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The Kraljic Matrix, contributed by Peter Kraljic in 1983, without a doubt is one of the most effective procurement and supply chain strategy tool. This powerful tool categorizes purchases based on supply risk and profit impact, guiding organizations in tailoring their procurement strategies. Four decades later, global supply chains are extensively integrated and complicated more than before, and there has been a shift in the approach to procurement. This, however, begs the question: Do managers still appreciate and find value in the Kraljic Matrix in the face of all these changes in the current world that is fast digitalizing?

Key Features of the Kraljic Matrix as a Company Strategy Outline

The Kraljic Matrix features a core 2×2 matrix which identifies four combinations of the purchased item by the risks posed to the supply chain and profits made from them. Such categories include:

Strategic Items: High supply risk, high profit impact. These items are critical for the running of the business and therefore need long term supplier relations with suppliers.
Bottleneck Items: High supply risk, low profit impact. These items may not have any direct profit attached to them, but their modes of supply can be very risky.
Leverage Items: Low supply risk, high profit impact. These able conditions can be negotiated by the organizations via the use of its purchasing power.
Non-critical Items: Low profit possibility, less low supply risk. It’s easy and economical to procure these items often with automation or standard methods.

Various companies employ Kraljic Matrix which guides the allocation of resources as well as strategies and consequently enhances the procurement teams effort towards the achievable goals in the enterprise.

The Transformation of the Global Supply Chain Management

Over the period of 40 years since its invention, the circumstances in which Kraljic-Matrix functions have revealed changed considerably. In today’s economic environment, the supply chains are not simple and static as they were before; they now go from one end of the world to other, have multiple parties involved in the delivery, and are constantly disrupted.

Some of the key reasons for the aforementioned changes include:

1. Global supply networks are far less friendly with the organization than forty years ago.

The concept of global supply chains has become popular with the emergence of multi-tier supply networks where suppliers are located in different countries, industries and regulations. This intricacy converts wounds of uncertainties to layers which heighten risk management and control processes. Additional embargoes and customs restrictions, reorientation of trading regions and centers, and new patterns of conflict have transformed these dynamics.

Due to supply chain insecurities such as pandemics and wars, vulnerabilities have been exposed, such as the COVID pandemic, the Russia—Ukraine war, or even the Suez Canal—Evern Given crisis.

2. Technological Developments in Supply Chain Management

Adoption of emerging technologies such as AI, blockchain and advanced analytics has altered the way procurement and supply chain is done nowadays:

Supplier discovery tools allow businesses to range and determine probable suppliers around the world at a more competitive rate and time.
N-tier supplier visibility platforms help to manage supply risk in lower tiers and induce views towards buying from indirect suppliers.
Demand management solutions fully integrate more advanced features thanks to artificial intelligence based on accurate predictions and these make overstocking and understocking situations rare.

3. The Effect of AI and Automation

AI and Automation are changing the way procurement activities are carried out and improving the efficiency in managing complex and distributed procurement networks:

Such AI driven procurement tools can evaluate the risk of supply and the profitability effect very fast, making decision more effective.
Such tools are capable of changing the Kraljic Matrix levels when and as necessary through the use of real-time data.
Autonomous workflows reorganize procurement processes for purchasing low and medium critical items as well as leverage items thus enabling the human element to focus on making decisions on high risk and impact categories.

The Kraljic Matrix in a Modern Context: Why It Still Matters

In spite of changes in the supply chain landscape, the Kraljic Matrix has not ceased to offer strategic benefits. This revival is possible because of the structure’s adaptability and its core orientation on risk and impact – two key elements in procurement that will basically never change.

1. Understanding Needs Within Global Supply Chains

The Kraljic Matrix is still valid in today’s multi-tier, global supply chains, however, it is necessary to change the perspective: Whole network visibility is essential. Companies should not only consider direct suppliers but also look for risks in the supply chain hierarchy. Supply chain mapping tools may assist in making the dependencies/vulnerabilities visible for more efficient strategic item classification.

2. Using Technology for More Efficient Assessment of Risk and Profitability

New technologies improve the application of the Kraljic Matrix within the organizations’ supply chains:

Analytical tools based on artificial intelligence enable real-time assessment of supply risk and profit impact by using fine level assessment with interrelations taken into consideration.
Supplier relationship management (SRM) platforms help make more engaged associations for strategic items.

3. ESG and Sustainability Metrics

ESG is one of the bigger issues in supply chain management today, and an adaptation that could help in this direction may involve the use of Kraljic Matrix to adapt to the new trend. There is an increasingly growing concern that ESG considerations be added as the third dimension in the decision-making process of business establishments since they seek more environment-friendly suppliers who care about their sustainability goals.

Sustainable procurement should take into consideration the environmental and social risks along with traditional profit and supply risks of sourcing decisions.
For instance, strategic items can now include sustainable suppliers even when they force companies into a short-term higher cost because of long-term benefits from brand reputation and regulatory compliance.

