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BIJ
26,4
1194
Received 7 May 2017
Revised 30 July 2018
Accepted 31 July 2018
Benchmarking: An International
Journal
Vol. 26 No. 4, 2019
pp. 1194-1209
© Emerald Publishing Limited
1463-5771
DOI 10.1108/BIJ-07-2018-0222
Supply chain redesign for
lead-time reduction through
Kraljic purchasing portfolio
and AHP integration
Augusto Bianchini, Andrea Benci, Marco Pellegrini and Jessica Rossi
Department of Industrial Engineering, University of Bologna, Forlì, Italy
Abstract
Purpose – The purpose of this paper is to provide a flexible and extensible model for the classification of
suppliers, within the purchasing guidelines and market trends of an Italian small company, leader in the
production of street lamps. The model is applied to identify critical supply chains with the final objective of
lead-time reduction.
Design/methodology/approach – The model is obtained by the application of the purchasing portfolio
analysis through the construction of Kraljic matrix. Profit impact and supply risk criteria are selected
according to the main company requirements, and then prioritized by the analytical hierarchy process (AHP).
Finally, supply chain lead-times are analyzed with Gantt diagrams.
Findings – The application of the model allows the determination of company criticalities in terms of high
lead-times and of the involved suppliers. The analysis of critical suppliers positioning in the Kraljic matrix
allows the definition of some possible strategies to implement for lead-time reduction.
Research limitations/implications – Purchasing portfolio analysis and Kraljic matrix are practical
instruments to quickly frame company purchasing situation, but their application is not simple due to the
numerous and different factors involved, especially in small and medium enterprises (SMEs), where resource
are scarce and several constraints limit operations. The objective of the research is the development of a
practical tool for strategic purchasing, simple and robust to be implemented in SMEs, with limited resources
and access to quantitative supplier data.
Originality/value – Evaluation criteria definition is one of the most difficult phases, such as their univocal
and quantitative comparison. The problem of selecting and prioritizing both quantitative and qualitative
criteria for suppliers classification is overcome with the combined application of Kraljic matrix and AHP.
The newly integration of the two methodologies allows the realization of a reliable and robust model for
suppliers classification, which can be easily adapted to company business strategy changes.
Keywords Analytical hierarchy process, Kraljic matrix, Lead-time reduction, Supplier–buyer relationship
Paper type Research paper
1. Introduction
In the last decades business tendency has moved toward expanding product variety and
shorting product life cycle. Moreover, customers increasingly require specialized and
customized products with smaller lot sizes and shorter delivery lead-times. This critical
business environment has determined a change in the market which has become more
complex and competitive. Consequently, companies’ managers have to develop new
strategies to improve supply chain through flexible and efficient customer-centric products
and processes, and also have to implement innovative methods to reduce costs but
maintaining a high quality (Tan et al., 1998; Handfield and Bechtel, 2002; Spekman and
Carraway, 2006; Al-Hakim and Lu, 2017). The realization of a network of business
relationships across the entire supply chain is a consolidated and successful approach to
respond to the demand of supply chain improvement and it is recognized as one of the
most important drivers to guarantee competitive advantages (Giffi et al., 2016).
The realization and actuation of this multiple relationships approach allows the
collaboration and the integration of businesses at many levels and from various
functions and offers the opportunity to create a synergy between all the companies involved
in a specific supply chain. The approach generates a continuous knowledge exchange, Supply chain
which has a positive impact on products quality and innovation (Fawcett et al., 2009; redesign
Sundram et al., 2016). The suppliers’ involvement in the supply chain positively influences
the realization of new products, thus resulting in cost reduction, quality increase and fast
release on the market. All these elements attract new customers and the effect of customer
involvement guarantees an immediate feedback about the new product. The approach
makes possible for all the members of supply chain to realize profits: strategic relationships 1195
influence the company ability to achieve flexibility, the suppliers establish a stable link
with buyers throughout the deal life cycle and customers are satisfied of the purchase
(Lambert and Cooper, 2000; Li and Nagurney, 2015; Fossas-Olalla et al., 2015).
Selecting suppliers and deciding suppliers’ strategies is one of the major key for an
effective, optimized and accountable supply chain. Suppliers ensure the constant flow of
goods and products, and they are involved in a wide part of business, above all due to the
growing tendency to outsource logistics, manufacturing, marketing and product
development activities (Genis-Gruber and Ogut, 2014). Therefore, integrating and
aligning purchasing into company strategic planning can really bring benefits
and competitive advantages (Petersen et al., 2005; Qrunfleh et al., 2013; Matevž and
Maja, 2013). For example, choosing the proper strategies could reduce supplier quality
failures, which could improve company’s inventory, quality and productivity
performance. A proper supplier strategy is also related to supplier costs effectiveness.
Companies can engage in particular agreements which could incentive the suppliers to
improve their processes, reduce non-added value activities and search innovative
solutions and, consequently, decrease costs. Flexibility is another company performance
indicator which could improve with an optimal supplier relationship. Purchasing from
sellers able to assume manufacturing, technology, process and demand changes allows
the company to acquire flexibility and responsiveness in relation to market variations.
Finally, thanks to the right relationship, the supplier can recognize delivery as a key
parameter and guarantee a quick and reliable distribution of supply sources. Therefore,
the buyer becomes able to: reduce stocks and inventory costs, avoid final product delivery
delays and promptly respond to both scheduled and urgent customers’ needs (Shin et al.,
2000; Tan et al., 2002; Jaiia et al., 2016). For these reasons a focused company–supplier
relationship ensures the overall organizational performance, competitiveness and
long-term success as a result of efficiency and service improvements, risk mitigation
and lower go-to-market times ( Jaipuria and Mahapatra, 2015). Table I summarizes the
main performance indicators and the mutual benefits that could be improved with
supplier strategic orientations according to the previous references.
Nevertheless, often buyers and suppliers interact to pursue their individual
business interests, which are different and variable with time (Meehan and Wright,
2012; Vieira et al., 2013). Typically, two opposite forms of buyer–supplier relationships can
be recognized: a transactional tie and a relationship-based tie (Carmeli et al., 2016).
The basic principle of transactional tie is that the best supplier guarantees the lowest total
costs. Transactional tie is characterized by a low level of engagement, but it is also more
inclined to possible opportunistic or idler behaviors and distraction from the main
procurement activities. Consequently, this type of relationship does not allow a long-term
commitment and the development of an integrated supply chain (Ghijsen et al., 2010).
On the other hand, high levels of engagement and a strong collaboration represent the
relationship-based tie and allow the involved companies to manage more resources
(Marksberry, 2012). Although the benefits of a high committed collaboration are
numerous, in the majority of cases supplier relationship is transactional. In fact,
relationship-based tie has also some negative effects, as the possibility to create inertia
and to limit the capability of adaptation and response to evolving environmental
BIJ Benefit Effects on supplier Effect on buyer
26,4
High quality Product and process improvement Higher final product quality
Market competitiveness (repeated Reduction in costs of scrap and rework
purchase by buyers) Higher productivity
Innovation Customer satisfaction
Development of new products Market competitiveness (new customers)
1196 and processes
Cost reduction Product and process improvement Lower final products prices
Innovative processes Market competitiveness
Reduction of non-value-added activities Customers retention
and of lead-time
Higher bargaining position
Flexibility Smooth flow of products Reduction of over- or under-stocking
Development of new product Reduction of safety stock and production capacity
Ability to respond to change in demandMarket competitiveness
Lead-time reduction
In time delivery Market competitiveness (repeated Reduction of inventory
purchase by buyers) Higher productivity
Innovation of processes Lead-time reduction
Reduction in supply uncertainties and risk
Table I.
Summary of the Customers’ satisfaction
parameters influenced Market competitiveness
by supplier–buyer Notes: All the mutual effects on supplier and buyer are collected and listed in order to highlight how
relationship companies performance can improve with the right

