Prioritization of categories under resource constraints

Purchasing‘s resources must be put to the best possible use by allocating resources to categories with the highest potential for value generation. Global purchasing synergies can broadly be divided into economies of scale, which relates to pooling of volume in order to enforce purchasing power, reduce number of suppliers or standardize requirements; economies of information and learning, which refers to sharing knowledge on suppliers or new technologies; and economies of process, which refers to establishing a common way of working and representing worldwide one line of communication towards suppliers. All of these potential synergies are important to consider when selecting categories to prioritize when under resource constraints. However, many purchasing organizations tend to focus mostly on economies of scale and overlook the other two.

Category Prioritization Matrix
Companies must be able to select and prioritize between categories in order to be able to allocate resources to the categories with the best value-generation potential. One common method for selecting categories is to use the Category Prioritization Matrix (kraljic model). Categories are evaluated on their cost saving potential on the y-axis and their ease of implementation on the x-axis. The upper right hand corner quartile corresponds to a set of highvalue projects that should be assigned cross-functional teams first. Projects are carried out in different waves, starting in the high-value quartile. Common criteria for evaluation of cost savings potential includes: potential to replace a customized solution with an off-the-shelf solution; possibility to change from buying individual components to buying modularized systems; mitigate an unfavorable supplier-buyer power imbalance; and renewing contracts that have not been renewed for several years. Ease of implementation can be measured by the expected resistance in the organization of changing suppliers for a specific category; the internal technical expertise on the specific category; and the supply market expertise for the particular category.

There are other types of opportunity analysis tools for prioritizing categories, but they all have very similar characteristics. Categories around MRO items have been found to be the most common product categories used.

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