5 min read
16 Jun
16Jun

Maybe there is the problem, which is the procurement manager usually think about it, how do purchasers use the Kraljic Matrix to purchase glass processing production equipment or glass produce raw materials. This article will introduce the application of well-known procurement models in the glass processing industry, and gives a high-quality recommendation to the majority of glass processing manufacturers.

The Kraljic Matrix first appeared in Peter Kraljic's "Purchasing must become Supply Management" article, which was published on September 10, 1983, In the monthly issue of Harvard Business Review. Although more than 30 years have passed since its creation, it is still an effective supplier analysis matrix model on a global scale. 


The purpose of this supplier relationship analysis matrix is to expand procurement negotiation efforts by helping procurement professionals maximize safe supply and reduce procurement costs. Through strategic adjustment, help companies complete the transformation from transactional procurement to strategic procurement.


Market competition has intensified, and companies that take cost as their competitive advantage lack systematic cost management methods. They simply and rudely suppress suppliers to obtain so-called cost advantages. This will not only fail to obtain sustainable competitive advantages but also damage the cooperation between the two parties.


Combining the Karajak model, detailed methods for reducing costs from the four quadrants reflect your procurement expertise.


Based on the classification of purchased materials, Karajek established a matrix model of the relationship between purchase categories and supply by using the two dimensions of profit impact and supply risk.


  1. a. Supply risk factors: it reflects the degree of difficulty in obtaining purchased items, or the degree of loss of purchased items to the company due to supply problems. The main measurement indicators include the competitive landscape of the supply market, the pace of technological innovation and raw material replacement, and market entry The threshold, logistics cost and complexity, the number of potential suppliers, the opportunity of self-made or outsourcing, the possibility of substitution, etc.

  2. When the raw materials for the procurement items are very scarce, vulnerable to policies or natural disasters, or logistics are difficult and easy to damage, or when the number of suppliers is small, the procurement risk is high.

  3. b. Profit influencing factors: used to indicate the impact of the purchased material on the profit of the finished product. The main measurement indicators include the purchased quantity of the purchase category, the proportion of the purchase amount to the total product cost amount, the degree of influence of the item on product quality, and the degree of influence of raw materials on the quality of finished products, the percentage of value-added, etc.

  4. When the procurement project accounts for a high proportion of the cost of the company's finished products, the impact on the profit margin of the finished products is huge. This is because the purchased materials are not only an important part of the high production cost but also a key factor affecting the quality of the finished product. For example, fruit juice manufacturers purchase fresh fruits and high-end clothing manufacturers purchase fabrics.


Karajek uses two dimensions to divide the matrix into four quadrants:


First Quadrants: Leveraged Projects (high profit, low supply risk)


The products of leveraged procurement projects can be purchased from different suppliers according to the standard quality level, and to a large extent determine the cost price of the finished product. A small change in price or a change in quality will strongly affect the cost price. The purchaser has the freedom to choose suppliers; there are a large number of suppliers and the conversion cost is low. Such as sea sand, quartz sandstone powder, soda ash, dolomite, and other bulk chemicals, aluminum materials, packaging materials, used to produce float glass raw materials and white glass, wafer glass, flat glass standard semi-finished products, etc.

sea sand

quartz sandstone powder

soda ash

dolomite


The status of the buyer and seller: the buyer takes the initiative, and the interdependence is normal.


Procurement strategy recommendation: The two parties have reached a good framework agreement and formulated targeted pricing to maintain a harmonious and develop a supply relationship.


For leveraged projects, the following methods can be adopted to reduce costs:


First: Bidding
By organizing suppliers forbidding, this method can be used to reduce the price of parts. According to statistics, international procurement through bidding can save 25%-40% of procurement costs. Note that if a company wants to organize bidding, the number of suppliers must be at least 3 or more. Besides, it is necessary to comprehensively consider the continuity of supply and quality assurance in the later period.


Second: Centralized Procurement

For group companies or government departments, when purchasing leveraged projects, the procurement needs of all subordinate companies and departments can be concentrated. Through "centralized pricing, separate procurement", "centralized ordering, separate receipt and payment", "centralized ordering, separate receipt, the centralized payment", "centralized procurement after allocation" and other operating modes. Centralized procurement can concentrate the needs of various departments, and the purchasing unit can use a larger purchase volume as a weight to get a better quantity discount price, thereby reducing procurement costs and reducing indirect costs.


Tired: Development Supplier

While maintaining the existing mature supplier system, new suppliers are introduced to achieve the "catfish effect". Realize the optimization and upgrade of the supplier system and reduce procurement costs.


Jinan Lijiang Glass Machinery Co., Ltd. is equipped with overseas sales personnel and pre-sales engineers with many years of business experience. It provides competitive quotations and meticulous pre-sales consulting services for every production enterprise that intends to purchase glass deep processing production equipment and combines online lines. The combined marketing model of the following, in conjunction with multiple overseas exhibitions every year, narrows the distance between sales and procurement and provides efficient procurement decision support for practitioners in the glass deep processing industry.


Fourth: Negotiation and Discount Methods

By taking advantage of the buyer's initiative, you can squeeze out the other party's quotation through proper negotiation, use the advantage of a large total amount to get discounts and reduce costs.


Fifth: Standardization

Implement standardization of specifications, use common design specifications for products, fixtures, or parts, and use industry-standard parts to achieve the goal of reducing manufacturing costs with economies of scale.


Sixth: Improve Supplier Performance

Through the improvement of supplier performance system, including cost, quality, delivery, service, and technical cooperation, etc., continuous performance improvement can be obtained. Encourage suppliers to inspect internal operations, continuously improve their own processes, exchange information with suppliers, establish a sharing mechanism, and achieve a win-win supply relationship.


Jinan Lijiang Glass Machinery Co., Ltd. will be equipped with an independent overseas after-sales service department, with a complete overseas after-sales service system, and an independent project communication team for efficient communication, and an independent equipment after-sales accessories service personnel for service, forming an insulating glass equipment RDCA Closed-loop production management.


Seventh: Carry out JIT Procurement and VMI

JIT (Just In Time, just-in-time production method), also known as the no-stock production method, originated from a production method implemented by Toyota Motor Corporation in Japan in the 1960s. Since JIT procurement greatly streamlines the procurement process, it can greatly eliminate inventory, eliminate waste to the greatest extent, and greatly improve work efficiency. The VMI management model (Vendor Managed Inventory) is a method for suppliers to replenish goods based on actual consumption models, consumption trends, and replenishment strategies by sharing the current inventory and actual consumption data of the user company Strategy. In this model, both the supply and demand parties have changed the traditional independent forecasting model to minimize the waste of business, logistics, and information flow caused by the uncertainty of independent forecasts, and reduce the total cost of the supply chain.


Due to limited space, we will continue to introduce the content of The Kraljic Matrix: The application of purchasing model in glass processing industry ② in the next article. To quickly jump to this page, please click here.


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