The Kraljic Matrix for purchasing management
A retail store. A factory. A service company. No matter what your business is: you need to know the Kraljic Matrix.
What is the Kraljic Matrix?
The Kraljic Matrix is a methodology that plans purchasing management through the classification of raw materials and/or materials or services that we need to buy to fulfil our activity.
In the matrix, purchases are divided according to the risk to our company of running out of products or services and the impact that these purchases have on our results.
Since when has the Kraljic Matrix been used?
Peter Kraljic was the creator of this matrix and first published it in 1983 in the Harvard Business Review.
Since then, it has been used to make the purchasing process more efficient and to improve the liquidity of the company.
How is the Kraljic Matrix made?
Like all matrices, it is divided into quadrants in which the materials are placed according to their type.
On the vertical axis, the impact of the purchase on the result is placed, and the price volatility, the volume of expenditure and the impact on profitability are divided into high impact, at the top, and low impact, at the bottom.
On the horizontal axis, the risk of non-compliance with supply is assessed and includes production cycles, shortages, etc. On the left hand side, products with low risk will be placed and on the right hand side, those with high risk.
What are routine products?
Routine products are the easiest products to buy, have little impact on the results and therefore no risk.
As non-critical products, procurement systems are a good way to source routine products.
These are official materials such as pencils, paper clips, toners, sheets, as well as water, cleaning products, coffee, etc.
From B2B Safe, our recommendation is to look for this type of products among our wholesalers and negotiate with them online and without revealing your identity the recurring purchase and its price.
What are leveraged products?
Leveraged products are those that, although they have a low supply risk because there are many suppliers that offer them, have a very high impact on the company's results due to their price.
Leveraged products are also known as commodities and are usually raw materials.
An example could be timber for artisanal toy companies.
At B2B Safe we recommend looking for competitive offers. A good way to do this would be to create customised demands as a buyer for suppliers to propose their offers to us, and negotiate with them anonymously to get the best price.
What are bottleneck products?
Bottleneck products are the opposite of leveraged products: we do not have too many suppliers but they have a low impact on our results.
They are called bottleneck products because they can be bought from only one supplier or from very, very few suppliers, so we might run out of them and thus become a bottleneck in our production or service.
The most important thing is to ensure the supply of this type of products.
At B2B Safe we recommend looking for suppliers who can supply us and negotiate with them a regular contract so that we do not run out of stock.
What are strategic products?
Strategic products have two problems: on the one hand, they suffer from supply risk because they are logistically complicated or because there are not many suppliers, and on the other hand, they have a high impact on our results.
They are often also raw materials or commodities, such as leveraged products.
An example could be a repair service for a particular watch brand, which has only one workshop in the whole country.
It is absolutely essential to create partnerships with suppliers for these products.