requirements (Prahinski and Benton, 2004; Kannan and Tan, 2006; Maestrini et al., 2016).
The selection of the appropriate sourcing strategy depends on several factors (Andersen
et al., 2016; Matawale et al., 2016). The purchasing portfolio analysis, developed by Kraljic
in 1983, is a consolidated approach which includes, first, the classification of purchased
items and, second, the evaluation of supply market strength (Gangurde and Chavan,
2016). About the classification of purchased items, this method considers both the
importance of the purchased item and the supply market complexity and recommends
categorizing products in terms of profit impact (high/low) and supply risk (high/low),
creating a 2 × 2 matrix (Olsen and Ellram, 1997; Rezaei and Ortt, 2012). The main purpose
of this analysis is the identification of strategic items, which are elements with high profit
impact and high supply risk. About the evaluation of market strength, the purchasing
portfolio analysis aims to evaluate the relative position of the company in the supply
market, distinguishing three type of relationship with the supplier of the previously
identified strategic items: exploitation in case of buyer dominance, balance in case of
balanced relationship and diversification in case of supplier dominance. Different tactics
were elaborated also for the other matrix cells (Ferreira and Kharlamov, 2012; Cox, 2015).
In particular, leverage, non-critical and bottleneck items and recommendations for their
purchasing were defined as shown in Figure 1.
In the experience of purchasing analysis, practitioners are used to apply different
strategies in the same matrix cell in relation to item position. Moreover, selecting
the appropriate strategies, they can choose to move a product in a different matrix cell
(Caniels and Gelderman, 2005; Caridi et al., 2010).
Previous studies indicated that larger companies recognize the strategic importance of
purchasing as a tool to attain higher quality, increased operational flexibility, shorter lead-time
and cost reduction. Small and medium enterprises (SMEs) use portfolio models lower than
larger Companies. Typically, in SMEs, purchasing decisions are generally made by owner and
purchasing manager on the basis of intuition and personal experience. Analytic procedure, as
 Supply chain
High
redesign
LEVERAGE ITEMS STRATEGIC ITEMS

