The Kraljic matrix is based on two dimensions. The vulnerability of the supply (delivery risk) and the financial result of the company (profit). The Kraljic matrix distinguishes between four quadrants to determine which items can be ordered and which no longer need to be ordered.
Do I need the kraljic matrix?
You need the Kraljic purchasing portfolio if you want to know which items involve risks when ordering. These articles receive the right attention, so that the costs of these articles can be reduced.
Which variables do I need?
The horizontal axis shows the vulnerability of the supply and the vertical axis shows the financial result. The Kraljic matrix consists of four product categories, each with its own working method.
For leveraged products, there is a high effect on profit and a low effect on delivery risk. As a result, there is a lot of supply and the products are important. The items use the space in the warehouse to exchange, making it easier to negotiate with a reseller.
Strategic products have a high effect on profit and delivery risk. Strategic products are the heart of the company and are aimed at forming partnership.
With routine products, there is a low effect on profit and delivery risk. This is about logistics being arranged so efficiently. With these articles, the working method focuses on logistics complexity.
Bottleneck products have a low effect on profit and a high effect on delivery risk. With these articles, the working method is aimed at securing continuity of supply.
In general, strategic and leveraged products account for 80% of total sales.
How can I apply the kraljic matrix?
In order to get the products into one of the product categories, you must first determine criteria for profit and delivery risk.
The profit dimension is determined based on:
- the importance of purchasing the materials of the products
- the added value
- the effect of costs on the profitability of the company
The delivery risk dimension is determined on the basis of:
- the logistics costs
- a monopoly or oligopoly condition
- the complexity (abundance or scarcity)
- technical properties
- the extent to which material substitutes are applied
Based on the analysis, the Kraljic matrix is filled in and then the data is analyzed and discussed.
What can I get out of it?
By using the kraljic matrix it is possible to better manage inventory. This prevents you from investing in products for which there is little interest and abundance. This translates back to cost savings for the organization. An important tip can be to divide the products as much as possible over the four product categories. Preferably, a product may fall into only 1 of the categories.