This power between buyer and supplier is balanced and the goal here is to ensure long-term availability. These items are critical to the business. Strategic items have high supply risk and high profit impact and are bought mainly from strategic suppliers. Thus, the purchasing strategies we recommend for these types of items focus around reducing administrative costs and logistical complexity. These items cause the least problems for buyers because they can be purchased in different varieties and from different suppliers.īy increasing product standardization, much time and money can be saved. There is a balance of power between buyer and supplier. They are usually lowest on priority list in a sourcing strategy. Non-Critical items are low risk and have a low profit impact. The purchasing strategies we would typically use for these types of items include tendering and competitive bidding. This means that buyers possess the balance of power in the relationship and leverage this strength to obtain greater returns. This quadrant belongs in a so-called “buyer’s market”. They are usually highly standardised and easily available. Leverage items have a large financial impact on the organization however, these items are in abundant supply. Secondly, we need to develop plans to reduce our dependence on this supplier, by adapting our products and investigating alternative products and suppliers. Firstly, we need to ensure continuity of supply. The purchasing strategy we would typically use for these types of items is twofold. The market consists of few suppliers that can behave freely and force prices upward. This quadrant belongs in a “Supplier’s Market.” Here, the strength is in the hands of the supplier.
Their supply risk is high, but do not have a major profit impact. These are products with limited source of supply. Strategic, Leverage, Bottleneck and Non-Critical. Kraljic Matrix is divided into 4 quadrants showing the profit impact on one axis and supply risk on the other side of the axis. In doing so, procurement moves from being a transactional activity to a strategic activity. It’s purpose is to help purchasers maximize supply security and reduce costs, by making the most of their purchasing power. Despite its age, it’s a popular and useful model used in companies worldwide. Kraljic matrix was created by Peter Kraljic and it first appeared in the Harvard Business Review in 1983.
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