What is the Kraljic-portfolio?
The Kraljic Portfolio Purchasing Model was created by Peter Kraljic and it first appeared in the Harvard Business Review in 1983. Despite its age, it’s a popular and useful model used in companies worldwide. Its purpose is to help purchasers maximize supply security and reduce costs, by making the most of their purchasing power.
The Kraljic purchasing portfolio is based on two dimensions.
- The influence of a particular product on the earnings position of the company. Profit impact is high when the item adds significant value to the organization’s output. This could be because it makes up a high proportion of the output (for example, raw fruit for a fruit juice maker) or because it has a high impact on quality (for example, the cloth used by a high-end clothing manufacturer).
- The vulnerability of the supply , the supplyrisk. Supply risk is high when the item is a scarce raw material, when its availability could be affected by government instability or natural disasters, when delivery logistics are difficult and could easily be disrupted, or when there are few suppliers.
These risks Kraljic put in a matrix resulting in four different productcategories:
- Strategic items (high profit impact, high supply risk). These items deserve the most attention from purchasing managers. Options include developing long-term supply relationships, analyzing and managing risks regularly, planning for contingencies, and considering making the item in-house rather than buying it, if appropriate.
- Leverage items (high profit impact, low supply risk). Purchasing approaches to consider here include using your full purchasing power, substituting products or suppliers, and placing high-volume orders.
- Bottleneck items (low profit impact, high supply risk). Useful approaches here include overordering when the item is available (lack of reliable availability is one of the most common reasons that supply is unreliable), and looking for ways to control vendors.
- Non-critical items (low profit impact, low supply risk). Purchasing approaches for these items include using standardized products, monitoring and/or optimizing order volume, and optimizing inventory levels.
After identifying the different categories, we suggest to think about the appropriate strategy. What are your tactics to eliminate risks? Spic&Scan is well capable of helping you setting and excecuting these strategies.