strategic Partners: Both parties view each other as critical. This is the "ideal" strategic relationship where deep collaboration and innovation occur.
- Exploitative/Dominant Suppliers: The supplier is essential to you, but you are a "nuisance" or "marginal" customer to them. This sub-group requires immediate risk mitigation to avoid supply disturbances.
- Dependent Suppliers: You are their most important customer. This allows you to exert more influence over their development and prioritize your needs. - STRATEGIC SOURCING DIRECTIONS
Strategic items can be further segmented by the specific long-term action plan required to manage them:
- Exploit: Use if you have high buying power; focus on leveraging that strength to secure favorable long-term terms.
- Balance: Use when power is equal; focus on performance-based partnerships and shared gains.
- Diversify/Secure: Use when the supplier has more power; focus on finding alternative technologies or suppliers to move the item toward the "non-critical" or "leverage" quadrants over time. - TIERED SUPPLIER IMPORTANCE (THE PYRAMID APPROACH)
Within the strategic quadrant, you can also further segment based on the depth of the integration:
- Tier 1 (Strategic Partners): Essential business partners providing unique, high-value components that are nearly impossible to replace.
- Tier 2 (Preferred Strategic): Highly important but slightly more replaceable than Tier 1; managed with regular performance reviews and semi-customized contracts.
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Jaap de Jonge
Editor, Netherlands
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Other Factors you can Use (beyond Kraljic)
Yes and also have a look at the topic: "Factors to Analyze a Purchasing Portfolio Beyond those in the Kraljic Model". (...)
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