supply chain management In commerce, supply chain management (SCM) deals with a system of procurement (purchasing raw materials/components), operations management, logistics and marketing channels, through which raw materials can be developed into finished produc ...

, the Kraljic matrix (or Kraljic model) is a method used to segment the

purchases Purchasing is the procurement process a business or organization uses to acquire goods or services to accomplish its goals. Although there are several organizations that attempt to set standards in the purchasing process, processes can vary gr ...

suppliers A supply chain is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers, while supply chain management deals with the flow of goods in distr ...

of a company by dividing them into four classes, based on the complexity (or risk) of the supply market (such as monopoly situations,

barriers to entry In theories of Competition (economics), competition in economics, a barrier to entry, or an economic barrier to entry, is a fixed cost that must be incurred by a new entrant, regardless of production or sales activities, into a Market (economics) ...

, technological innovation) and the importance of the purchases or suppliers (determined by the impact that they have on the

profitability In economics, profit is the difference between revenue that an economic entity has received from its outputs and total costs of its inputs, also known as surplus value. It is equal to total revenue minus total cost, including both Explicit co ...

of the company). This subdivision allows the company to define the optimal purchasing strategies for each of the four types of purchases or suppliers. It is named after Peter Kraljic, who first formulated the model in an article called ''Purchasing Must Become Supply Management'', published in the

Harvard Business Review ''Harvard Business Review'' (''HBR'') is a general management magazine published by Harvard Business Publishing, a not-for-profit, independent corporation that is an affiliate of Harvard Business School. ''HBR'' is published six times a year ...

in 1983.

Overview

The Kraljic matrix defines the following types of articles: * Non-critical items: components that have a low impact on the company and that are found in abundance and / or in low-risk markets (e.g., office stationery). For such items, the goal should be to maximize efficiency of the procurement process to reduce the administrative burden, for example by delegating purchasing to local managers, or using catalogs. * Leverage items: components that are important for the company but sourced from low-risk markets with an abundant supply. As the name suggests, the optimal management of these purchase categories is essential to ensure a satisfactory business result. For this type of component, the company tends to make the most of its bargaining power and the abundance of the offer with frequent negotiations. * Bottleneck items: components with a low business impact in economic terms but where supply continuity is at risk. The management of these components should be aimed at creating relationships of

collaboration Collaboration (from Latin ''com-'' "with" + ''laborare'' "to labor", "to work") is the process of two or more people, entities or organizations working together to complete a task or achieve a goal. Collaboration is similar to cooperation. The ...

in the medium-long term between customer and supplier to guarantee the supply, with less emphasis on the cost. * Strategic items: components that are important for the company both in terms of economic impact and for supply conditions from complex and / or risky markets. In this field, the horizon is medium-long term with a continuous monitoring of the economic situation of the market, technical evolution, evaluation of "make-or-buy" options (the choice for a company between developing and manufacturing a product itself or

outsourcing Outsourcing is a business practice in which companies use external providers to carry out business processes that would otherwise be handled internally. Outsourcing sometimes involves transferring employees and assets from one firm to another ...

it from another supplier),Corporate Finance Institute
Make-or-Buy Decision
updated 10 May 2023, accessed 16 August 2023 creation of alternatives and development of stable relationships and maximum collaboration with the suppliers. In its original form, Kraljic's matrix is used for the mapping of purchases, not

. However, the matrix works equally well to distinguish different categories of suppliers.

References

{{Strategic planning tools Supply chain management Business terms