Kraljic matrix explained: four quadrants and purchasing examples

The Kraljic matrix groups purchases by profit impact and supply risk. It helps a team choose how to manage a category, rather than applying the same buying approach to everything. Consider spend alongside the cost and difficulty of a supply failure.

The purchasing review starts with the biggest suppliers. Cartons account for €600,000 a year, so they get a meeting. A control module costs €12,000 a year and sits much further down the list.

The module has one qualified source. Without it, a critical production line cannot run.

The model comes from Kraljic's 1983 article. CIPS's explanation sets out the two dimensions and the different purchasing responses.

Kraljic matrix axes: profit impact and supply risk

Profit impact asks how the purchase affects the business financially. Look at cost, margin and the operation it supports. A low invoice value can sit beside a large consequence if supply fails.

Supply risk asks how difficult it is to obtain what the business needs. Qualified alternatives, available capacity, lead times and switching barriers matter. Five names in a supplier database may still leave only one qualified source.

Keep the evidence for each axis separate. “We spend a lot” says little about replacement options. “Only one source is approved” does not tell you the financial effect of being without the item.

Nevi's purchasing-portfolio overview also treats the portfolio as a way to choose different purchasing approaches. The placement needs to reflect your organisation and the market it can actually use.

The four Kraljic matrix quadrants

CIPS uses the conventional category names below. Use the labels to read the two axes together.

Category label	Profit impact	Supply risk	Initial purchasing focus
“Non-critical items” or routine purchases	Lower	Lower	Simplify routine ordering
“Leverage items”	Higher	Lower	Compare qualified offers on the complete requirement
“Bottleneck items”	Lower	Higher	Secure continuity and check the fallback
“Strategic items”	Higher	Higher	Plan capacity, alternatives and the supplier relationship carefully

These are starting responses, not automatic decisions. A category can move when qualified supply or its role in production changes.

Kraljic matrix example: classify four purchases

Consider a fictional factory. Its four categories below cover every combination of lower and higher impact and supply risk. The amounts are annual purchase spend, not estimates of disruption cost.

Office labels are routine purchases here: low financial impact, easy substitutes and several available suppliers. Simplifying ordering may be more valuable than negotiating each small order separately.

Cartons have a large cost impact, but the approved design can be supplied by three independent, qualified businesses with available capacity. Competition can help, provided the offers meet the same delivery and quality requirements.

The specialist reagent is hard to source. Its financial effect is lower in this example because a qualified external laboratory can cover the limited testing work at an acceptable extra cost. The factory still needs to plan supply and the fallback. A VMI or consignment agreement changes responsibilities or ownership; the label alone does not resolve the underlying supply risk.

The control module is different. Its modest purchase spend hides its role in a critical line, and the factory has no approved substitute. It belongs in the high-impact, high-risk corner. Calling it low impact because it is cheap would defeat the purpose of the exercise.

Purchasing strategies for the four quadrants

For the labels, agree a standard specification and a simple reorder route. Review whether the time spent processing tiny orders exceeds any realistic price saving.

For cartons, compare qualified offers on the complete requirement. The procurement total-cost example shows how a lower price can move cost into freight. A competitive market gives options; it does not make every cheaper offer equivalent.

For the reagent, confirm the supply window and the external laboratory's capacity before depending on it. A second catalogue listing is less useful than a tested route that can cover the next shortage.

For the module, purchasing needs maintenance and engineering involved. Understand the installed equipment, repair options, likely requirements and what qualifying an alternative would take. Extra stock may be one response, but its quantity needs its own lead-time and buffer calculation.

What if two carton suppliers leave the market?

Use the control above to leave one qualified carton supplier with no approved replacement. In this scenario, profit impact stays high while supply risk rises. Annual spend remains €600,000.

The factory can no longer treat the category as though the same three-way competition exists. It needs to examine remaining capacity, commitments and alternatives, including whether a specification change could open another route.

The category moves because its supply options have changed. A real review would check whether the exits affect the relevant site and specification, whether the remaining businesses share upstream dependencies, and how quickly a replacement could qualify.

Keep the matrix distinct from inventory classification

ABC and XYZ analysis separates inventory by annual usage value and demand behaviour. That can help decide where to count, review or forecast more carefully. It does not replace an assessment of the supply market.

Nor does this matrix tell you how important your business is to the supplier. A strategically important module for the factory might be a small account for its maker. That relationship needs a separate conversation.

Start with a manageable group of purchases. Have purchasing, operations and the relevant technical team explain each placement, then record the next action and a review trigger. A source closing, a new qualification or a changed production role can matter more than the next annual spend ranking.

Sources and example notes

• CIPS. Kraljic matrix. Dimensions, purchasing situations and differentiated approaches.
• Nevi. Inkoopportfolio. Professional-body overview of purchasing-portfolio analysis.
• Peter Kraljic. Purchasing Must Become Supply Management, Harvard Business Review, September 1983. Original publication; full text requires access.

The factory, amounts, alternatives and supplier-exit scenario are fictional. Lower and higher are relative judgements for this factory, not universal spend bands. The table gives the conventional names; the chart describes the purchasing work they suggest.