Ask The Expert - Apply the Model - Kraljic's Matrix Assets

Here HPA has provided the theoretical principles of Kraljic’s Matrix and also incorporated practical application of these principles within your organisation.

Ask the Expert - Kraljic Matrix Q&A

Q 1 – Can Kraljic’s Matrix be applied in the public sector?

A – Yes. As long as purchasing continues to be impacted by market complexity the public sector has no choice but to change from storeroom to the boardroom. This can be seen by the recent trends in many world economies both in the public and private sectors where purchasing/procurement is starting to be recognised at strategic levels. Besides, the public sector presents a huge and attractive market for the private sector and can therefore use it as a leverage to obtain value for money for the tax payers. Lessons learned from Covid 19 pandemic include the fact that even the public sector is not immune to supply risk and disruptions. This makes market analysis a critical factor even for the public sector.

Examples of Kraljic model application in the public sector include and is not limited to:

• Routine Items: Governments procure huge volumes of stationery from the private sector. These are low value, low risk items and they provide the sector with an opportunity to enter into framework contracts to reduce administrative and ordering costs. It also should give the procurement officers in the public sector time to concentrate on negotiating for more value from core and strategic items affecting essential services such as healthcare. In healthcare routine items could include gloves, cotton wool, pre-analyticals and other frequently used consumables.
• Bottleneck items: These are items that are low value yet important but whose suppliers are few. The suppliers are in a stronger position. The items could be critical to patient care and thus one strategy a public procurement entity can employ is to enter into a contract or procure the items in bulk to secure provision of public services. While bulk buying has its own limitations in storage costs, this can be offset by the economies of scale.
• Leverage items: The public procurement entities can use their huge market power that comprises almost of 70 per cent of national budgets to negotiate better deals and obtain value for money for the tax payers. A dollar saved may be the reason for a patient to live in a hospital. Many African countries receive millions of dollars to fund healthcare and this funding shapes health supply chain markets. For instance, The Global Fund signed US$ 1.4 Billion and disbursed US$ 1 billion to Kenya since 2003, which include active grants amounting to a total of US$ 384 million for the FY 2018 to June 2021.Approximately 60 per cent of the grants is spent on procuring medicines and health products. This provides a huge market for the private sector which the public entities can use to their advantage.
• Strategic items: These are high risk, high value items that may be core to service delivery. In the public health sector these could include critical medical supplies that require long-term relationship through partnership and collaboration. The public sector may enter into a public-private partnership to establish a hospital facility or a long-term maintenance contract for a critical medical equipment. It should be noted that due to the uniqueness of medical supplies what looks like a routine item may have strategic or mission critical importance to the health institution.

Q 2- What type of relationship do you establish from Kraljic’s matrix?

A – From the four quadrants, we can establish the below types of supplier relationships:

• Routine Suppliers: The sourcing strategies deployed focus on efficiency and reducing administrative processes. As such, supplier relationships are suppressed or kept to the minimum require. Catalogues are an excellent way to redirect responsibilities either directly to suppliers or to internal customers that are requisitioning the goods.
• Bottleneck Suppliers: Such supplier relationships are demanding and have a limited impact on savings for a health public agency. Usually a market where suppliers have the bargaining power. Procurement must recognise that few opportunities will arise from this category. Finding alternatives is the only option and can mean to redevelop product requirements to replace raw materials or components that can be sourced from a leverage supplier.
• Leverage Suppliers: Usually a market where buyers have the bargaining power in the relationship and leveraged this strength to obtain lower prices. More advanced health agencies are looking to unlock innovation from suppliers as a next step. The key risk buyers face is to force a low-profit margin supplier into bankruptcy.
• Strategic Suppliers: As this concerns the core mandate of the agency, supplier relationships are collaborative, sometimes all the way to a”co-destiny” type of relationship. The suppliers are critical to deliver the mandate. Buyers should look to innovate both on the product and processes and in return they can expect long-term commitment from the supplier as well as proactive development.

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