Last month we told you that Jason was right when he said that we need exact purchasing, but as we clearly stated then, and stated now, it’s NOT a new matrix. Especially when the original Kraljic matrix didn’t really fix anything in the first place (as it just gave us a methodology to start thinking about Procurement methodically so that we could start on a journey to actually fixing Procurement).

However, any methodology that wants to fix Procurement can’t just try to reinvent the Kraljic Matrix, even if it takes a data, vs process, centric approach. (Although the correct answer will involve both data and process.)

There’s two reasons for this.

First, any answer must take into account people, process, and data. (It’s not tech, tech is just that which implements the process on the right data with the support of people, who at least need to define the process the tech will employ if automation is being deployed.)

Second, any answer must properly take into account the complexity, market risk, and category impact. The only way this can be done is if EACH dimension is analyzed separately — not bundled together in some arbitrary mish-mash of factors that tries to pretend two (or more) dimensions are more-or-less the same.

In traditional Kraljic, you balanced profit vs a risk-complexity mish-mash. It sounded good, except risk and complexity are NOT the same thing. Risk is external (market) risk that you can try to mitigate, but that you have no control over. Category and product complexity is completely under your control — you control the design, the raw material mix, the production process, etc. You can choose to make the product simpler or more complex, use better or worse materials (as long as they meet minimum/maximum industry and government safety and compliance requirements), or less (or more) intensive production processes. Your choice.

In the proposed Busch model, you replace impact with influence and map that against a risk-complexity mish-mash, and then you use this mapping to translate Kraljic’s definition of what a category is into an actual data-backed strategy to purchase it. It’s progress, but not the answer.

The answer, as per our last post, is the pocket cube, where you break out risk and complexity into their own dimensions and deal with the categories accordingly. Especially when there is a mis-match between the risk and complexity ratings.

It’s easy when the risk and complexity match in severity, and Jason is dead on when the risk, complexity, and category impact (not cost, or profit, but criticality) are low and when the risk, complexity, and category impact (again, not cost, or profit, but criticality) are high. In the first case, it’s transaction focussed (but not necessarily continuous real-time transaction monitoring) and in the latter case it’s fundamentally a cost-based architecture, but more complex than Jason presents.

Where it gets tricky is the grey areas when there is a mismatch in two of the categories and, more specifically, when risk and complexity are diametrically opposite. But we’ll get to that in a later post. Starting tomorrow, we’ll take the first two of the four easy categories.