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The use of Kraljic Matrix in procurement process

The Kraljic Matrix allows you to break down products by their impact on a company's bottom line and supplier risk. Learn more!

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Anna B.

What is Kraljic Matrix?

The Kraljic Matrix is an analytical tool created in 1983 by Peter Kraljic and still used today in the procurement process. This tool is used to categorize spending in a company. The matrix is perfect for building a purchasing strategy. Peter Kraljic proposed to divide products/suppliers according to the criterion of expenditure value and delivery risk. Based on two dimensions – impact on the bottom line (vertical axis) and supplier risk (horizontal axis), four product groups were identified.

The matrix is the basis for determining the relationship that should link the organization with a given supplier. The key characteristics that affect the assessment of supply risk include an accurate determination of the number of suppliers who meet the requirements for a given product and the level of risk associated with the supplier’s withdrawal from cooperation with respect to the selected product. On the other hand, the assessment of the impact of a given product on the company’s financial result is influenced by the turnover achieved on a given product, the potential to reduce costs, as well as the percentage contribution of the purchased product to the creation of added value.

Kraljic Matrix

Kraljic Matrix

Based on the assessment of the influence of the discussed factors, we can distinguish four groups of products/services.

1. Standard products/services

This is a group of products/services that has little impact on the company’s bottom line. The level of expenses is relatively low and they are not subject to high supply risks. In the case of standard products/services there is high competitiveness on the market and availability of substitutes. A source of savings in this group may be the selection of a specific company supplying a given range/service, so that the number of suppliers is limited, and those who are selected will realize larger orders, which will allow to negotiate more profitable contracts.

Example of standard products: office supplies and toiletries.
Example of standard services: courier services, travel agencies.

2. Bottleneck products/services

This is a group that has a small impact on the company’s bottom line, but has more security of supply risk than the standard product/service group. With bottlenecks, there is less competition in the market.

Example of bottleneck products: laboratory and medical equipment, machine parts.
Example of bottleneck services: analytical services, specialized training.

3. Strategic products/services

It is a group of products/services that determines the competitive advantage of a company. At the same time, it has a great impact on the company’s bottom line. The supply risk for this group is high. It is essential to build good, long-term partnerships with suppliers. For example, companies propose joint development projects, joint investments and other capital ties.

Example of strategic services: building and developing dedicated, innovative IT systems.

4. Leverage products/services

The leverage group has a very large impact on the company’s bottom line, but has a low level of supply risk. Leverages have a significant amount of competition in the market.

Example of product leverages: fuel, vehicle fleet, sand.

What is Kraljic matrix used for?

Assigning specific products/services to a specific category allows you to build an appropriate buying strategy. The purchasing strategy for a specific category determines, among other things:

  • Supplier relationship model.
  • Negotiation tactics and tools.
  • Goals for the purchasing process.

In practice, it is information for the purchasing department on what tools to use, how to negotiate and what concessions can be afforded for a particular product/service.

Advantages of using the Kraljic matrix

  • Possibility to reduce costs and improve the company’s financial result.
  • Optimization of the company’s purchasing strategy for individual groups.
  • Motivation to develop appropriate negotiation strategies and purchasing tools dedicated to individual groups.
  • Guidance for the employees of the purchasing department on how to deal with a specific group of products/services.

Kraljic’s model allows you to optimize costs and choose the right purchasing strategy for each of the defined groups. In the course “Purchases” you will find practical examples of procurement strategies for each group.

Link to the product:

Purchases Course

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