The Kraljic matrix is still an excellent procurement tool, yet somewhat simplistic. Its two dimensions suggest the flat Earth approach with insufficient room to cater to the complexities of modern category management and strategic sourcing situations.
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This article proposed an elegant scenario, which I applied to add at least three more dimensions to the Kraljic matrix.
The Strategic Sourcing Matrix
Let’s start with the classical view, which is the adapted Strategic Sourcing matrix.Naturally, we end up with four basic scenarios. The strategic implications of each are presented in the picture.
Indeed, we understand that leverage item attract negotiations, while non-critical ones are about sourcing process efficiency, buying channels, etc.
But what about the difference between direct commodities and IT end-user equipment. Won’t you be negotiating both but differently?
What if you need to produce a large batch of branded products for a single marketing campaign instead of recurring collections of traditional products for the mass market. You will be souring direct materials differently then.
Indeed, we understand that leverage item attract negotiations, while non-critical ones are about sourcing process efficiency, buying channels, etc.
But what about the difference between direct commodities and IT end-user equipment. Won’t you be negotiating both but differently?
What if you need to produce a large batch of branded products for a single marketing campaign instead of recurring collections of traditional products for the mass market. You will be souring direct materials differently then.
New dimensions of the category analysis
Therefore, let’s suggest additional dimensions of category analysis.Type of product
Direct materials constitute the final product. Indirect ones support the production and operational processes.Buyers of direct materials will empathize with the availability and quality of an item rather than the price itself. Category strategy will elaborate on logistical and supply management aspects, i.e., inventory planning and supply chain configuration.
Indirect materials are more about cost excellence.
By the way, procurement savings on direct categories generate cash flow optimization only, while indirect savings improve the P&L.
Type of demand
One may need to source an item for the given project, while the same can be sourced repeatedly for recurring needs.Project procurement should be fast! The sooner the final deliverables hit the market, the more revenue a company generates. There’s not much need to engage in category management activities, then. Your planning horizon is limited by the scope and timelines of the projects – there’s no thinking about long-term strategic value.
Regular demand will be satisfied by frame agreements, and projects tend to conclude single-batch contracts. Technical specifications are standard ones, while projects deal with custom requirements.
Buyclasses (from Buygrid theory)
We already covered the Buygrid theory in this post.From that, we will use three buyclasses:
1. Straight rebuy – same products and specifications, likely the same vendors. Great opportunity for e-auctions to source and e-catalogs to order.
2. Modified rebuy – usual products with some technical modifications. You will leverage the existing supply base and elaborate on cost engineering to negotiate effectively.
3. New task – all new products with new specs and no established supply base. This case is about supplier innovations, agile methodology, crowdsourcing, etc.
The combination of Kraljic or strategic sourcing matrix and three additional dimensions specified above give us up to 48 scenarios for category strategy development.
Most importantly, additional vantage points allow us to look at familiar objects from uncommon perspectives.
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