Most companies are facing challenges in collecting real-time demand information on the ground at the same time the pressure is increasing to deliver essential items. Combined with land borders closing, it has become essential to develop new suppliers or repurpose the capacity of existing suppliers to provide alternatives.
The Kraljic model can be leveraged to revise the commodity strategy. As you can see in the figure below, different procurement categories can be classified across two dimensions, for example supply risk vs. profit impact or spend volume.
High supply risk means there are very few suppliers for a commodity, while low supply risk means there are a relatively large number of suppliers for a given product. Profit impact refers to the criticality of the raw material or product to the company’s operations. Often, this can be determined by the spend.
Due to current supply chain disruptions, some commodities tend to shift right or upward. Even regular items could become bottlenecks, and bottlenecks could start impacting profits more severely due to the impact on production, as illustrated above. Mapping your commodities into these dimensions can help you assess and identify the key commodities that have the potential to move right or upwards, as shown in the figure.
Once you have identified those commodities, what next? It would be wise to move them towards the left side of the curve, and that can be done by identifying alternate sources of supplies. One excellent way to do that would be by tapping into the vast supplier business networks offered by many enterprises.
In the example below, XYZ Company uses a business network, such as SAP Ariba Discovery, to search raw-ingredient suppliers to produce paper towels. The result shows the suppliers on the business network, which XYZ could leverage as an alternate source for urgent supplies and even for building long-term supplier relationships.
A specific challeng is then assessed by leveraging the reference capability model. Finally, by using the Kraljic Portfolio model, the procurement strategy is redefined, as shown below.
The current disruptive events show several possibilities exist going forward: The economy might open in a staggered fashion, which would have staggered impacts on different industries since consumer spending patterns will continue to change considerably. Airlines might have to wait a little longer to see demand returning to previous levels; fresh and organic consumable items could see an uptick in demand.
Therefore, we need to assess the evolving situation through the lenses of the business capability model and business model canvas, which provide a macro view as well as the impacts at a granular level, as this series of blogs has illustrated. The methodology covered in this post could then be leveraged for risk mitigation and for planning shifts in short- to midterm capability development.
This approach could also be used to brainstorm alternative ways of doing things to maximize high-demand vs. low-demand commodities. For the impact on essential raw materials, the Kraljic model can be leveraged to understand the high-risk commodities and help in analyzing the supply chain disruption risk.
Learn more about SAP Ariba Discovery and how it can help you eliminate bottlenecks in your supply network.