Karljic principle

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Journal of Purchasing & Supply Management 9 (2003) 207–216

Handling measurement issues and strategic directions in Kraljic’s purchasing portfolio model
Cees J. Geldermana,*, Arjan J. Van Weeleb
a b

Open University of The Netherlands, P.O. Box 2960, 6401 DL Heerlen, The Netherlands Eindhoven University of Technology, P.O. Box 513, 5600 MB Eindhoven, The NetherlandsReceived 4 March 2002; received in revised form 25 November 2002; accepted 27 July 2003

Abstract Kraljic’s purchasing portfolio model, which was introduced in 1983, still is the dominant approach in the profession. Contrary to the growing use of the Kraljic matrix, there are problems and unanswered questions with respect to measurement and strategic issues. Based on explorative case studies,the critique of Kraljic’s model has been disputed and refuted to a large extent. This study describes the solutions of experienced practitioners to the problems which have been put forward in literature. The case studies point out which measurement methods are possible and which supplier strategies are feasible, including additional strategic movements of commodities within the matrix. Theresearch findings indicate that there is no simple, standardized blue print for the application of the portfolio analysis. It requires reflecting on results, critical thinking and sophistication of purchasing management. r 2003 Elsevier Ltd. All rights reserved.
Keywords: Purchasing strategy; Portfolio management; Supplier relations

1. The Kraljic approach Recently, purchasing portfolio models havereceived considerable attention from academic and business world (e.g. Gelderman and Van Weele, 2002, 2003; ( Leonard and Spring, 2002; Ahman, 2002; Dubois and Pedersen, 2002; Zolkiewski and Turnbull, 2001; Nellore . and Soderquist, 2000; Wynstra and ten Pierick, 2000; Gelderman, 2000, 2003; Croom, 2000; Bensaou, 1999; Lilliecreutz and Ydreskog, 1999; Olsen and Ellram, 1997). Obviously, not allproducts and not all buyer– supplier relationships are to be managed in the same way. In general, purchasing portfolio models aim at developing differentiated purchasing and supplier strategies. Kraljic (1983) introduced the first comprehensive portfolio approach for purchasing and supply management. Kraljic’s approach includes the construction of a portfolio matrix that classifies products on thebasis of two dimensions: profit impact and supply risk (‘low’ and ‘high’). The result is a 2 Â 2 matrix and a classification in four categories: bottleneck, non-critical, leverage and strategic items, see Fig. 1.
*Corresponding author. Tel.: +31-45-5762590; fax: +31-45-5762103. E-mail address: kees.gelderman@ou.nl (C.J. Gelderman). 1478-4092/$ - see front matter r 2003 Elsevier Ltd. All rightsreserved. doi:10.1016/j.pursup.2003.07.001

Each of the four categories requires a distinctive approach towards suppliers. Non-critical items require efficient processing, product standardization, order volume and inventory optimalization. Leverage items allow the buying company to exploit its full purchasing power, for instance through tendering, target pricing and product substitution. Bottleneckitems cause significant problems and risks which should be handled by volume insurance, vendor control, security of inventories and backup plans. A further analysis of the strategic items is recommended. By plotting the buying strengths against the strengths of the supply market, three basic power positions are identified and associated with three different supplier strategies: balance, exploit, anddiversify. The general idea of Kraljic’s model is to minimize supply risk and make the most of buying power (Kraljic, 1983, p. 112). Although other models have been developed, Kraljic’s approach subsequently became the dominant approach to what the profession regards as operational professionalism Cox (1997, p. 270). Lamming and Harrison (2001, p. 596) confirmed that Kraljic’s matrix remains the...