In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, he argued that supply items should be mapped against two key dimensions: risk and profitability.
Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.
Putting these two dimensions together yields a classic two-by-two matrix.
Source: Peter Kraljic, HBR
Reference:
- CIPS study guide page 63-73
- What Is The Kraljic Matrix? (forbes.com)
LO 1, AC 1.4