What is the Kraljic model?
The Kraljic matrix, introduced by Peter Kraljic in 1983, is a cornerstone of modern procurement management. It provides a structured approach to developing procurement strategies by categorizing all purchasing activities based on their impact on business operations (procurement spend) and the degree of dependence on suppliers. When applied, this model offers a solid foundation for sound procurement strategies, risk management, improved processes, long-term relationships, and the growth and profitability of your organization.
The purpose of the Kraljic model
The goal is to structure procurement decisions by making risk and value transparent. This enables organizations to manage their procurement portfolio strategically, reduce financial risks, improve supplier quality and performance, and make the supply chain more resilient.
By deliberately positioning products within the Kraljic matrix, companies can professionalize their procurement processes and respond more effectively to market changes. This, in turn, allows organizations to reduce the time and money spent per item.
What are the dimensions of the Kraljic model?
The Kraljic matrix uses two dimensions to determine the complexity of the procurement process:
Financial impact
This dimension shows how much influence a product or service has on:
- total costs
- the production process
- the continuity of the organization
- profit impact
Products with a high profit impact often have a direct effect on revenue, margins, and customer satisfaction.
Supply risk
This dimension describes supplier-related risk and considers factors such as:
- the number of available suppliers
- market dynamics (for example, monopolies)
- logistics costs
- delivery performance and delivery conditions
- the likelihood of disruptions, such as price increases or supplier bankruptcy
Together, these dimensions determine the position of products within the procurement portfolio model.
The 4 types of products of the Kraljic model
Within the two dimensions, four categories of items emerge. Strategic items are essential and have a high impact, while bottleneck items are both important and uncertain. Leverage items have a high value with potential for cost optimization, and routine items have a low impact and can be sourced easily.
Routine products (Non-critical items)
These items are typically characterized by low cost and high availability, and limited impact on the supply chain. Buyers managing products in this category should focus on minimizing administrative effort, for example by using framework agreements or automating the purchase-to-pay process.
Leverage products
Leverage items are high-value products with low complexity and a sufficient number of suppliers. Efforts should focus on contract negotiations around pricing and added value. Standard contracts and tender conditions are usually sufficient, with relatively short contract durations. This category is ideal for cost optimization.
Bottleneck Products
These products have low value but can only be sourced from one or a limited number of suppliers. This often results in limited availability, higher prices, long lead times, and poor service. A key focus in contracts for these items is securing supply, which is the highest priority.
Strategic products
High-value products are typically supplied by one or a limited number of suppliers. Most of these products require close monitoring of price trends, a well-thought out pricing strategy, a strong focus on negotiations, and building trust. In addition, they are often tailored to meet customer-specific requirements.
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In which industries can this framework be used?
The Kraljic model is a widely used procurement framework that can be applied across all industries, including manufacturing, construction, and retail. It helps optimize the sourcing of raw materials, machine components, and semi-finished products in the manufacturing sector, construction materials in the construction industry, and goods for resale in retail. In addition, the model can be applied in the service sector, for example in managing medical devices or similar items.
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4 tips for applying the Kraljic model in your own business
To successfully apply the Kraljic matrix, consider the following tips:
- Assess the importance of each product:
Start by evaluating the importance of each item in your organization’s supply chain. Make sure this assessment includes factors such as spend, risk, and dependency on the number of available suppliers. - Classify products into four categories:
Divide all products into one of the four categories: strategic, bottleneck, leverage, and routine. - Develop a tailored strategy per category:
After categorization, develop an appropriate strategy for each category, based on its characteristics and the associated risk factors. This may include making specific agreements with suppliers or optimizing sourcing and contract structures. For example, organizations may use framework agreements or catalog purchasing for low-complexity items, while assigning dedicated contacts, conducting regular performance reviews, and negotiating customized contracts for more critical products. - Monitor performance regularly:
Finally, it is important to regularly monitor the performance of your procurement processes to ensure they remain efficient and cost-effective. Adjust your strategies where necessary to optimize performance over time.
In line with these tips, various renowned organizations—including companies in the automotive and high-tech sectors—have successfully applied the model to improve their procurement processes. Through targeted use of the model, they are able to manage resources more efficiently, respond better to technological developments, improve product quality, and optimize their product portfolio.
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Conclusion
The Kraljic model is a valuable procurement framework that helps organizations improve their purchasing policy and strategy. It categorizes procurement items based on financial impact and risk, enabling strategies to be tailored to specific market conditions and business needs.
This structured approach helps control costs and mitigate risks and requires regular reassessment in response to changing markets. Companies that consistently apply the Kraljic model achieve cost savings, improve quality, and enhance profitability. Therefore, it is important for organizations to actively apply this model in practice.
Article by:
Maarten Smits Van Oyen
Procurement expert and CEO of Xentys B.V.