4. Resilience and Risk Management

The Kraljic Matrix still had the supply risk very much at heart as an underlying principle; in this respect, it is even more relevant today, with disturbances being a more frequent and regular occurrence. Yet, it is managed differently now:

Scenario planning is so much more important today. Classification of goods has to be revisited time and again according to the market landscape.
Resilience strategies like supplier diversification and nearshoring form an integral part of managing strategic and bottleneck items.

5. Automation and AI-Enhanced Efficiency

It has been one of the biggest game-changers for procurement, mainly in controlling non-critical and leverage items. Some of the abilities the organization boasts are as follows:

To automate procurement of non-critical items, thus allowing the system to manage routine procurements while giving procurement teams the opportunity to focus on strategic relationships
In dynamic contract management with leverage items, harnessing AI to bring to the table the very best possible contract terms and favorable pricing.

6. Cybersecurity and Digital Risk Management

Cybersecurity risks are rising as supply chains digitize. The Kraljic Matrix can be extended for cybersecurity considerations for strategic and bottleneck items, especially:

While analyzing the traditional supply risks, the company should also evaluate supply chain cybersecurity risks in such industries where the availability of a digital infrastructure is critical.
In addition, supplier vetting should be on data protection and cybersecurity so the supply chain should be available in case of cyber threats.

7. Regulatory Compliance and Global Trade Policies

The global regulatory environment today is far more complex than it has ever been, where companies must deal with mixed regulations across multiple markets. It is more true than ever that the Kraljic Matrix needs to factor in the following aspects of the global regulatory environment.

The risks of compliance need to be factored into the matrix, particularly for high-risk and high-impact items that could be subjected to regulations relating to levies, trade restrictions, and data protection laws.
Companies must be agile, with procurement strategies changing to meet the dynamics of changing regulations-from GDPR, for example, in the EU to changes in the terms of new trade agreements.

Case Study: Evolution of a Tech Company Applying the Kraljic Matrix

Lets take example of global technology company that just worked on overhauling its procurement strategy by putting more recent technological aspects into the Kraljic Matrix model. This company considered employing AI- powered risk analysis and sustainability measures and witnessed the following outcomes:

Key constituents’ identification: The company found high-risk yet not initially seen products, which led to their stronger sourcing strategies.
Supplier consolidation: The firm streamlined its suppliers for non-critical items, hence helped reduce cost by 15%.
Key supplier relationships: By sourcing from key suppliers, the firm could see that it would develop new products through innovation-developed partnerships.
Tracking real-time: Due to smart tracking based on the Internet of Things, strategic commodities were tracked in real-time, making visibility in the supply chain better and risk management improved.
Digital twin modeling: The company used the digital twin to simulate scenarios on the supply chain, thereby increasing preparedness for disruptions.

Envisioning Procurement Talent into the Future

As the landscape of the supply chain continues to shift and evolve, so too must the skills of procurement professionals:

Data analytics skills are a swiftly growing requirement with procurement professionals now having to interpret complex data sets for decision-making
Strategic thinking is at its best, as procurement navigates the ongoing ever-changing global landscape.
Keeping with the pace of change calls for constant training within the use of latest available technologies, ranging from AI-driven tools to more advanced analytics and even automation platforms.

Conclusion: The Kraljic Matrix in a Changing World

Being first designed forty years ago, the Kraljic Matrix remains a solid strategic purchasing tool in today’s complex and technologically advanced supply chains. Such basic principles as identifying the supply risk and profit impact serve as effective anchor points for decision-making; however, the companies should adapt the matrix to the new realities, such as digitization of the supply chain, ESG, aspects of resilience.

Therefore, while this period is largely one of disruption and technological changes at a very fast pace, the Kraljic Matrix is one of the most powerful tools used by procurement professionals. Its simplicity will ensure that it survives being implemented on current complexities, hence allowing its sustainable relevance during changing global economies. Mixed with fundamental principles, modern technologies, concerns over sustainability, and dynamic risk management, the Kraljic Matrix remains as relevant today as it was four decades ago.

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Amit Shah

Amit is a seasoned business leader who brings to Zycus about 18 years of experience in strategic marketing and communications, business management, and strategy. As CMO and Head Global BD, he is responsible for all aspects of global marketing and demand generation. He also leads other strategic functions like sales ops, bid desk and sales enablement. Before joining Zycus, Amit was based in London and served as Managing Director at OakNorth, a B2B SAAS unicorn and supported large enterprise engagements across the US, Europe, and Australasia. Amit holds an MBA from IIM Mumbai and B.E from REC Surathkal (NIT Karnataka). He has also completed an executive program in strategic marketing from Stanford Graduate School of Business. He was recognized as 40under40 by Reputation Today in 2017, has been a Power Profile on LinkedIn in 2018 & 2016, and has served on the advisory board of S.P.Jain Institute of Management & Research and Fintech committee of FICCI.