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What is kraljic model?

The Kraljic Model, developed by Peter Kraljic, is a well-known procurement model from 1983. It provides a structured approach to optimise procurement strategies by categorising items according to their impact on business operations and dependence on suppliers. Categories include strategic items, bottleneck items, leveraged items and routine items. The Kraljic model has become a standard since the 1980s and is used worldwide. When you apply this model, it can lead to optimised procurement processes, long-term relationships and growth and profitability of your organisation.

The 4 types of products of the Kraljic model

Routine products: When purchasing routine products, emphasis should be placed on minimizing administrative effort by using framework contracts. These are usually characterized by low cost, high availability and low risk of failure.

Leverage products: Leverage products are high value items with low complexity and sufficient suppliers. These need to put energy into contract negotiations on pricing and value-added. Standard contracts and tender terms usually suffice, with limited contract duration.

Bottleneck Products: Products have low value, but can only be sourced from one or a few suppliers. This often leads to higher prices, long delivery times and poor service. A focus in contracts for these products, ensuring delivery is the main priority.

Strategic products: High-value products are usually supplied by one or a few suppliers. Most products require close monitoring of pricing trends, targeted pricing, a focus on negotiation and building trust. In addition, they are often customized to meet consumer demands.

Kraljic-Matrix-4-quadrants

The history of the Kraljic model

The Kraljic model was developed in 1983 by Peter Kraljic, a German procurement expert. It is used to help purchasing managers distinguish items according to their impact on operations and degree of dependence on available suppliers.

It groups them into four categories: strategic, bottleneck, leverage and routine. The model has become a standard tool worldwide and is used to optimize procurement processes and increase the profitability of organizations. Even with technological advances and changing economic conditions, it remains an important tool for those seeking to establish efficient and effective procurement processes.

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The purpose of the Kraljic model

The Kraljic matrix is a procurement management tool designed to help companies optimize their policies. It helps them determine the right strategies for different types of products and services based on their complexity and importance. This model helps you reduce costs while increasing low value. Reduce the amount of time and money spent per product with the correct application of the model.

We will explain how it works and how to implement it effectively. Whether you are a buyer looking to improve efficiency or a business leader looking to cut costs, this blog offers insights and tips on optimizing purchasing activities with the Kraljic model.

The components of the Kraljic model: the axis of financial risk and the axis of subcontracting

The Kraljic matrix categorizes procurement items based on their impact on operations and degree of supplier dependence. It divides them into four categories: strategic products, bottleneck products, leverage products and routine products.

Strategic products are essential with high impact, while bottleneck products are both important and uncertain.

Leverage products have low impact with potential for cost optimization, and routine products have low impact but can be easily sourced. This model can provide structure to your procurement management processes while reducing your risks.

Kraljic Matrix inkooprisico's identificeren

What is the process of the Kraljic model?

The Kraljic model process involves categorising products according to their importance and dependence on the number of suppliers. Two axes are used: the financial risk axis to assess the operational impact and the supply chain axis for the amount of supplier dependency.

This creates four categories: strategic, bottleneck, leverage and routine. This allows organisations to identify which parts need special attention or cost optimisation, require early supplier involvement and which products are simple. By applying the Kraljic model, a strategy can be developed for each product based on their category.

In which industries can the Kraljic model be used?

The Kraljic model is a widely used procurement model in various industries, such as industrial, construction and retail. It can help optimise the procurement of raw materials, machinery parts and semi-finished products in manufacturing, building materials in construction and goods for sale in retail. In addition, the model can be applied in the service sector for the management of medical devices or other similar items.

This tool leads to a structured approach to procurement management, which in the long run ensures cost savings and risk minimisation. Applying the Kraljic model is very useful because it can help your organisation optimise procurement processes while achieving more growth and profitability.

Case studies of companies that have successfully implemented the Kraljic model

The Kraljic model is a very useful model and is successfully applied by many companies and helps in optimising procurement. Some examples of its application are at US computer company Dell and Dutch supermarket chain Albert Heijn. Dell was able to reduce costs, follow technological development and improve product quality, while Albert Heijn represented products and improved product quality, leading to a better return on investment.

It turns out that the Kraljic model can help companies regardless of sector or procurement requirements. Successful implementation and optimisation requires an investment of resources and expertise. The importance of procurement should not be underestimated as it directly has a major impact on the financial result.

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Tips for using the Kraljic model in your own business

To use the Kraljic model successfully, the following tips can be used:

  1. Assess the importance of each product: It is important to start by assessing the importance of each product in your company’s supply chain.
  2. Make sure this assessment includes factors such as cost, risk and dependence on the number of suppliers.
  3. Divide the products into four categories: Once the importance of each product has been assessed, it can be classified into one of four categories: strategic, bottleneck, leverage and routine.
  4. Develop an appropriate strategy for each product: Once the categorisation is successful, develop an appropriate strategy for each product based on the category. For instance, certain agreements can be made with suppliers.
  5. Strategic products may require more attention and resources than routine products, while higher-volume bottleneck products need external help.
  6. Monitor performance regularly: Finally, it is important to regularly monitor the performance of your procurement processes to ensure they remain efficient and cost-effective. If necessary, adjust your strategies to optimise performance over time.

Conclusion

The Kraljic model is a valuable procurement model that helps companies maximise their procurement processes. It categorises procurements based on financial impact and uncertainty, allowing companies to tailor their strategies to the specific market and business needs. This structured approach can reduce costs and risks and requires continuous assessment of procurement methods in view of changing markets.

Companies that have regularly applied the Kraljic model save costs, increase quality and improve profitability. That said, it is important that companies apply this model effectively and allocate sufficient resources to optimise procurement processes.

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"Lowering Total Cost of Ownership (TCO) Using the Kraljic Matrix"

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