Kraljic Model in Procurement

The Kraljic Model, developed by Peter Kraljic and introduced in a 1983 Harvard Business Review article, revolutionizes procurement strategy by categorizing products and services into four key quadrants, thus helping organizations optimize supply chain management. This model enables companies to maximize value and minimize risks by assessing both market complexity and the strategic importance of procurement items.

At the core of the Kraljic Matrix are two dimensions: supply risk and profit impact. Supply risk assesses how vulnerable an organization is to disruptions in the supply of a particular product or service, while profit impact evaluates the contribution of the item to the company's profitability.

The four quadrants in the Kraljic Matrix are:

1. Strategic Items: High supply risk and high profit impact. These items are crucial for business operations and need a strong, collaborative relationship with suppliers. Strategic partnerships, careful monitoring, and long-term contracts are often necessary for managing these items.
2. Bottleneck Items: High supply risk but low profit impact. These items can cause significant operational disruptions if not available. Therefore, organizations should focus on securing supply, possibly through stockpiling or diversifying supply sources, even if these items do not directly contribute a large share to profitability.
3. Leverage Items: Low supply risk but high profit impact. These items offer opportunities to leverage buying power to get better prices or terms from suppliers. Competitive bidding and volume purchasing strategies are typically effective for managing leverage items.
4. Non-Critical Items: Low supply risk and low profit impact. These items are often standardized and can be sourced from multiple suppliers without significant business impact. Operational efficiency, such as automating the procurement process, is key for managing non-critical items.

Utilizing the Kraljic Model allows procurement professionals to align their strategies and resources with business objectives appropriately. By distinguishing between different types of purchases, organizations can apply the most suitable purchasing strategies, thereby mitigating risks, reducing costs, and ensuring a consistent supply chain flow.