Optimizing Supply Management: Kraljic Matrix for an Efficient Supply Chain.

Optimizing Supply Management: Kraljic Matrix for an Efficient Supply Chain
Imperia Article
Published: 03/7/2023
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The Kraljic Matrix is one of the most effective tools for companies when conducting purchasing management. It is responsible for analyzing and categorizing material and/or service needs from suppliers, considering the risks they pose to the company. In other words, the matrix categorizes supplies according to their strategic importance and negotiation power. It allows identifying improvement opportunities and making informed decisions regarding supply management.

Therefore, it is essential for companies, when defining and implementing a strategic action with a supplier, to be based on the position their supply holds in the Kraljic Matrix. Simultaneously, it will provide information about what the supplier expects from their customer in return.

Kraljic Matrix

Before explaining how to apply this tool, let's clarify the methodology and variables it employs.

This matrix works based on two dimensions: on one side, the horizontal axis represents the supply risk (i.e., the availability of the product or service at the right time), and on the other side, the vertical axis represents the strategic importance of the product or service.

Infographic of the Kraljic Matrix applied to supply chain management by Imperia

As a result, a 2x2 matrix is obtained, consisting of the following four categories:

  • Leverage Items: The availability of numerous suppliers and standardized product quality reduce the supply risk and increase the positive impact on the buyer company's profits or results.
  • Strategic Items: These items are essential but also risky since they are scarce and have a significant impact on the results.
  • Non-Critical Items: Refers to low-risk materials that are easy to acquire and have a limited impact on the financial statements.
  • Bottleneck Items: These materials present a high risk due to the scarce availability of suppliers, which can create a market dependence on a single dominant supplier. Although their impact on the results is low, their acquisition can be critical due to their specialization.

How to Apply the Kraljic Matrix in Supply Management?

Infographic steps to apply the Kraljic Matrix

Strategies for the Categories of the Kraljic Matrix

  • Leverage Items: Although these goods have a significant financial impact on the organization, they are widely available in the market. The typical strategy is to negotiate frequently and actively with the supplier to obtain the best service and the lowest price.
  • Strategic Items: These products or services are scarce, meaning they are only available through a limited number of suppliers. Their acquisition has a significant financial impact on the organization. As a result, buyers often resort to strategies such as alliances, long-term contracts, joint partnerships, vertical integration, and make-or-buy decisions to address this situation.
  • Non-Critical Items: They have minimal financial impact on the organization and are widely available through multiple suppliers. The most common purchasing strategies for these products include outsourcing, Business Process Outsourcing (BPO), decentralized purchasing processes, etc. The focus is on streamlining administrative purchasing processes to carry them out as quickly as possible.
  • Bottleneck Items: Generally, these items have little financial impact, but their main problem lies in the fact that they are only available through a very limited number of suppliers. To address this situation, the most common acquisition strategies include delivery or payment contracts (DOP), maintaining inventory with safety levels, substituting imported products with local alternatives, developing new suppliers, and product standardization.

The Kraljic matrix represents a valuable tool for the seller as it allows them to anticipate buyer objections. If you want to achieve real performance improvement in your company, it is essential to consider your commercial portfolio and analyze in which specific quadrant each product or service would fit. This way, you can adopt appropriate strategies for supply chain management and maximize your results.