In the year 1983, Peter Krajlic introduced a matrix known as the Krajlic Portfolio Purchasing Model which appeared in the article named ‘Purchasing Must Become Supply Management’ in the Harvard Business Review. The model can be used for analyzing the purchasing portfolio of the company.
The Krajlic Portfolio Model helps the buyers for maximizing the supply security and to decrease the costs. In the process, the procurement can move from the transactional activity to the strategic activity. Generally, the model is based on two different dimensions where the products and the materials purchased can be classified:
- Supply Risk: This risk can be defined from high to low in the particular matrix. You will get to know at what extent the supply will be available, whether the supply is scarce or abundant, whether the materials are up to date and are abiding with the latest technologies and what should be the logistics cost for the oligopoly and the monopoly conditions.
- Profit Impact: This impact can be defined from the high to low in the matrix. Here, you will understand the importance of purchasing certain materials, the added value which can be delivered in the line of production and what are the effects of the material costs which are provided in the profitability of the company.