Chris Lonsdale on Procurement Strategies and The Meaning of Kraljic

We're delighted to feature this excellent and thought-provoking guest post from Dr Chris Lonsdale, who leads the Procurement and Operations Management Group at Birmingham University.

Like others, I found the recent discussion here and here on Kraljic fascinating. As was highlighted, the first task in evaluating Kraljic is to establish precisely what ‘Kraljic’ is, with a key issue being the labelling of the axes of the famous four-box matrix – named ‘Phases of Purchasing Sophistication’ in the original 1983 (completely ahead of its time) Harvard article. Pierre Mitchell recalled that Kraljic himself said that the four-box “must be adapted to the characteristics of the company where it is being used”. Quite so, but such a requirement was always asking for trouble, trouble described in the discussion.

Confusion over what is ‘Kraljic’, however, goes much further. As my old (very exacting) boss, Andrew Cox, reminded us there are not one but two core matrices in the Harvard article – the famous four-box and then a nine-box about power, for use with what the four-box initially identifies as ‘strategic items’ (aka top-right).

Andrew is right to say that this nine-box power matrix (that incidentally is the one that Kraljic calls his ‘Purchasing Portfolio Matrix’) is somewhat undercooked, but, for me, there is an even more fundamental issue – very few practitioners in my experience are aware that a second matrix even exists as part of ‘Kraljic’. Why this is the case must partly be because Kraljic in the 1983 article outlined some ‘Main Tasks’ with regard to the ‘strategic items’ in his discussion of the four-box. This unwittingly provided a (mistaken) temptation for many teachers (broadly defined) to ignore the second matrix – either to ‘keep things simple’ or because, as I touch on below, an aspect of the ‘Main Tasks’ guidance for ‘strategic items’ allowed people to see what they wanted to see.

Ignoring the nine-box is mistaken for many reasons, but the most important is that it encourages a rather static interpretation of the four-box – something long noticed by Andrew. In the 1983 article, Kraljic first presents the four-box and related guidance and then says: “Next the company positions the materials identified in phase 1 as ‘strategic’ in the purchasing portfolio matrix. It can then identify areas of opportunity or vulnerability, assess supply risks and derive basic strategic thrusts for these items”.

A ‘strategic thrust’ for those ‘strategic items’ identified on the nine-box as being provided by a dominant supply market is then described by Kraljic: “To reduce the long-term risk of dependence on a single source … the company should … search for alternative suppliers or materials or even consider backward integration to permit in-house production”. He refers to this as “diversify”.

Kraljic’s message is clear – the top right of the four-box is not always a comfortable place to be and a proactive changing of the commercial circumstances is often required. Yet this message is not something that can be easily picked up from the earlier explanation of the four-box – and is often not part of the way ‘Kraljic’ is presented to practitioners. What is often noticed in that earlier explanation, however (often because it normatively appeals), is a call for the “development of long-term supply relationships” in the top right box (why the four-box has been associated with ‘partnering’). Yet, unfortunately, without the ‘diversify’ advice from the second matrix, the risk is that practitioners end up making many such (necessary) long-term relationships supplier-dominated relationships, with potentially serious consequences.

So there are problems with using the four-box without the nine-box. However, there are also problems with using the four-box with the nine-box. Personally, I have always found the relationship between the two Kraljic matrices a little awkward. First, if supply market contestation is part of the horizontal axis, ‘supply market complexity’ (as is indeed suggested by Kraljic), it is hard to see how a ‘strategic item’ can ever really be in the ‘exploit’ parts of the nine-box (prior to proactive intervention anyway) even if it could be in some of the ‘balance’ parts.

Also, ‘Phases of Purchasing Sophistication’ is an odd title for the four-box matrix and suggests that the above-mentioned ‘diversify’ advice in the nine-box is not aimed at changing the position of a ‘strategic item’ within the four-box. And yet if supply market contestation is on the horizontal axis of the four-box, it doesn’t make sense for it not to change position (i.e. move to the left) if the ‘diversify’ instruction is successfully executed. The two matrices sort of work together, but, when you look closely, sort of don’t.

Ultimately, four-box spend positioning matrices can only do so much (e.g. the dividing lines are crude and positioning spend categories is vexed) and this one also has confusion over the axes. As a result, they can provide some questionable guidance – e.g. the implication here that long-term supply relationships are not needed for ‘leverage items’ (‘contract/spot purchasing mix’ is indicated). This is why I favour using it (in practice) simply to draw attention to ‘non-critical’ and ‘bottleneck’ items, prior to using a flow diagram format for the remaining spend, one that separates out all of the many variables relevant to effective management.

Of course, it may be that I am simply misunderstanding the 1983 article. If so, I would be very keen to understand how. Either way, with its promotion of the need for contingency, it still has a great deal of wider value, not least in contact with stakeholders. However, it can’t be the last word on procurement practice.

First Voice

  1. Stephen Allott:

    Peter Kraljic was head of McKinseys Paris office.

    I worked there in 1992 for a year.

    Does he deal with the difference between buying tooling on the one hand and fixed spec production parts on the other?

    Would Kraljic have advised the Royal Navy in 1939 to aggregate demand for battleships? Or buy some aircraft carriers?

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