Procurement and Supply Strategy
Procurement and supply strategy tests how procurement aligns with corporate objectives, segments spend and chooses sourcing approaches. Questions often require applying Kraljic's matrix, explaining category management, or selecting single, multiple or dual sourcing for a given supply situation.
Core rules and concepts
- Strategy hierarchy: corporate strategy sets direction; business strategy sets competitive priorities; procurement strategy translates these into sourcing, supplier and category plans.
- Category management groups similar spend, analyses demand and supply markets, creates a category plan, executes sourcing and manages supplier performance.
- Kraljic's matrix uses profit impact and supply risk. Strategic items are high impact and high risk: partner closely and manage risk. Leverage items are high impact and low risk: compete, consolidate volume and drive price. Bottleneck items are low impact and high risk: secure supply, buffer and qualify alternatives. Routine items are low impact and low risk: simplify and automate.
- Sourcing options include single, multiple, dual and network sourcing; local versus global sourcing; make versus buy; outsourcing, insourcing and co-sourcing.
- Supply market analysis uses tools such as STEEPLE and Porter's five forces to assess competition, supplier power and market trends.
Worked example
A firm spends £2 million on standard packaging and £50,000 on specialist calibration. Packaging has high profit impact but low supply risk: it is a leverage item, so consolidate volume, run a competitive tender and use price benchmarking. Calibration has low profit impact but high supply risk because few accredited laboratories exist: it is a bottleneck item, so secure a long-term agreement, hold contingency capacity and qualify a second laboratory even at higher cost. The reasoning is that the same sourcing rule should not be applied to both: competition suits leverage, while security and continuity suit bottleneck supply.
Traps that cost marks
- Treating Kraljic as a one-off label rather than a dynamic analysis.
- Using lowest price as the main strategy for bottleneck items.
- Choosing single sourcing for strategic items without continuity planning.
- Writing a category plan with no demand or supply market analysis.