Thursday 14 May 2015

Kraljic Purchasing Models

Authored by Usama Shahid

The infrastructure of purchase department depends on the fundamentals of purchasing. These fundamentals may involves many strategies in different phases. These strategies varies from large and complex procurement to small procurement with in same organisation. But the question is still there what is the best way to manage procurement and what is the best strategy for purchasing and supply. The answer is very simple that there is no single best way to overcome these issues but if you know the category of product that is being purchased, there would be a best way for procurement of this specific category. Below please find The Kraljic Portfolio Purchasing Model which was created by Peter Kraljic and it first appeared in the Harvard Business Review in 1983. It is very old but still know a best useful model currently being used in many companies worldwide.

With reference to a book named as “Fundamentals of Supply Chain Management” written by Dr. Dawei LU, Kraljic recommends the following purchasing approaches for each of the four quadrants:

Leverages Products:
Leverages products are those you buy from your supplier that will have significant impact on the finance of your own final product, but it is relatively easy to buy from the supply market, hence low market risk. For such leverage products, Kraljic Proposes a purchase strategy of competitive bidding and it will only work if there if more than one supplier.

Routine Products:
Routine products are those materials that have very little financial impact on the buyer own products and also there are plenty to choose from in the market place. For the routine products, Kraljic proposed a purchasing strategy of system contracting plus eCommerce solutions because these products have large varieties and high logistics complexity.

Strategic Products:
Strategic products are those components which have high level of financial impact to your final product. They are very expansive to develop and manufacture and often involve high technology contents. They are not usually available in the market place, thus high supply risk. For the strategic products, Kraljic proposed a purchasing strategy of performance based partnership. That is to create a partnership relation with the supplier and work together to develop and manufacture the components.

Bottleneck Products:
Bottleneck products are those components that may or may not cast too much in comparison with the total material cost, but they must have them and they are very difficult to get hold of. The supply risk for those components is high, and the availability of the components is not guaranteed. For the strategic products, Kraljic recommended a purchasing strategy of securing supply plus searching for alternatives.