What is the Kraljic Matrix?

Business professionals love to use matrices to help categorize and organize items. The Kraljic Matrix was designed by Peter Kraljic in 1983 to identify and minimize supply risks. The Kraljic Matrix tool positions a supply category on two factors, supply risk and profit impact. By creating a high and low rating on each of these two factors, we end up with 4 quadrants.

Strategic or Critical: Items in this category are high on both the risk and profit factors. Attention should be prioritized through a thorough understanding of the supply market and close collaboration with suppliers.  

Leverage: Leveraged items have high profit impact but low supply risk. There is likely a competitive market for these goods. Spend should be aggregated and competitively bid to take advantage of supply availability.  

Bottleneck: These items have low profit impact but high supply risk. The low profit impact shouldn’t be taken lightly because supply disruption can still cause operational problems. Ensure you have adequate safety stock and explore alternatives to mitigate potential supply risk.

Non-critical item or Routine: This category has low profit impact and low supply risks. The focus for these items should be on administrative efficiency.

The creation of this tool represents an early push for purchasing from being an administrative to a more strategic function. In my post about category management and strategic sourcing, the first step is to define the category. The Kraljic Matrix, though not exhaustive, provides important insights and considerations that will help with this step in the strategic sourcing process.