Strategic Procurement and Commercial Relationship - Case Study Example

KRALJIC MATRIX AND SUPPLIER REFERENCING MODEL Author’s Name Strategic Procurement and Commercial Relationship Professor’s Name Institution City Date Kraljic matrix model Purchasing is a very vital department in an organization or firm or an institution as it enabled them to remain competitive in the market. The enhancement in the rise of the purchase within a firm or an organization or company is due to the percentage of turnover that is directly spent on the products, services as well as the raw materials. The increase is because of the increased in outsourcing parts of production as well as tasks that aren’t considered to be part of a firm or company or an organization (Faber, 2007). The purchaser should understand his or her duty or role during the purchase process and that the purchase encompasses more dimensions. Was made by a person called Peter Kraljic by making a two-by-two which had the risk of availability of a product on the X-axis as well as in of the financial risks on Y-axis. All the products that have been purchased are placed in one of the four fields and then each of the field result in a different approach, taking into consideration that the lines between the four fields are vague (Caniels, 2005). The four fields include; leverage products which are the products that have been brought on a large scale. For this reason, a small change in the prices has a very a huge impact on the total costs of the products as well as the profits that are expected from the purchase. The aim or goal of the purchaser is always to get the products at the lowest price as possible, and that is always made possible or achieved by the purchaser playing off different suppliers against other suppliers. The purchaser can also achieve that by ordering products in large volumes (Gelderman, 2005). Also, the purchaser can also further achieve this by buying or purchasing more different products from a specific supplier then request the supplier for a discount. The bulk products are also found in the category. Another example of the four fields is the critical products which are also known as the bottleneck products. The products are always tough to get; that may always because there is only one supplier or few suppliers or it may also mean that the harvest of the products has failed. In that instances, firms or organizations are always afraid for the nondelivery as well as failing production. In such cases, a company or a firm or an organization always want to make sure or ensure supply. They always do that by changing or focusing on the items that are so easy to get, they also always do that by asking the supplier to give priority to them (Faber, 2007). Though, for the firms to achieve that, they have to pay high prices compared to their competitors. Another example of the four fields is the strategic product which is a key to success for the product. If the products are failing to form the way they are expected to, then the customer will, in turn, reclaim his or her money and also the product will not be sold. Each and every product should have its unique quality, but the products are very special that the supplier has to understand the consequences or penalty or cost that may occur if he or she fails to deliver the quality (Faber, 2007). In such cases, the purchaser may opt for forming a partnership; the supplier does this by promising a long-term contract as well as promising future deals. The last example of the four fields is the routine products, which simply means everything else. The purchaser does not necessarily have to concentrate on the specific aspect but instead tries to use their negotiation skills so as to get the best deals out of the negotiation (Faber, 2007). Most of the products normally fall into this category. Kraljic matrix model has so many advantages, it is also very easy to use, it also hardly requires any time as well as pointing out the most important aspect that the purchaser should always focus on. The insights of Kraljic can be used so as to simulate possible scenarios on the market and then considers the possible action that can be taken. The purchaser places the products on the Kraljic's portfolio and then analyzes his or her position the market. That will enable the purchaser to understand the power of both the firm as well as the suppliers whom the purchaser can allocate the market position for the product. By doing that, the purchaser would be in a position to realize whether his or her market power will be sufficient enough so as to achieve the goals of his or her firm or company or organization. That will also enable the purchaser to know whether he or she will have to look for an alternative(s). These alternatives can include searching for more, at current unknown suppliers, training the suppliers so as to make the products that the firm requires or needs, ensuring that the development of the product will not use the product to any further extent in the design (Faber, 2007). Other possible alternatives also include increasing the demands for the supplier, and that will, in turn, increases the attractiveness