Examples of the 4 Product Categories of Kraljic

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Examples of the 4 Product Categories of Kraljic
Retselisitsoe Tsolo, Member
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...
 

 
Examples of 4 Product Quadrants Kraljic
Walter Hugo Coronel, Member
As examples vary from one industry to another and from one market to another, this is something that has to be done inside the company taking into account your strategic drivers.
Take for example one typical purchasing category: uniforms.
- For a company with 20 back office employees in a city with hundreds of options to buy a simple uniform this is a non critical category.
- In the same market for a company with 3000 employees, it's a leverage category.
- For a retail company, which sells “special branded uniforms” made by a supplier with a patented technology for this uniform fabrics, with a contract to sell only through this reseller (this means that if the reseller is successful they are both successful and vice versa), this is a strategic category.
- For a nuclear plant, uniform providers are scarce, maybe only one, which has no special interest in providing more or better, here you have a typical bottleneck category, where the supplier will provide you with what they sell, not with what you need or desire.
 

 
Examples of Product Categories Kraljic
Jose Blauw, Member
- If you can easily switch between several suppliers, bargain serious on price without large impacts to your processes: here you have LEVERAGE suppliers.
- If you can easily switch between suppliers, but negotiation on price brings little or no impact: here you have NON CRITICAL suppliers. You want them to bother you as less as possible.
- If you can not easily switch between suppliers, and negotiations on price do not make any sense as there is hardly price impact, but just a few (or one) suppliers are able to deliver the necesary goods or services: these a BOTTLENECK items. Try to shift these items to the non-critical items
- If you can not easily switch between suppliers as there is just one (or very few) suitable supplier(s) and large impacts on money, knowledge or processes are involved upon a change of supplier: here you have your STRATEGIC suppliers. Long time cooperation and alignment of the supply chain between you and him is recommended to maximize mutual benefits.
 

 
Examples of 4 Kraljic Product Categories
Koen Vandermarliere, SIG Leader
Hi, it is impossible for me to explain how your categories should fit in the product categories without an analysis.
Basically what you need to ask yourself for each category is:
1. What is the annual value of this category: Is it high or low?
2. How critical is this category for my company: Is it critical or not?
Taking your examples;
1. Raw Materials are fundamentally your core business, so I suppose it is the highest spend.
2. Depending on how many suppliers there are for these raw materials you will plot it on the "criticality" axis. Gold and diamonds will probably be more critical then seawater. As the supply may be more difficult.
Stationary:
1. Should be a relatively low spend versus the total spend.
2. In most cities there are a lot of suppliers that can provide you with stationary, and although you might not be able to print an invoice, it will not totally stop your business. So the criticality is low.
Does this help?
 

 
Buying Non-Critical Kraljic Items
Diego, Member
@Walter Hugo Coronel: How do we purchase non critical items? Further a catalogue or open contract, is there another way to manage the non critical items? Thanks.
 

 
How to Buy Non-Critical Kraljic Items
Koen Vandermarliere, SIG Leader
Hi Diego,
Usually the strategy used for non critical items is to set up a frame agreement with very clear Service Level Agreements (SLA's) etc. You might even have the supplier manage the stock. (KanBan, webordering linked to your ERP...)
A buyer handling non-critical items should be able to handle a large number of these agreements in parallel. By consequence you need to set up a kind of automatic flow and control.
You need to keep control though, as non critical can become a pain if it is badly managed.
 

 
Examples for Non-critical Categories
Walter Hugo Coronel, Member
@Diego: Hi Diego! I strongly agree with Koen's ideas. Furthermore, keep in mind that your main goal with this category is to lower transaction costs (not the price paid to suppliers). Here are some examples on how to lower the cost of buying and paying instead of goods prices:
1. Moto boy: instead of contracting by "ride" and handling hundred of invoices, switch to a fixed contract (one moto boy who makes round daily trips twice a day).
2. Argentina's Remise (taxi service): Concentrate all site operations with only one company, only one invoice per week without detailed information of each single trip; back support in Excel made in a template by the supplier with all trip vouchers details. We switched from 1800 invoices per month to 4, each cost center checked ex post it's own vouchers, differences and billing errors resolved on the next invoice: Minimum transactional costs.
For more examples and in Spanish, contact me through my personal page. Good luck!
 

 
 

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