Not everything deserves the same effort. In 1983 Peter Kraljic suggested sorting purchases on two questions: how much does this item affect our profit (how much we spend, how much it matters to our product), and how risky is its supply (how few suppliers, how hard to switch)?
That gives four boxes. Strategic items are high impact and high risk: a key part from one of two suppliers in the world. You build close, long-term partnerships, share plans and work on risk together.
Leverage items are high impact but low risk: big spend, many suppliers, easy to switch. Packaging, standard steel, freight on busy lanes. Here your buying power is strong, so you run competitive sourcing events and negotiate hard.
Bottleneck items are low impact but high risk: cheap, but hard to get, like a special seal that only one company makes. You can't push on price; you secure supply with longer contracts, extra stock, or by redesigning so you don't need it.
Non-critical items are low impact and low risk: office supplies, cleaning products. The goal is to spend as little time on them as possible: catalogues, purchasing cards, a few preferred suppliers and simple approval. Most of a company's suppliers are in this box, and most of procurement's time should go elsewhere.
High profit impact, many suppliers, easy to switch. Which box?
| Strategic | High impact, high risk: partner closely. |
|---|---|
| Leverage | High impact, low risk: compete and negotiate. |
| Bottleneck | Low impact, high risk: secure supply. |
| Non-critical | Low impact, low risk: keep it simple. |
| Profit impact | Spend and importance to the product. |
| Supply risk | Few suppliers, hard to switch. |