Kraljic Matrix

What is the Kraljic Matrix?

The Kraljic Matrix is a strategic tool used by procurement and supply chain professionals to identify and minimise supply risks. Using the tool to classify the importance of suppliers’ products and services can highlight supply chain weaknesses, support strategy development, and minimise supply disruption.

Determining the type of relationship by positioning suppliers by risk and profit impact will support procurement and supply chain professionals to build the right type of supplier relationships, and utilise their time more efficiently, whilst mitigating supply risk for their organisation.

When using the Kraljic Matrix tool, risk impact and cost impact are defined as:

• Risk Impact: The degree of difficulty associated with sourcing a product or service and the vulnerability this will have on the organisation.
• Cost Impact: This is used to determine the extent of the supply to contribute to profitability. The profit potential might be realised by achieving lower costs, either by paying a lower price for goods or services or by introducing more efficient buying methods.

What are the four key quadrants in the Kraljic Matrix?

The four key quadrants of the Kraljic Matrix represent four categories, which are defined below.

• Critical: Critical products or 'strategic' products are a high-risk category due to the high dependence on a few suppliers, but they do also have high profit impact. Products in this category include assemblies, engines and optics and are subject to the balance of power in purchaser-supplier relationship. The best strategy for this group of products is balancing power between purchases and suppliers based on performance-based partnerships
• Leverage: This category is a buyer-dominated segment with competitive bidding, whereby risk is low. This is because of the many alternative suppliers and substitutions, such as steel plate and sections. Leverage products allows the buying company to exploit its full purchasing power, for instance through tendering, target pricing and product substitution.
• Bottleneck: Bottleneck products are limited-in-value products prone to risk from sudden price rises and from a limited number of alternative suppliers (e.g., natural flavours, vitamins, pigments). Therefore, securing long- and short-term supply and seeking alternative suppliers is a priority for this group.
• Routine: Routine products or 'non-critical' products are suited to systems contracting and e-procurement solutions. These products need efficient processing, product standardisation, order volume and inventory. Non-critical products are a low-risk category because of their large variety and many alternative suppliers. Basic office supplies, maintenance, repair, operations items (MRO) and consumables are examples of products in this category.

Identify supplier relationships

Following the classification of risk impact and cost impact to your business that each supplier potentially holds, you can then identify the type of relationship that you should consider building with the supplier and how to mitigate supply risk within your organisation.

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