The Kraljic Matrix classifies spend categories into four different groups (or quadrants) based on two dimensions; complexity in the supplier market and significance for your company. Strategic categories are one of these groups.
Strategic categories are perhaps the most challenging and important group from a procurement perspective. Spend categories in this quadrant indicate an inherent complex supplier market, but are also of great importance for your organization. In this context, it is interesting to know how to use procurement levers to drive down procurement costs. Defining appropriate procurement levers is a key part of a holistic approach to strategic procurement. By using your market knowledge and spend data, you can make fact-based decisions on how best to address the spend category.
Are you developing a category strategy, but not sure where to start? Follow these six steps to create an action-based category strategy for your company.
Much of traditional procurement theory focuses on applying levers to move a category further to the left in the Kraljic Matrix. Optimizing and standardizing specifications will often contribute to a higher degree of competition in the supplier market. This lever will have an extremely large effect on the prices you pay for goods or services in the specific category, but is not always possible to implement.
Establish strategic partnerships
There are numerous cases where changing the specifications is not feasible. For example, a unique input factor may be needed for manufacturing a product, but only one provider exists in the supplier market. Another reason may be that the supplier has special expertise or equipment.
In such cases, you can often achieve better results by establishing a close partnership with the supplier - and together identify solutions that reduce the total costs for both parties. The use of strategic partnerships are increasing both in numbers and importance. In the construction sector, for example, strategic partners with unique expertise collaborate to reduce the overall costs in construction projects.
Mutual trust is essential for succeeding with partnership strategies, as well as full transparency as to which elements drive the costs. Together, it will then be possible to identify the most important cost drivers and look at how these can be reduced to drive down total procurement costs. It is also important that the parties allocate time and resources for the project. In order to ensure the right incentives, realized savings should be evenly distributed among all parties when implementing the project.
Categorizing and Classifying Spend - Five Practical Tips
Let's start with some theory about what spend categories are and what they should reflect: A spend category, or category, contains similar types of purchased products or services. In other words, a category should support the
How to Create a Category Structure For Your Business
Classifying your spend into categories is important for several reasons. One obvious reason is the prioritization of resources. Large spend categories with a significant potential for cost reduction should naturally be
In short, category management is a strategic approach which organises procurement resources to focus on specific areas of spend, i.e. spend categories, by using a structured methodology. First, classifying and categorizing your