1) The document presents a case study exploring the theoretical assumptions underpinning Kraljic's purchasing portfolio model. 2) The case study examines a national procurement service's framework agreement for the supply of natural gas. 3) Preliminary findings suggest the actual conditions present a more strategic product classification than expected, with high relative value but also high supply risk. The observed buyer-supplier relationship also indicates greater buyer dependence than assumed.

1. When Practice Met
Kraljic
A Case Study Exploring the Theoretical Assumptions
14th August 2014Róisín Killeen

2. 14th August 2014Róisín Killeen
When Practice Met Kraljic - A Case Study
Exploring the Theoretical Assumptions
Research Questions
1. How does a procurement conform to Kraljics’ product classification/matrix positioning?
2. What is the assumed buyer/supplier relationship for that product classification; is it sustained?
3. What is the assumed strategic direction and is it viable in all circumstances?
2
The Literature
Theoretical Assumptions Underpinning;
Product Classification, Buyer Supplier Relationship, Strategic Direction
3
Research Methods
Embedded Case Study – National Procurement Service; Multi Supplier Framework Agreement
4
Findings
Leverage ≠ Buying Power; Asymmetric relationship observed, Blended Strategy observed
5
Discussion
Product Positioning is dynamic; Purchasing strategies are contextually and relationally
dependent.
6
Motivation – Challenging Assumptions
Mats Alvesson - Guiding ambition not to reproduce assumptions but to challenge them
1

3. KRALJIC EXHIBIT I (1983)
- STAGES OF PURCHASING SOPHISTICATION -
14th August 2014Róisín Killeen
HIGH
IMPORTANCEOFPURCHASING
LEVERAGE ITEMS
Performance Criteria
-Cost/price and materials flow
management
Typical Sources
-Multiple suppliers, chiefly local
Time Horizon
-Varies, typically 12-24 months
Supply
-Abundant
Decision Authority
-Mainly Decentralized
STRATEGIC ITEMS
Performance Criteria
-Long-term avaliability
Typical Sources
-Established global suppliers
Time Horizon
-Up to 10 years, governed by long-term
strategic impact
Supply
-Natural scarcity
Decision Authority
-Centralized
NON-CRITICAL ITEMS
Performance Criteria
Functional efficiency
Typical Sources
Established local suppliers
Time Horizon
Limited, typically 12 months or less
Supply
Abundant
Decision Authority
Decentralised
BOTTLENECK ITEMS
Performance Criteria
Cost management and reliable short-term
sourcing
Typical Sources
Global, predominantly new suppliers with
new technology
Time Horizon
Variable, depending on availability vs.
short-term flexibility
Supply
Production-based scarcity
Decision Authority
Decentralized, but centrally
co-ordinated.
LOW
COMPLEXITY OF SUPPLY MARKET
HIGH

4. CANIELS AND GELDERMAN (2005)
- POWER AND DEPENDENCE -
14th August 2014Róisín Killeen
HIGH
PROFITIMPACT
LEVERAGE ITEMS
6
5
STRATEGIC ITEMS
7
8
9
3
4
NON-CRITICAL ITEMS
2
1
BOTTLENECK ITEMS
LOW SUPPLY RISK HIGH
1. Reduce dependence and
risk, find other solutions.
2. Accept the dependence,
reduce the negative
consequences.
3. Pooling of requirements
4. Individual ordering, pursue
efficient processing.
5. Exploit buying power
(“partner of convenience”).
6. Develop a strategic
partnership.
7. Maintain strategic
partnership.
8. Accept the lock-in
“partnership”.
9. Terminate partnership, find
new supplier.

5. WHEN PRACTICE MET KRALJIC:
THE CASE STUDY TO EXPLORE THE THEORETICAL ASSUMPTIONS
14th August 2014Róisín Killeen
• WHY?• WHAT?
• WHERE?• WHOM?
Centralised
Public
Procurement Unit
–
National
Procurement
Service
Natural Gas
Market –
Framework for
the Supply of
Natural Gas to
the Public Sector
in Ireland
Purchasing
Portfolios -
Establish the
Practice &
Challenge the
Theory
Purchasing
Portfolio Model
–
SUPREM
Product
Positioning

6. WHEN PRACTICE MET KRALJIC:
PRELIMINARY FINDINGS
14th August 2014Róisín Killeen
PRELIMINARY
FINDINGS -
SUPPLY RISK
POSITIONING
BY SUPREM
HIGH
RELATIVE
VALUE
HIGH
SUPPLY
RISK

7. WHEN PRACTICE MET KRALJIC:
- FINDINGS -
PRODUCT
CLASSIFICATION
 “Suggesting the actual
conditions present a
leverage situation is
simplistic.”
“If the understanding of
“leverage” is that; should
you go to the market en-
masse, you have got good
buying power, and then the
market will respond and
respond kindly; is too simple
a characterisation,
especially in this market.”
BUYER/SUPPLIER
RELATIONSHIP
 “If large buying power is
perceived to mean high
value as a customer such a
direct and simple
correlation is crude and
naïve.”
 “The suggestion that
buying power gives you all
the power in the market is
also too simple. The reality is
that power lies in many
places, and in this market it
exists on the supply side.”
“Power exists with
suppliers in their knowledge
and the inherent
complexity of this market.”
14th August 2014Róisín Killeen
STRATEGIC
DIRECTION
 A strategy to develop a
strategic partnership
requires longer term
commitments.
 “The market, from both
a practical and
commercial perspective is
geared towards longer-
term arrangements.”
This provides the
opportunity for suppliers to
acknowledge and commit
to the business relationship;
thereby achieving greater
certainty and allow
investment in enhancing
the systems and
relationships.

8. Expected Conditions
• Leverage Product
• High Relative Value – Low
Supply Risk
Product Classification
• Supplier Dependence > Buyer
Dependence, or
• Supplier Dependence = Buyer
Dependence
Buyer/Supplier Relationship
• Hold Position – Exploit Buying
Power
• Move Position – Develop
Strategic Partnership
Strategic Direction
Observed Conditions
• High Relative Value – High
Supply Risk
• Strategic Product?
Product Classification
• Buyer Dependence > Supplier
Dependence
Buyer/Supplier Relationship
• Hold Position - Reduce
Dependence and Risk
Strategic Direction
14th August 2014Róisín Killeen
WHEN PRACTICE MET KRALJIC:
- CONCLUSION -

9. WHEN PRACTICE MET KRALJIC:
THE CASE STUDY TO EXPLORE THE THEORETICAL ASSUMPTIONS
THANK YOU
ANY QUESTIONS?
14th August 2014Róisín Killeen