Fun Procurement game
Throughout this blog, you will have a chance to learn (or revise) the Kraljic Portfolio (1983), and check how much you understand about the concept by playing a game. Sounds interesting? Let’s wake our brain up!
First, you can learn or revise what the Kraljic Portfolio (see the image above) means via the website of Charted Institute of Procurement & Supply (CIPS).
As you see from the figure above, the horizontal axis represents for supply risk (meaning whether there are sufficient suppliers of a particular product/ service), and the vertical axis indicates the profit impact (equivalent to the importance of purchasing a specific product/service). So what does it mean with “non-critical items”? It has low supply risk and low importance of purchase, meaning there are several available supplies, and no significantly negative impact on your profit without having this kind of items. Therefore, you do not want to spend time investigating sources for non-critical items. By contrast, you do want to focus on strategic items as they are your key products/ services which contribute to most of your revenue while the supply is limited. Leverage items have sufficient supply, and also play an importance in your sales. Finally, bottleneck items have a low impact on generating your revenue, but you still want to get it. Unfortunately, not a lot of suppliers provide this kind of goods.
- Tips: Search more on the Internet for more information. Fun to watch an explanatory YouTube video?
#2: Sporting time
Now, have a look at our game instruction in the figure below. Read it and classify each item to the categories from Kraljic Model that you think they are a match. Please complete this step before moving to the next one!
- Tips: Ask a friend to play together with you? Set a limited time (around 15 minutes) to complete the game.
#3: Cool down
Congratulations! Have you enjoyed the game? Was it easy, difficult, or confusing? The last step of our game is to (obviously) discuss the suggested answers.
Explanation for each category:
- Leverage items: The similar point of these items is that you do need a huge quantity, and it is not so difficult to find vendors selling these items. They have an impact on your profit because if you overspend for these items (without searching carefully for other more reasonable options), your profit will decrease since your costs go up. Look at this example: the company A sells 32,000 track bolts for €1,50 each (in total €48,000) while B sells the same amount for €1,30 each (in total €41,600). Assume they have the same quality and both meet your requirements. Which supplier would you choose?
- Strategic items: As a rail company, new train type is certainly your strategic item because you always want to innovate your train in order to reduce cost and increase efficiency for long-term. And very few suppliers making trains, right? Section of rail in fact is produced to different standards depending on what the rail is being used for, and together with the information in the game, it requires customization. On the other hand, most rail section manufacturers have made sections to their own standards, so you can see a risk of finding a vendor who meet Fastrail’s requirements. Besides, it is highly important to have these items in stock for repairs. Otherwise, your train could not be used, resulting in a negative impact on your profits and customer service. There are very few supplies for fire suppression systems due to complicated specifications. This item indirectly affects your profit because it helps protect valuable resources and critical facilities of your business in case of a fire.
- Non-critical items: These items obviously have several available supplies in the market (e.g. how many different brands of cleaning products in the supermarkets can you find?). Plus, they do not contribute much to your revenue as your firm provides rail services. If your company is Disneyland, then indeed teddy bear would be your key products, or strategic items. Non-critical items are also not costly, so you do not want to waste time researching supplies for this kind of item.
- Bottleneck items: Seat cover and signage are placed in this category because they are required a unique style and mentioned “not easily substituted”, which implies a risk of supply. They have a low impact on your profit since you don’t have the bargaining power with the vendors; however, you do want to have it for branding, or passenger navigation.
In fact, there might be different answers for some kinds of items in the game, as long as you can provide a valid argument. Thus, if you have any different idea than this, please share in comment and we can discuss it together.
Hope you have had fun with this game! Thank you for reading this blog among another thousand blogs outside there, and I see you in the next one!