Kraljic MatrixKraljic ArticleThis 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
Phase three is strategic positioning. This is where 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
This phase involves testing and tweaking. Before a decision is given, a team of experts will review its implications and take action in the supply chain to support the final decision. All of these tests may be made with the same inputs, but with different results. In this case, the supplier is considered to be more likely to be able to purchase materials with a higher purchasing power and higher levels of the company’s supply chain potential than without, because the supplier can be more responsive and, thus, is less prone to default by the company, who may do so on their own terms and on the basis of their own preferences.
“Market Analysis” is a new practice in which companies combine their analysis of the market with qualitative inputs from their suppliers to create plans. Market analysis includes evaluating the effectiveness of each of the following actions: determining the “market price,” and the “price of goods and services for that service.” A strategy consists of a series of actions taken to support a planned purchase. The two strategies determine the relative price of a product or service, while a small sample is taken of each.
The four actions are grouped into four phases that start with a new phase: supply-chain optimization and demand-side optimization. In the supply-chain optimization phase, these two techniques are applied to different products or services; demand-side optimization makes the decisions from the highest possible priority to the less-probable best; supply-chain optimization ensures that the suppliers and market-makers are able to provide the full support required for the supply chain. Demand-side optimization is applied in conjunction with supply chain optimizations to ensure that the supply chain has the best possible performance for both parties, and in contrast, supply-chain optimization is applied to different products. In this case, the suppliers and market firms are required to provide the information that they deem necessary to guide their supply chain in the supply chain. A large sample of the seven phases can be used to make sure that the information provided is appropriate for the price. However, only an important subset of the eight phase processes are available at a level beyond the eight. Supply-chain optimization is applied in conjunction with supply chain optimization because it allows the supplier to better predict future price movements within a given supply chain. The main objective of supply-chain optimization is to identify the best possible price of a product or service, by looking at whether there is significant demand for that product or service and if this demand is greater than the expected price of the product or service. The supply chain optimization method uses simple market model-based techniques such as statistical modeling and risk-reward modeling