Kraljic Matrix

Kraljic Article

This article addresses a major challenge that has to be overcome daily by supply chain experts. This barrier is that supply and demand patterns fluctuate on a daily basis. These supply and demand changes are caused by resource depletion, government intervention, competition and accelerated technological change. This article, published in 1983, sets an early framework for how a company can guard against these new challenges. According to Kraljic, many European companies are using a four stage method to combat these issues.

Stage one is classification. This entails classifying purchased materials and components in terms of their profit and supply risk. Using the classification criteria, purchased items are sorted into four classes: Strategic, bottleneck, leverage, and noncritical items. Each class is described in terms of profit impact and supply risk. Strategic items are items that have high profit impact and high supply risk. Bottleneck items have a low profit impact and a high supply risk. Leverage items are high profit but low supply risk; and lastly, noncritical items have low profit impacts and low supply risk.

Phase two is market analysis. This is where the company weighs the bargaining power of its suppliers against its own strengths as a customer. analyzes the supply market for the purchased materials. Phase three is strategic positioning. In this phase, the company positions the materials, which were identified in the classification phase, into the purchasing portfolio matrix. This matrix shows company buying strength against the strengths of the supply market. Using the matrix, companies can decide whether to use an aggressive strategy, go on the defensive and diversify, or pursue a well-balanced strategy. Phase four, action plans, gives the company the chance to explore different supply scenarios; such as, securing long term supplies while taking advantage of short term