Procurement Positioning Model

The procurement positioning model, often known as the Kraljic Matrix, was developed by Peter Kraljic and introduced in a 1983 Harvard Business Review article. It is a strategic tool used by companies to optimize their purchasing approaches and supply strategies by categorizing their purchases based on the value and supply risk. The tool is aimed at minimizing risks, maximizing profits, and ensuring a stable supply chain.

In the Kraljic Matrix, procurement activities are divided into four quadrants based on two key dimensions: profit impact and supply risk:

• Strategic Items: These have a high profit impact and high supply risk. They are critical for the business, and supply failure can lead to significant operational disruptions. Effective management requires close supplier relationships, long-term contracting, and contingency planning.
• Bottleneck Items: This category includes items with a low profit impact but high supply risk. These items may not directly contribute significant value but are crucial for operations. Companies often ensure multiple vendors, maintain safety stock, and seek to substitute where possible.
• Leverage Items: These have a high profit impact but a low supply risk. Companies typically have a significant amount of negotiating power due to the abundance of suppliers. Focusing on competitive bidding and optimization of supply terms is often the strategy.
• Non-Critical Items: These are low in both profit impact and supply risk. The focus for these items is on process efficiency and cost reduction, often using tactics like consolidated buying and electronic procurement systems.

Using the procurement positioning model involves analysis and decision-making to ensure purchasing strategies align with corporate objectives. It supports risk management through strategic supplier relationships, helps identify where procurement influence can increase value, and optimizes resource allocation to where it will deliver the most benefit. Companies leverage this model to enhance supply chain stability, negotiate better terms, and ultimately, maintain competitive advantage in their industry.