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.