Handbook for KRALJIC analysis. Effective Sourcing

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Lizbeth Johnson
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1 Handbook for KRALJIC analysis

Effso Workshop Kategorianalys - Målmatris Inköp Strategi & Organisation Nuläge 2009 2010 2011 Långsiktigt mål Önskad Position Värdekedja & Leverantörsstruktur DRAFT

2 Effso Workshop Kategorianalys - Målmatris Inköp Strategi & Organisation Nuläge Långsiktigt mål Önskad Position Värdekedja & Leverantörsstruktur DRAFT Leverantörsmarknadsanalys, nya kanaler och omförhand-ling Leverantörsstyrning & utveckling System, verktyg och mätning Personal Avtalshantering, Risk Management & Kapitalrationalisering Konfidentiellt 1

3 Business impact Kraljic Matrisen Kraljic Matris Hög Leverage Strategic Låg Non - Critical Bottle Neck Låg Supply Risk Hög

4 DESCRIPTION OF CRITERIA IN THE KRALJIC MODEL. Background In order to design a strong supplier management program Sourcing use the Kraljic model as the tool. Two sets of criteria are used, one for the Business Impact/ Supply Market complexity matrix and an other for the Portfolio matrix showing the power balance between ABB and a specific supplier. The definitions are key elements, applied in templates in the ISIT environment of ABB. Objectives The criteria are valuations of business elements. The practice is a tailor made one, aiming at practical use in the specific business context. The keys and values used can be modified at any moment in time, due to the business changes.

5 DESCRIPTION OF CRITERIA IN THE KRALJIC MODEL. Criteria Commodity Classification The four field commodity matrix is divided into, - strategic - bottleneck - leverage and - non critical items fields The positioning is given by Business Impact / Supply Market complexity. Strategic The business is characterized by a high dependence between the players. The business is of considerable importance to the customer. Bottleneck Although the business impact is of low importance to the customer, the deficient services of the supplier can present problems to the customer. One example is legal services. Leverage There are several players in the supply market and the importance of the business is high. Non critical items The common example is office supplies like paper, photo copy equipments.

6 BUSINESS IMPACT The criteria to define the Business Impact are - Sourcing Spend - Quality of products - Future growth and - Design in capabilities Sourcing spend Is a function of the amount of money spent or the fraction of money spent for a defined commodity Quality of product The quality of product has a great impact when the defined supplier/ commodity affects the customer perception. Examples could be system functional quality or down time. Central equipments normally are more critical than redundant equipments. Future growth If future business growth can be heavily affected, due to for example piloted new technologies a high value for business impact shall be given. Design in capabilities Resources and ability to provide new designs when developing new products or variants.

7 SUPPLY MARKET COMPLEXITY Five criteria define the Supply Market complexity, - Availability, and number suppliers - Substitution possibility and Barriers to change - Legal risk/contractual - Supply risk - IPR Availability, and number suppliers Express the overall capability of the market to provide the commodity. The number of competing sources and their presence define the complexity. Substitution Possibility and Barriers to change The supply complexity is in this case determined by the inherent supply chains. If new entries or new solutions are complex to find complexity is high.

8 SUPPLY MARKET COMPLEXITY Legal /Contractual risk This criteria indicates that the suppliers are able to protect their position by legal/ contractual rights. To require recompensation for shortages of the supply when forecasts have been insufficient might be extremely difficult. Supply risk Long, geographically distributed, involving many different suppliers increase risk. IPR Suppliers may be protected from competition by IPR avoiding move from one supplier to the other. Example of CLASSIFICATION All above defined criteria are classified from 1 to 3. The highest value is 3 and the lowest 1. Values are summarized and the position given by ratio. Example, - Business impact is the total of 1+2+3= 6. The coordinate is 6/9 ( 67%). - For the Supply Market complexity, the values are =10 out of 15 (67%).

9 Strategic implications of Power Matrix Positioning Policy issues Exploit Balance Diversify Volume Spread Keep or shift carefully Centralize Price Press for reduction Negotiate opportunistically Keep low profile Contractual coverage Buy spot Balance contract & spot Ensure supply through contracts New suppliers Stay i touch Selected vendors Search vigoursly Inventories Keep low Use stocks as buffer Bolster stocks Own production Reduce or don't enter Decide selectively Build up or center Substitution Stay in touch Pursue good opportunities Search actively Value engineering Enforce supplier Perform selectively Start own program Logistics Minimize cost Optimize selectively Secure sufficient stocks

10 Action Plan Criteria Definition Measurement Current position Measurement Wanted position Easy to implement Value potential Spend Magnitude of total spend Cost Reduction Opportunity Ranking of opportunity to cut cost. (e.g. by better agreements) Collaboration Maturity Ranking of opportunity to find new improvement areas Reduced Risk Ranking of to what extent risk could be reduced. Supplier Relationship Ranking of established network and trust to implement new strategies. Supplier Strength Ranking of Ericsson buying importance relative the Supplier sales Risk Ranking of risk by implementing new operative strategies. back

E-procurement: supporting opportunities

E-procurement: supporting opportunities J. W. ten Berge 1, J. H. R. van Duin 1 & P. H. M. Jacobs 2 1 Department of Transport Policy and Logistics Organisation, Faculty of Technology, Policy and Management,