Exploitation of
Exploit, balance or diversify
purchasing power
Profit impact
1197
NON-CRITICAL ITEMS BOTTLENECK ITEMS
Figure 1.
Purchasing portfolio
Efficient processing Volume assurance analysis, modified
Low
from Kraljic:
classification of
Low High purchased items and
Supply risk relatively strategic
recommendations
Source: Cox (2015)

Kraljic matrix, is not used in SMEs, since the lack of resources, knowledge and awareness
about the positive benefits for organization. Moreover, the limited access to quantitative
supplier data limits the development of collaboration with their suppliers and alternative
solutions (Lee and Drake, 2009; Gelderman and Van Weele, 2005).
The paper is about a case study application of a new approach that brings together
Kraljic approach with analytical hierarchy process (AHP) and Gantt diagram. The new
approach was applied to classify the suppliers of an Italian small manufacturing company,
which is a world leader in the production of components for urban lighting, street furniture
and structures for public and private open spaces. The research activities focused on the
realization of a flexible and extensible model for supplier classification, which can be easily
modified by purchasing managers in case of internal or external supply chain changes. This
model should be an instrument to easily and quickly state the purchasing situation, which is
often hidden by the ordinary production management and the customers’ delivery time.
Furthermore, since the company under investigation aims to develop new business
opportunities, a redesign of supply chains was necessary. In particular, the model was
applied to highlight company critical supply chains in terms of lead-time. Focusing on
purchasing and procurement processes, model application aims at the individuation of
suppliers involved in the critical paths, then at the development of hypothesis of possible
alternative strategies and, finally, at lead-time reduction. Therefore, the final objective of
this study is the realization of an optimized purchasing system, aligned with company
strategies, which guarantees benefits in terms of costs and lead-time reduction, and
elimination of non-added value activities.

2. Methodology
The application of purchasing portfolio analysis was obtained selecting and weighting
different parameters, which influence the supplier position within the Kraljic matrix, in
relation to the company strategies and requirements. In order to prioritize the selected
criteria, the AHP, a consolidated multi-criteria decision-making, was adopted. The analysis
was applied only on street lamps, the best-selling and most representative products of the
company. The model was implemented in Excel in order to provide the company with a
simple and flexible instrument, which is useful also for the future development. Figure 2
shows the main steps of the adopted methodology.
BIJ Analysis of company supply chain
26,4
1. Pareto analysis

2. Criteria selection
Purchasing
1198 portfolio
analysis 3. Criteria prioritization

4. Suppliers portfolio analysis

Figure 2.
The overall procedure 5. Kraljic matrix construction
for supply chain
revision Lead-time analysis

2.1 Description of the company and its supply chain

The company was born in the 1960s in Italy as producer of lighting products and street
furniture. Company can be defined as a small medium enterprise, but its orientation to
innovation and technological research made it a worldwide leader in its sector, with at least
one product installed in more than 60 Countries. The street lamps represent the core business
of the company: they mainly consist of the post, the top and the luminaire (Figure 3).
The company chose to outsource most of the production activities since the process
consists of a multitude of technologies with great investment, operating and maintenance

