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Many organisatations have made use of the famous Kraljic model. Our recent strategy report summarises some of the key learning points leading organisations have experienced.
One of the most successful ideas in procurement is the model proposed by Peter Kraljic in 1983. In his article ‘Purchasing must become supply management’, the writer called for a more intelligent way of managing an organisation’s buying. As a part of his key message, Kraljic stated that placing procurement in the heart of the business is based on a understanding of the supply base and how the capabilities of vendors can best align with the company’s need.
This may be through the four segments types as originally proposed, but we are finding that this approach, in dividing the supply base, companies are forging their own segmentation approaches to suit their specific needs.
In many senses, it does not matter what the segments are called, but how they add value. For instance, in our research, we have segments called ‘executive’, ‘innovation’, ‘long-term’ etc., all of which amount to a similar to Kraljic’s ‘strategic’ suppliers which have high risk-factors for the company, as well as high profit potentials.
In delivering the benefits associated with these vendors, companies must do two things:
It is commonly agreed that there are diminishing returns to scale in each engagement – so long as the benefits of such relationships are exclusively defined in terms of cost savings.
However, it takes a significant break from the past to continue to drive forward these types of benefit. Following through on the recommendations of Kraljic’s original model, requires not only a change of process, but deliver on the promise of the categorisation. Only that will place procurement at the heart of the business in the long run.
Non-members can download an executive summary of our SRM series here.