Purchasing model (Kraljic)

Kraljic’s purchasing model helps organisations choose a sourcing strategy for each category by balancing economic importance with supply risk. Peter Kraljic first developed the approach as an internal tool for BASF and brought it to a wider audience through his 1983 Harvard Business Review article. Its enduring premise is that purchasing should minimise vulnerability while using the organisation’s buying power intelligently.

When to use it

Use the model when a single procurement policy would give suppliers or categories the wrong level of attention. It is valuable for category strategy, supplier segmentation, resilience reviews, sourcing prioritisation and cross-functional discussion.

The matrix creates a shared language for deciding where to simplify transactions, use competitive leverage, protect continuity or build a strategic relationship. Revisit it when demand, technology, regulation, supplier concentration or geopolitical conditions change, because a category’s position is not permanent.

Origins

Peter Kraljic developed the portfolio approach while working with BASF. It became widely known after publication of “Purchasing Must Become Supply Management” in Harvard Business Review in 1983. The article responded to resource scarcity, market turbulence and changing supplier power by arguing that purchasing should move from an administrative function towards strategic supply management.

The original approach included more than classifying items: it called for analysis of supply markets, the organisation’s bargaining position and strategic action. Developing substitute products or alternative suppliers is one way to reduce dependence, especially where continuity risk is high.

What it is

The model maps purchased products or services on two dimensions: financial impact and supply risk. Their intersection creates four strategic categories:

• Strategic items – high supply risk and high financial impact. These are often scarce, high-value materials or components. The appropriate relationship can range from collaboration and long-term partnership to active power balancing, depending on interdependence and the relative strength of buyer and supplier.

• Leverage items – low supply risk but high financial impact. Several credible suppliers are available and the category matters economically. Competitive bidding, volume concentration and structured negotiation can capture value, provided aggressive tactics do not create hidden quality or resilience costs.

• Bottleneck items – high supply risk but low financial impact. The item may be inexpensive yet difficult to substitute because of scarcity, qualification, technology or supplier concentration. The priority is continuity: secure supply, manage inventory where sensible, redesign specifications and develop alternatives.

• Non-critical items – low supply risk and low financial impact. Supply is readily available, and transaction or handling cost may exceed the value of the item. Standardisation, catalogues, automation and consolidated ordering can reduce administrative complexity.

The matrix is a portfolio view, not a supplier scorecard. A supplier may provide categories in different quadrants, and an item can migrate as markets and specifications change.

How to use it

First segment the organisation’s expenditure into coherent categories. Group items that share a supply market and can reasonably be sourced through the same strategy; avoid classifications so broad that they conceal different risks or so narrow that the portfolio becomes unmanageable.

Next evaluate each category on both dimensions:

• Financial impact – assess purchase value, share of total cost, effect on product quality, revenue, margin, business growth and the financial consequences of failure. Purchase volume is relevant but not sufficient.

• Supply risk – assess availability, supplier concentration, competing demand, switching time, qualification requirements, make-or-buy choices, logistics, storage constraints, substitution options and exposure to disruption. Single sourcing without a realistic alternative normally increases risk.

Define what “high” and “low” mean for the organisation. The dividing lines are judgement calls, so use transparent criteria, evidence and cross-functional review. Map the categories, test borderline cases and assign a strategy to each.

Then examine buyer–supplier power within important categories, select specific actions and establish indicators that would trigger remapping. Strategic choices, trust, switching costs and relationship history matter alongside the numerical assessment; classification does not mechanically determine how people should behave.

Final analysis

Kraljic’s contribution was the first widely recognised comprehensive portfolio approach to purchasing and supply management. Since 1983, its categories have become standard language among practitioners and researchers. Its simplicity is a strength, but also a limitation: a static two-dimensional map can hide sustainability, quality, innovation, multi-tier dependencies and differences within a category. Use it as the beginning of strategic analysis, not the final answer.

Top practical tip

Agree the unit of analysis before scoring. A category should represent a coherent supply market and sourcing decision; otherwise averages can place dissimilar items in a quadrant that fits none of them.

Top pitfall

Do not treat quadrant labels as permanent or as automatic instructions to exploit supplier power. Reassess evidence over time and consider quality, innovation, ethics, sustainability and multi-tier resilience before choosing the relationship strategy.

Further reading

Kraljic, P. (1983) ‘Purchasing must become supply management’. Harvard Business Review 61(5), 109–117.

Van Weele, A.J. (2002) Purchasing and Supply Chain Management: Analysis, Planning and Practice. London: Thomson Learning.