Luminaire

Top

Post

Figure 3.
Structure of the street
lamps, the core
business of the
company, on which Notes: A street lamp mainly consists of a post and
the following a top, which are respectively the lowest and the upper
purchasing portfolio
analysis is applied part of the support structure of the luminaires, the real
source of light in the lighting system
costs, which are not justified by the low production volume. Therefore, external suppliers Supply chain
produce almost all the components, while the company realizes internally products design, redesign
cast iron foundry models and paintwork, and the final assembly (in line or in a batch mode).
Outsourcing has the advantages to reduce costs achieving supplier scale economies (the
supplier can reach a great number of customers), and move toward the supplier a part of
innovation research activities (Franceschini et al., 2006). Figure 4 shows a schematic view of
street lamps supply chain. 1199
2.2 Purchasing portfolio analysis
The Kraljic matrix application is not simple and has to consider different factors,
such as company purchasing guidelines and market trends. In order to adapt the matrix to
company needs, a flexible and extendible model is provided, following reliable and
robust steps (shown in Figure 2). The Kraljic matrix was originally born to classify
purchased products and guide in procurement decisions, but it also allows the
categorization of product typologies and suppliers. In this study, the last two
approaches are used.
Step 1: Pareto analysis. First step of model application is the Pareto analysis, which selects
only the most significant suppliers (Grosfeld-Nir et al., 2017; Kumar and Routroy, 2017). All the
suppliers were listed in a decreasing order according to the annual value of the purchasing
realized by the company. The three classes were identifying as: class A accounts for
80 percent of total company purchasing value, class B account the further 15 percent of the
amount and class C accounts for the remaining 5 percent of the total purchasing value.
The suppliers belonging to class C (consisting of 65 percent of all listed suppliers) were
excluded from the analysis due to their low influence. Classes A and B were both considered to

Foundry
models
Top and post

Cast iron Machining Cast iron Final Final

foundry operations paintwork assembly test

Other components
(electric, mechanical,
plastic, etc.)
Delivery

Luminaires

Aluminum Machining Aluminum Final Final

foundry operations paintwork assembly test
Figure 4.
External activities – Suppliers Internal activities – Company Structure of the
supply chain of the
Notes: Structure involves the main activities for the production of the street lamps, distinguishing analyzed company
external and internal operations
BIJ provide the company of a wide analysis. Nevertheless, according to company specific needs,
26,4 the methodology can be extended to all suppliers or further restricted to a limited part.
Step 2: criteria selection. According to the Kraljic approach, the second step is the
classification of each supplier in terms of profit impact and supply risk. These two aspects
can be described by different criteria, properly selected in relation to company strategies
and market tendency. Each criterion was evaluated together with the purchasing manager
1200 and then positioned on a scale.
For profit impact, criteria are three and are defined as follows:
(1) Weight of product typology (i.e. electric components, metallic components, cast iron
smelting, etc.) defined as in the following equation:

% weight of ith product typology

company purchasing value of ith product typology

¼% : (1)
total company purchasing value
(2) Weight of supplier defined as in the following equation:

company purchasing value for jth supplier

% weight of jth supplier ¼ % : (2)
total company purchasing value

(3) Added value of purchased products or operations on final product: a purchased

product has a high added-value if it is characterized from both functional and
aesthetic point of view.
Profit impact criteria are positioned on a scale between 0 and 3 (with step 1) as indicated
in Table II.
Supply risk represents market complexity and is able to identify the suppliers which
could compromise material procurement. Supply risk criteria are numerous and difficult to
define univocally and quantitatively. After a literature research, nine parameters were
chosen as representative for the company:
(1) Supplier relevance in its market: it is the combination of two factors.
weight of supplier within its product typology, define as in the following equation:

% weight of jth supplier within ith product typology

company purchasing value for jth supplier

¼% ; (3)
company purchasing value for ith product typology
company awareness of alternative suppliers in the market: a supplier is more critical
(with a high value in the evaluation scale) if the company does not know alternatives.

