What is the Kraljic matrix?

La Kraljic matrix has established itself as an indispensable tool in the buyer's toolbox. It is a representation of the company's purchasing portfolio. It parallels two dimensions: the strategic importance of the purchasing family in terms of value and the complexity of the supplier market. So how can you make it and use it in your environment? These are the questions we are going to give you practical answers to? At the end of this article you will find a link to download a Kraljic matrix.

The Kraljic matrix: definition?

Theorized by Peter Kraljic in 1983, the Kraljic matrix is an analysis method that aims to improve the strategies of purchasing departments. It is a valuable tool that buyers can use to deal with the many upheavals generated by the current economic, technological and environmental context.

As mentioned above, the Kraljic matrix makes it possible to classify the purchasing portfolio of companies according to their strategic weight and the complexity of the supplier market. These two factors are essential in achieving the Kraljic matrix. Buyers cross-reference this data with the four purchase categories:

Simple shopping

These are the purchases that have a low strategic impact for the company. They are easy to get. Hence the absence of strong interdependence between suppliers and buyers. Strategic levers for simple procurement are automating procurement processes using tools like Sourcing Force and streamlining goods and services.

Purchasing levers

These are purchases that have a strong strategic impact for the company. They're not particularly hard to get hold of and the offerings are broad. Buyers have the upper hand over suppliers. The strategic levers for lever purchases are the competition between suppliers, the purchase of e-sourcing software, such as Sourcing Force and the implementation of sourcing campaigns.

Critical purchases

Critical purchases are purchases that have a low strategic impact for the business, but whose procurement remains complex. Indeed, the offer is limited. Buyers therefore have relatively low bargaining power over suppliers.

Among the solutions to be considered to optimize the management of critical purchases, we can mention the guarantee of volumes, the purchase of P2P or S2P software, such as Sourcing Force, as well as the collection of data for negotiations.

Strategic purchases

Strategic procurement includes purchases that are critical to the business and that are difficult to obtain. They represent an important business challenge for the company. Nevertheless, there is an interdependent relationship between suppliers and buyers. The negotiations are therefore balanced. To optimize them, it is necessary to define strategic suppliers, to buy SRM or S2P software and to conduct a complete analysis of the market.

The Kraljic matrix in 4 points:

1 - It is the representation of the company's purchasing portfolio.

2 - It parallels two dimensions:

— The strategic importance of the purchasing family in terms of value,

— The complexity of the supplier market.

3 - It allows you to obtain information by subsidiaries, suppliers or purchasing families.

4 - It is used in particular to compare the following positions:

— Organization of the purchasing function,

— Supplier relationship management,

— Management of the purchasing process...

Why use the Kraljic matrix?

Simply because it is an indispensable tool for the buyer who must now be able to respond to the main drivers of change such as:

• Threats to the availability of resources and the scarcity of raw materials,
• Political turmoil and government intervention in markets,
• Intensifying competition
• Acceleration of technical changes.

How does the Kraljic matrix work?

Often, when we talk about Kraljic's approach, it comes down to mapping purchases. However, this step is only the starting point of a complex analytical approach that includes 4 steps:

The classification of the purchasing portfolio

The aim here is to carry out a classification by combining two criteria:

• The “profit impact”: the volume of purchases, the percentage of the total purchase cost, the growth of the company, the impact on the quality of the product
• “Supply risk”: the availability of products, the level of competitiveness of demand, the number of suppliers

Market analysis

After this categorization of the purchasing portfolio, we proceed to put these data into perspective with the current market context. It is a question of analyzing purchasing power, that is to say the balance of power between buyers and suppliers based on several criteria, such as the size of the market in relation to the capacity of suppliers, the company's market share compared to the competition...

The positioning of strategic products

As the name suggests, the aim is to position the strategic purchases defined during the first stage of the approach in the final matrix, taking into account the market analysis carried out. The aim is to identify the potential of purchases in the market in order to obtain a competitive advantage.

The action plan

It is the final stage of the Kraljic strategic matrix. It consists in positioning strategic purchases on three types of actions: exploiting — balancing — diversifying.

All these actions make it possible to define short, medium and long term purchasing strategies.

How to use it?

The ordinate axis:

It is the easiest to define. It has a direct impact on profit. In practice, we recommend using the amounts spent and the importance of the item in the final product. Depending on your portfolio, you will decide where to position the cursor.

Suggestion:

Set the line between products A and products B:

— A items in the upper quarterles

— items B and C are in the lower quarterles

Examples of questions that determine strategic importance:

Share (in amount) of the purchasing family in the total purchase expenditure?

