What is the Kraljic Matrix

Introduction

The Kraljic Matrix is a procurement tool that can be used to help organizations make better sourcing decisions. It provides a framework for assessing the relativeimportance of different factors when making these decisions. The matrix can be applied in both strategic and tactical situations, and can be used to assess both supplier performance and potential new suppliers. In this article, we will discuss what the Kraljic Matrix is, how to use it, and the benefits of usingit!

Background of the Kraljic Matrix

The Kraljic Matrix was developed by Slovenian Peter Kraljic in 1983. It is a simple yet powerful tool that can be used to assess the relative importance of different factors when making sourcing decisions. The matrix has two dimensions:

Profitimpact: This dimension captures the spend volume, the item's share of the totalcost of spend, the impact of the item on the quality of the final products, theimpact of the item on the (growth of) the turnover of the company.
Procurement vulnerability: This dimension captures the buyer's exposure to risk if thesupplier were to cease doing business with the buyer. It includes factors suchas the availability of substitute suppliers and the impact of price increases.

The Kraljic Matrix can be applied in both strategic and tactical situations. In strategic situations, it can be used to assess the relative importance of different factors when making decisions about which suppliers to partner with. In tactical situations, it can be used to assess the relative importance of different factors when deciding whether or not to source a particular product or service from a particular supplier.

Matrix structure

There arefour quadrants in the Kraljic Matrix:

Strategic items: these are products or services that are both high in profit impact and high in procurement vulnerability. Examples might include raw materials or commodities. In these cases, it is important to focus on price and develop a long-term relationship with the supplier.
Leverage items: these are products or services that are high in profit impact but low in procurement vulnerability. Examples might include finished goods or standardized services. In these cases, the buyer can afford to be more selective about the suppliers they work with, and should focus on factors such as quality and delivery performance.
Bottleneck items: these are products or services that are low in profit impact but high in procurement vulnerability. Examples might include custom-made products or niche services. In these cases, the buyer needs to be very careful about managing risk, and should focus on factors such as supplier financial stability and contract terms.
Non-criticalitems: these are products or services that are low in both profit impact and procurement vulnerability. Examples might include office supplies or routine services. In these cases, the buyer can afford to be less selective about the suppliers they work with, and should focus on factors such as price and delivery performance.

The Kraljic Matrix is a valuable tool for managing risk in complex sourcing decisions. By assessing the relative importance of different factors, it can help buyers identify which suppliers they should partner with and which products or services they should source from those suppliers. In addition, the matrix can be used to assess the impact of changes in supplier power or procurement vulnerability on the buyer's exposure to risk.

Profit impact and procurement vulnerability

Five examples of profit impact:

Forecasting of spend volume
The supplier's market dominance
The supplier's bargaining power
Price increases
Complete exploitation of contracts

Five examples of procurement vulnerability:

Price increases
Supplier bankruptcy or insolvency
Supplier quality issues or product recalls
Delivery delays or disruptions
Changes in customer demand or preferences

Practical problems of the Kraljic Matrix

The Kraljic Matrix is a valuable tool for managing risk in complex sourcing decisions. However, there are some practical problems with using the matrix:

One problem is that it can be difficult to quantify some of the factors that are included in the matrix. This can make it difficult to use the matrix for decision-making purposes.
Another problem is that the Kraljic Matrix is not always applicable in all situations. For example, it may not be useful for products or services that are sourced from a single supplier.

The data needed for the Kraljic Matrix

In order to use the Kraljic Matrix, buyers need to have data on profit impact and procurement vulnerability
This data can be difficult to obtain, especially in cases where the buyer does not have a long history with the supplier.
In addition, the Kraljic Matrix can be enhanced by data on other factors, such as supplier quality and delivery performance.

Strategies

There are a few different strategies that can be derived from the Kraljic Matrix:

One strategy is to focus on products or services that are sourced from suppliers with high power and low vulnerability.
Another strategy is to focus on products or services that are sourced from suppliers with low power and high vulnerability.
A third strategy is to partner with a number of suppliers and spread the risk across multiple suppliers.
A fourth strategy is to use the Kraljic Matrix as a tool for assessing supplier risk and making decisions about whether or not to do business with certain suppliers.

This example of the Kraljic Matrix is based on product categories. Another variant of the Kraljic Matrix is to plot the suppliers in the matrix. This example is created by our algorithmwhich makes use of a quantitative framework. Want to know more, go to:
Quantative Kraljic Matrix

Resume

The Kraljic Matrix is a valuable tool for managing risk in complex sourcing decisions.
By assessing the relative importance of different factors, it can help buyers identify which suppliers they should partner with and which products or services they should source from those suppliers.
In addition, the matrix can be used to assess the impact of changes in profit impact or procurement vulnerability on the buyer's exposure to risk.
The Kraljic Matrix is a valuable tool that can help buyers make complex sourcing decisions. However, it is important to note that the matrix is not always applicable in all situations and that data on profit impact and procurement vulnerability can be difficult to obtain. In addition, the Kraljic Matrix can be enhanced by data on other factors, such as supplier quality and delivery performance.