Supply Chain · Source

Kraljic Matrix

Segment suppliers by impact on profit and supply risk: routine, leverage, bottleneck, critical — and manage each quadrant differently.

Time45 min
FormatSmall group
StageSource

Kraljic Matrix: what it is and why it works

The Kraljic matrix is a purchasing portfolio tool that places each purchase category or supplier on two axes: profit impact and supply risk. Profit impact reflects spend volume, share of product cost and effect on quality or revenue. Supply risk reflects the number of qualified suppliers, market scarcity, switching cost, substitutes and logistics complexity. The resulting quadrants are routine (low impact, low risk), leverage (high impact, low risk), bottleneck (low impact, high risk) and critical, which Kraljic called strategic (high impact, high risk). Each quadrant calls for a different management mode, from automating routine buys to building long-term partnerships for critical items.

The matrix works because purchasing effort is limited and should not be spread evenly. Leverage items reward competitive bidding and volume consolidation, since many capable suppliers compete. Bottleneck items call for securing supply, holding buffer stock or redesigning to remove the dependency, rather than chasing price. Critical items need joint planning, risk sharing and executive relationships. The placement is relative and judgment-based, so the discussion that produces it is as valuable as the chart. It connects to a supplier risk scorecard for the risk axis, total cost of ownership for the impact axis, and dual sourcing or supplier development for the actions it suggests.

What you need

Spend data by supplier and category for the last twelve months
A list of the top twenty or so suppliers or categories by spend
Criteria and a simple scoring scale for profit impact and supply risk
Input from purchasing, engineering, quality and operations on market conditions and alternatives

What you get

Each supplier or category placed in one of the four quadrants
A management mode for each quadrant: automate, compete, secure or partner
Specific actions for items in the critical and bottleneck quadrants
A quarterly review date to track movement between quadrants

When to use it

When all suppliers get the same treatment and the critical ones get too little attention.

How to do it, step by step

List your top twenty suppliers by spend.
Score each on profit impact and supply risk.
Place them on the matrix: routine, leverage, bottleneck, critical.
Define a management mode per quadrant — partnerships for critical, competition for leverage.
Check quarterly: suppliers migrate quadrants as markets move.

Worked example: Portfolio review at a mining equipment rebuilder

Illustrative scenario — figures are realistic but not from a real company.

A company that rebuilds haul truck components for mining customers spent about $38 million a year with roughly 400 suppliers. Buyers spent most of their time on repeated quotes for fasteners and consumables, while a few specialty items caused most delays.

The purchasing manager listed the top 22 suppliers, covering about 70% of spend, and scored each from 1 to 5 on profit impact and supply risk with engineering and operations.
Steel plate and machining services landed in leverage: high spend, many qualified sources. Large bearings from one approved manufacturer and hardened gear forgings with long lead times landed in critical.
A small specialty seal kit worth under $150,000 a year but available from only one source landed in bottleneck, even though buyers had never considered it important.
The team set modes: competitive tenders for leverage, catalog ordering for routine, safety stock and qualification of an alternative for bottleneck, and quarterly business reviews with capacity commitments for critical suppliers.

Result. Consolidating steel plate through one tender reduced its cost by about 6%, and a buffer for the seal kits avoided a rebuild delay when its supplier later had a capacity problem. The team noted that the bottleneck quadrant surprised them most, because low spend had hidden a real risk.

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Common pitfalls and how to avoid them

Placing suppliers on the matrix using spend alone.Score profit impact and supply risk separately with explicit criteria; spend is only one input to impact.
Scoring in purchasing without engineering or operations input.Involve people who know technical alternatives, qualification effort and the effect of shortages on production.
Using aggressive competitive tactics on critical or bottleneck suppliers.Match the approach to the quadrant: secure and partner where risk is high, compete where it is low.
Treating the matrix as a one-time exercise.Review placements regularly, since market changes, new sources and redesigns move items between quadrants.

Frequently asked questions

What are the four quadrants of the Kraljic matrix?

The quadrants are routine or non-critical items (low profit impact, low supply risk), leverage items (high impact, low risk), bottleneck items (low impact, high risk) and strategic or critical items (high impact, high risk). Routine items are simplified and automated, leverage items are bought competitively, bottleneck items are secured, and strategic items are managed through close, long-term partnerships.

What are the axes of the Kraljic matrix?

The horizontal and vertical axes are supply risk and profit impact. Profit impact covers how much the purchase affects cost, quality and business results, including spend volume. Supply risk covers how difficult it is to secure the supply, including the number of suppliers, market scarcity, switching costs and substitutes. Conventions vary on which axis is drawn horizontally.

How do you manage bottleneck suppliers in the Kraljic matrix?

The aim is to secure supply and reduce the dependency over time. Short-term options include safety stock, longer agreements and close monitoring. Longer-term options include qualifying an alternative supplier, standardizing specifications so more sources can supply, or redesigning the product to remove the item. Price negotiation matters less here, since the risk of a stop far outweighs the spend.

Origin

Purchasing portfolio matrix — Peter Kraljic, HBR "Purchasing Must Become Supply Management", 1983.

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