Impact of the purchasing family on the overall cost of the final product?

Quality provided by the purchasing family in the final product?

Is it possible to standardize the standard purchasing family on the market and the current situation?

Is the current supplier recognized as the market leader in terms of quality and price?

Level of collaboration between your company and the supplier (s) within the purchasing family?

Is the purchasing family a strategic part of your company's differentiation strategy?

Relationship to be established with the suppliers in the purchasing family?

The x-axis:

It requires further analytical work, as you will need to determine the factors that complicate and risk the portfolio, i.e. qualitative criteria subject to discernment.

Suggestions:

First, list the factors that are important in your specific context. Then, involve involved members of the shopping center. Finally, taking into account their problems at this strategic stage will be a very valuable investment, the return of which will be made at the time of strategic deployment.

Ask yourself the right questions for each of the factors (“How long does it take to certify a new supplier?” ”, “How much does it cost to certify a new supplier?” ”...)

To do this, establish a scale of values for each of the criteria selected, i.e. propose possible answers with weighting coefficients. This is the most complex step in developing the Kraljic matrix. Then, grade the items according to the value scale. At each phase, you will determine whether it is better to work alone or in a group.

Example of questions that determine procurement risk:

Products/services from the purchasing family easily accessible on the market?

Expected short/long term supply difficulties?

How many potential suppliers can replace your company's current suppliers?

How long does it take to rebuild a commercial relationship with a new supplier?

Possible internalization of expenditure. Is it profitable?

Alternative products/services available on the market?

How dependent is your company on historical suppliers?

Cost of ownership of products in this purchasing family (storage...)?

Do the products in this buying family lose value over time?

Risk of product obsolescence due to new technologies?

Cost of a change supplier on the purchasing family?

Are historical suppliers experts in several areas of interest to your company?

Level of After-Sales Service required for the purchasing family?

Does the variability of the volumes of the purchasing family require particular attention for supplier selection?

Bargaining power of the supplier?

Bargaining power of your company?

A few tips on the procedure:

In order not to bias the interpretation of the matrix, it will be necessary to apply the scales put in place objectively, so that the importance of the volume and the price of each purchasing family is clear. Then, indicators of willingness to collaborate can also be used (willingness of internal customers to change suppliers, purchasing resources to be devoted to different families). The willingness of subsidiaries to work with central management and to collaborate with other subsidiaries is a crucial factor.

Once quantified, the purchase families are placed on the matrix and represented by a bubble proportional to the purchase volume.

To remember:

Each box in the Kraljic matrix requires specific development. Purchasing strategies are not the same, good practices, negotiation practices, and even buyer profiles are different. The matrix addresses the concerns of the purchasing manager who must allocate the right resources to the most profitable activities.

The position of the purchasing family on one of the dials of the matrix will serve as a reference for building the model. It will be complemented by the position on the Bartlett and Ghoshal matrix to deduce an organization in terms of purchasing.

Peter Kraljic's profile

Peter Kraljic was born in Slovenia in 1939. He spent most of his career at McKinsey in Europe. He has worked mainly with major clients in the manufacturing industry and has published numerous articles in economic journals, in particular on mergers and acquisitions issues or the human consequences of organizational changes.

In September 1983, he published an article entitled “Purchasing must become supply management” in the Harvard Business Review (HBR) in which he campaigned for the implementation of tools specific to the Supply Chain function. He is in favor of a complete disruption of the Purchasing function, which has become too routine in his opinion: annual contracts with suppliers, little questioning of the positions, skills and culture of obsolete buyers. He anticipates the changing world and believes that procurement and procurement must remain at the forefront of change through comprehensive strategies.

Especially in an economy that is now digital and globalized, requiring rapid adjustment to economic and environmental changes. Peter Kraljic was born in Slovenia in 1939. He spent most of his career at McKinsey in Europe. He has worked mainly with major clients in the manufacturing industry and has published numerous articles in economic journals, in particular on mergers and acquisitions issues or the human consequences of organizational changes.

In September 1983, he published an article entitled “Purchasing must become supply management” in the Harvard Business Review (HBR) in which he campaigned for the implementation of tools specific to the Supply Chain function. He is in favor of a complete disruption of the Purchasing function, which has become too routine in his opinion: annual contracts with suppliers, little questioning of the positions, skills and culture of obsolete buyers. He anticipates the changing world and believes that procurement and procurement must remain at the forefront of change through comprehensive strategies.

Especially in an economy that is now digital and globalized, requiring rapid adjustment to economic and environmental changes.