Kraljic’ matrix – Leverage

Kraljic’ matrix – Leverage

Transcript

Hi everyone, I’m happy to be back with part 3 of Kraljic’ purchasing portfolio matrix. If you’ve been following along, then hopefully you have a high-level understanding of the framework. If not, don’t worry, check back on tips #601 and #608 to get caught up. For today’s tip, we moved to “Leverage items”.

Where items have a high profitability, but a low risk factor, buyers possess the balance of power in the relationship and leverage this strength to obtain great value for their organisations.

Buyers just love to operate in a leverage market for 2 reasons:

  1. This is typically a commoditized market with an abundance of suppliers, so there is no risk for buyers at all.
  2. These items have a high financial impact so it’s a great opportunity to show the added value that buyers have.

A typical example of this is road transportation for a Fast-Moving-Consumer-Goods company. There are hundreds of suppliers of logistics services, and typically transport represents a large chunk of their spend.

As a result, you’ll find buyers run Requests For Quotations or auctions to get the best prices in the market. And in all fairness, buyers can get away with this, because if you don’t play ball someone else will.

So, what does this mean for you as a sales professional? How do you deal with buyers in a leverage market?

Fundamentally, there are 2 options here:

  1. You focus on your own cost competitiveness. This means you accept the market you’re in and you are looking for ways to be cheaper than your competitors. By doing so you would have the best chance of winning business.
  2. You make your product or service unique. By differentiating from your competitors, you provide a product or service that nobody else can. This way, a buyer has to work with you, because they simply have no other options. Be creative in what you can do since it’s never an easy step to take. It might require a significant change in your proposition.

That’s it for understanding “leverage markets”. Happy negotiations everyone!