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Quantified Kraljic Matrix

Description

Kraljic Portfolio Matrix (KPM), also known as Purchasing Portfolio Matrix or Supply Chain Portfolio Matrix, is a method developed by Peter Kraljic in 1983. It is used to create a purchasing portfolio by segmenting items (products or inventory or services) into 4 dimensions.

Although other models have been developed, Kraljic’s Portfolio Matrix approach has become the dominant methodology built upon in literature. It is even seen as the foundation for purchasing strategies for many organizations. Kraljic’s approach leverages a portfolio matrix that classifies products based on two dimensions: Supply risk as the external dimension concerns the factors regarding suppliers and supply market, while the Profit impact as internal dimension relates to the importance and profit impact of a given product.

Our aim is to create an objective, quantitative decision analysis approach to position products and services within the Kraljic Portfolio Matrix. Single attribute value functions are used to quantify the strategic purchasing attributes of the Kraljic Portfolio Matrix. A multi attribute value function is then used to quantify and rank-order products and services within the Kraljic Portfolio Matrix based on the two strategic purchasing objectives. We demonstrate this approach on this page using fictious data.

Click on the graphics  to enlarge

For more information about the Kraljic Matrix read our article
What is the Kraljic Matrix'

Our algorithm makes use of a quantified framework to objectively position product-categories. The size of the circle represents the relative amount of spend. For reasons of readability, the product group names have been omitted.

Benefits

The Quantified Kraljic Portfolio Matrix provides the following benefits to your company:

  • It enables to maximize profits and minimize supply risk through the data-driven fact-based handling of suppliers.
  • Allows Strategic purchasing by transitioning purchasingfrom a tactical to a strategic role which provides sustainable competitive advantage. Compelling evidence supports the relationship between strategic purchasing and supplier integration, performance, power, and total cost of ownership among other benefits.
  • Quantified approach. Overcome one of the primary weaknesses of the Kraljic Portfolio Matrix: the qualitative nature of the model, which results in a subjective method for weighting and positioning suppliers or commodities in the quadrants of the Kraljic Portfolio Matrix.
  • It focuses efforts on areas where profits are most significant. As it is easy to interpret it works well for collaborating with colleagues and giving presentations on these areas.

Data needed

For this quantified analysis we make use of several criteria. As these attributes can be company specific, we provide some custom fields to enter all criteria relevant to your business. We divide the attributes based on the two dimensions: Profit impact & Supply risk. For these dimensions one can think of the following relevant data attributes.

Basic dataset:

  • Product category
  • Spend (the purchased volume)
  • Total number of orders

Extended / calculated and weighted dataset. These attributes can be specific for your company (we give you some examples):
Profit risk data extended attributes:

  • The item's share of the total cost of purchase
  • Weighted average unit-price and weightfactor
  • The impact of the item on the quality of the final product
  • The impact of the item on (growth) of the company's turnover
  • Expected Price increase / decrease of products in this category over the next 6months based on a trend

Supply risk extended attributes:

  • Lead-time and weight factor (from purchase request to delivery)
  • Delivery-time and weight factor
  • The impact of the item on the quality of the final product
  • Geographic information and weight factor
  • Replacement supplier and weightfactor
  • Availabilityin the market (supply of capacity)
  • Competitive demand

Zuiver ICT normalizes the data and places the product categories in the correct position in the Kraljc Matrix. The extended and weighted dataset provides insight into a quantified classification of the product categories that is a big step closer to reality. You can vary the weight on the position in the matrix. The purchasing strategies based on the Kraljix Matrix are therefore now based more on 'hard facts' than on intuition.

Get your own dynamic Quantified Kraljic Portfolio Matrix

We offer the quantified Kraljic Profolio Matrix as a service. You only need to supply the dataset with the data attributes that you find important, in order to create a more realistic Kraljic Portfolio Matrix. The Kraljix Portfolio Matrix will be created, based on your own dataset. You will receive a link to our environment by email, including information to log in. The Kraljic Matrix will then be accessible to you for 4 weeks. Furthermore you can download one or more pdf files. In our environment, it's possible to adjust the data attributes on which you can influence the position of the product categories in the matrix. To know how this works, go to the demo beneath.

If you want your own quantified Kraljic Portfolio Matrix, please let us know. Go to:contact and let us know your interested. We will first send you more information about our Quantified Kraljic Portfolio Matrix service.

The dynamic quantified Kralic Matrix demo is only for desktop and tablet sized screens available and is based on fictious data

The supply risk position of the different product categories in the Kraljic Portfolio Matrix is determined by the delivery time in combination with the number of orders. The profit impact position is determined by the Unit Price in combination with the total spend. Using the sliders you can change the weight of the attributes and see immediately the impact on the position in the Kraljic Portfolio Matrix.

Zuiver ICT

Get in touch to receive more information on how we can bring your data to actionable insights