How to Segment Your Supply Chain Using Kraljic Matrix

This article will show you Kraljic Matrix or portfolio matrix concept and how to use it to segment your supply chain with examples across various functions.

1. Purchasing Portfolio Matrix
I believe lots of people have seen this method many times but only few people know the origin. In 1983, Peter Kraljic wrote the article "Purchasing Must Become Supply Management" for Harvard Business Review. In this article, he proposed the way to create a purchasing strategy based on different types of commodity. Later, this method is known as "Kraljic Matrix" or "Purchasing Portfolio Matrix".

Purchasing Portfolio Matrix

The idea is to create the custom strategy based on each type of commodity. Doing this way, purchasing can pay attention to problem areas such as strategic items and bottleneck items and try to automate/decentralize the process for non-critical items.

2. Demand Profiling Matrix
Demand profiling is the method presented by Dr. Janet Godsell in the article named "The Power of Supply Chain Segmentation". It incorporates various concept and can be used to manage demand side of supply chain. Example of Demand profiling matrix is as below,

Demand Profiling Matrix

As you can see, it looks like Kraljic Matrix for a demand planner. There is a specific procedure to follow for this type of analysis. But the quick and easy way is to sort product by volume and use the level of forecast error (MAPE or MAD) to determine the level of variability then put everything into a quadrant. I'm so very sure that most demand planner will choose to attack high variability items in quadrant I and II.

3. Fisher's Matrix for Product/Strategy
Fisher's supply chain matrix is from the paper on Harvard Business Review by Marshall L. Fisher in 1997 called "What's the right supply chain for your products". Long story short, he said that there are 2 types of products, functional and innovative. Then he proposed what kind of strategy a company should use for each type of product.

Fisher's Matrix for Product/Strategy
It sounds simple but lots of supply chain management practitioners can't break away from one size fits all mindset. For example, if you still select supplier based on the lowest cost, no matter how long the lead-time is, no matter how raw material will be used, you really need this matrix.

4. Global Supply Chain Matrix
In the paper "A Taxonomy for Selecting Global Supply Chain Strategies", Martin Christopher proposed the global supply chain strategy based on the demand and lead-time characteristics as below,

Global Supply Chain Matrix

This matrix looks very simple but can be very effectively if it's applied properly.

5. Supply Chain Risk Mapping
One of the most popular supply chain risk case study is "Ericsson's serious sub-supplier accident". This paper explains the concept of risk mapping as below,

Supply Chain Risk Mapping

Before using this matrix, you need to identify type of risk related to your supply chain. MIT Global Scale Risk can be the starting point. After that, you need to determine the priority of each type of risk based on business impact and probability. Red zone is very clear, you need to mitigate risks in this quadrant ASAP. Green zone can wait. Anyway, yellow zone can be different from one organization to the other. You need to create the agreed plan what to do with yellow zone.

6. Customer Window Quadrant
Lots of paper in supply chain management mentions that Intel Corporation uses the technique called "Customer Window Quadrant" to classify customer satisfaction based on the level of Satisfaction and Importance.

Customer Window Quadrant

7. Supply Chain Security Matrix
The world is more complex than it used to be and the security has become the new burden for every trading partner in supply chain. In order to avoid potential delay from security screening, supply chain security program is necessary. In 2007, World Customs Journal published the paper called "Voluntary Supply Chain Security Program Impacts: An Empirical Study with BASC Member Companies". Again, a 2x2 Matrix has been used to prioritize various security measure in terms of cost and effectiveness.

Supply Chain Security Matrix