Kraljic Procurement Matrix

The Kraljic Procurement Matrix, developed by Peter Kraljic and published in a 1983 Harvard Business Review article, is a strategic tool used in supply chain management and procurement. It helps organizations understand and improve their purchasing strategies by categorizing supplies and suppliers based on risk and profitability. The matrix is divided into four quadrants, each representing different types of purchasing strategies.

1. Strategic Items: These are high-profit and high-risk items. They often have complex supply chains and few suppliers, making the organization vulnerable to supply disruptions. Companies should focus on long-term partnerships, strategic alliances, and intensive negotiation to ensure supply stability and performance. These items require close attention and a strategic approach.

2. Leverage Items: These are high-profit but low-risk items. They are usually standard commodities or products that can be sourced from multiple suppliers. Competitive bidding, tendering, and price analysis are essential strategies for these items. Companies can use their purchasing power to negotiate better prices and take advantage of the competitive market.

3. Bottleneck Items: These are low-profit but high-risk items. They often have unique specifications and limited suppliers, making them critical to the production process yet difficult to source. Strategies for bottleneck items include developing alternative suppliers, investing in supplier development, and keeping safety stocks to mitigate risks.

4. Non-Critical Items: These are low-profit and low-risk items. They are typically standardized, easily available, and have many suppliers. Efficient procurement processes, automation, and reducing administrative effort are key strategies. Companies often focus on minimizing the cost of procurement without sacrificing quality or service.

The Kraljic Matrix assists companies in differentiating their purchasing strategy based on the nature of the items they procure. By understanding the different categories of supplies, organizations can allocate resources more effectively, manage risks better, and capitalize on opportunities to optimize their procurement function.