Background Purchasing has undergone significant change in recent years due to growing threats of resource depletion (scarce suppliers), intensified competition and accelerating technological developments (Kraljic, 1983). Consequent to such causes, many companies have been exposed to numerous supply interruptions and have grown accustomed to rapidly fluctuating supply and demand patterns. Kraljic (1983) asserts that purchasing calls for a total change of perspective: from a mere operating function to a strategic management of supply. In an intricate supply environment, simple monitoring of current developments is inadequate for a growing organisation like, OMITTED. Rather, the risks and complexities associated with purchasing should undergo comprehensive pre-evaluation and be curbed under extensive management strategy.

In 1983, Peter Kraljic delved deeper into this issue by devising a simple but effective technique in assessing supply conditions with the intention of formulating effective supply strategies. To this day, the method is widely regarded as one of the most powerful supply management tools and has acted as the backbone of many organisations, bringing long established success to large companies - most notably, Shell, Alcatel and Philips (Van Weele 2000).

The two phase Kraljic approach The approach devised by Kraljic follows a simple two step procedure in formulating different supply strategies. First, all purchased items and services are classified in a matrix form with respect to their profit impact and supply risk as displayed in Figure 1 below. Second, purchasing strategies and action plans are developed according to the classifications.
High Leverage Strategic

Profit impact

Non-critical

Bottleneck

Low
Kraljic 1983

Low

Supply Risk

High

Fig 1

Classification of materials As mentioned, the two by two Kraljic matrix