of the own firm or company or organization, offering long term contracts as well as changing the specification for the product so that it becomes more available. The main problem with the Kraljic is that the model is a momentary of the real situation. Though the situation may change over time, and that will lead to the need for a new matrix test also. To avoid that situation, it is always advisable to consider all the options, for example, for the bottle neck product; two options is the purchaser accepting his or her fate or try to look for the alternatives hence it becomes a routine product (Caniels, 2005). If the supplier orders more routine products from one supplier, he or she can demand discount. Supplier Referencing Model Supplier Referencing Model is a step by step approach which helps a firm or a company or an organization to improve their purchasing processes. The model consists of eight strategic steps that are used to enable the purchasing to be excellent. The companies or firm has to decide whether to opt for in sourcing the product or outsourcing the product. Another step is to identify the similarities between different products so that they can either be treated in a similar matter. Also, ensuring a good as well as the sound base of the potential suppliers and also where the suppliers can be found and the approaches that can be used for a request for quotation (Christopher, 2001). Another step is to manage the suppliers by using the Supplier Relationship Management (SRM), the firm does this by identifying what the future of the firm with the supplier as well as the firm deciding whether to keep or phase out the supplier. Another strategic step is integrating as well as using the supplier at the earliest moment possible, that is, before the actual production phase during the development, this enables the firm to avoid confusion as well as the elimination of any expensive changes during the production. Also ensures that the supplier is involved in production, the supplier should be made aware that the firm’s products also incorporates their products so that if the firm is successful then they are also successful (Cannon, 2001).The next strategy is to check as well as manage the quality and also the development of the skills at the supplier of the firm for the future orders. And the last strategy is to is to ensure that the cost goes down to enable the firm or company or organization to remain competitive in the market. Both of the Kraljic matrix as well as the Supplier Referencing Model have advantages as well as disadvantages. Some of the most important aspects of the systems include; the Supplier Referencing Model is a set of checklists that have to be tagged off before reaching the conclusion during the Kraljic matrix that stimulates thought as well as creativity (Caniels, 2005). Kraljic matrix is very easy for use by a firm or company which is only interested in one-time purchase while Supplier Referencing Model ask for many points that are to be answered and that means that it takes a lot of time. Supplier Referencing Model requires information from several different departments, and that will make sure that the outcome of the purchase is supported by several persons the purchaser. While the Kraljic matrix makes its users jump to a conclusion thus only depend on the partial information that they have (Gelderman, 2003). The Supplier Referencing Model takes a better period in mind during the strategic purchasing decisions while Kraljic matrix is not as good as Supplier Referencing Model in the same case. Kraljic matrix is a good tool for negotiations, that is, it is good to be used for trying to identify the position of negotiations during the purchasing process while Supplier Referencing Model lacks that. Both of these models are good, and they should be used simultaneously. Purchasing has become more vital today because of several developments that include the increased change in the technology, improved infrastructure as well as well as falling distribution costs on the long distances (Faber, 2007). The enhanced data communication and also lowering of trader's barriers which have, in turn, put a lot of pressure on the purchasing departments of different firms or companies. Bibliography Faber, B., Lamers, N. and Pieters, R., 2007, September. Models for decision making in purchasing: Kraljic versus Monczka. In International symposium on logistics and industrial informatics (pp. 13-15). Christopher, M. and Towill, D., 2001. An integrated model for the design of agile supply chains. International Journal of Physical Distribution & Logistics Management, 31(4), pp.235-246. Caniels, M.C. and Gelderman, C.J., 2005. Purchasing strategies in the Kraljic matrix—A power and dependence perspective. Journal of Purchasing and Supply Management, 11(2), pp.141-155. Gelderman, C.J. and Van Weele, A.J., 2003. Handling measurement issues and strategic directions in Kraljic's purchasing portfolio model. Journal of purchasing and supply management, 9(5), pp.207-216. Cannon, J.P. and Homburg, C., 2001. Buyer-supplier relationships and customer firm costs. Journal of Marketing, 65(1), pp.29-43. Read More