Scale Weight of product typology (%) Weight of supplier (%) Added value

Table II. 0 o1 o0.5 Low characterizing products

Criteria of profit 1 1÷1 0.5÷2 Moderate characterizing products
impact: evaluation and 2 1÷5 2÷5 High characterizing products
scale positioning 3 W5 W5 Very high characterizing products
 (2) Bargaining power: more is the company bargaining power less is the supply risk. Supply chain
It is defined as in the following equation: redesign
company purchasing value for jth supplier
% bargaining power of jth supplier ¼ % :
jth supplier total sales
(4)
1201
(3) Pace of technological advance: a supplier able to quickly respond to innovation is
less dangerous in terms of products obsolescence and inventory volume.
(4) Production capacity: typically, greater is the supplier size; higher is its capability to
absorb high production volume. Consequently, the risk is lower.
(5) Logistics complexity: it is qualitatively evaluated in terms of supplier distance,
products lead-time and fixed batches.
(6) Mean cost: more is the mean cost of products; higher is the risk in case of stock. It is
the average of the costs ci of the n products purchased from the same supplier (see
the following equation):
Pn
i¼1 ci
Mean cost of jth supplier products ¼ : (5)
n

(7) Number of managed products: a supplier with a high number of managed products
is more onerous in terms of purchasing orders management.
(8) Payment: in case of advance payment, the purchasing becomes more critical.
(9) Quality: the number of defective products for each supplier represents its level
of quality.
Excluding the first parameter, other eight supply risk criteria were evaluated and positioned
on a scale between 0 and 3, with step 1, as indicated in Table III. The first parameter is
positioned on a scale between 0 and 3, but with a minor step (0.5), since it is the combination
of two sub-criteria (Table IV ).

Pace of Mean No. of Quality

Bargaining technological Production Logistics cost managed Payment (No. of
Scale power (%) advance capacity complexity (€) products (d ¼ days) defects)
Table III.
0 W40 High High Very low o10 o 10 90÷120d 0 Criteria of supply
1 40÷15 Moderate Moderate Low 10÷20 10÷40 60÷90d 1÷5 impact: evaluation and
2 15÷5 Low Low Moderate 20÷40 40÷100 30÷60d 5÷10 scale positioning for
3 o5 None Very low High W40 W100 o 0d W10 the last eight criteria

Table IV.
Scale Supplier weight in its market (%) Scale Company awareness of the existence of alternative suppliers Evaluation and scale
positioning for the
0 o10 0 High supplier relevance
0.5 10÷40 0.5 Moderate sub-criteria: the
1 40÷70 1 Low two values has to
1.5 W70 1.5 None be summed
BIJ Step 3: criteria prioritization. Once selection is completed, criteria need prioritization, which
26,4 consists of the assignment of a weight to each previous selected criterion to compare their
relative importance in the supplier portfolio analysis. For profit impact, due to the low
number of parameters, the purchasing manager simply could evaluate their relevance.
Table V summarizes the weights assigned for profit impact criteria.
For supply risk, the prioritization is more complex due to the high number of criteria.
1202 AHP was used to reduce the randomness of subjective evaluations. AHP is a multivariate
analysis technique, characterized by simple application and flexibility, and involves
structuring multiple choice criteria into a hierarchy, providing a useful mechanism for
verifying the consistency of the evaluation, which derives from both quantitative and
qualitative measures (Triantaphyllou and Mann, 1995; Lee et al., 2001; Bianchini, 2018).
For the purpose of this study, the main phases of AHP methodology are: construction of the
pairwise comparison matrix (Table VI), normalization of the decision matrix and calculation
of the priorities (Table VII) and consistency checks and calculation of the consistency ratio
(CR). Since the obtained CR is less than the threshold 0.1, the consistency of the pairwise
comparison matrix is acceptable and the evaluated weights can be used to prioritize supply

Criteria Weight

Table V. Weight of product typology 3

Weights assigned to Weight of supplier 1
profit impact criteria Added value 3

Table VI.
The pairwise
Criteria A B C D E F G H I
comparison matrix,
constructed with
A. Supplier relevance 1 5 7 9 3 3 5 1 1
Saaty’s nine-point
scale of pairwise B. Bargaining power 1/5 1 1 1 1/5 1/3 1 1/5 1/7
comparison C. Pace of technological advance 1/7 1 1 1 1/3 1/3 1 1/5 1/5
importance: 1 ¼ equal; D. Production capacity 1/9 1 1 1 1/7 1/5 1/3 1/5 1/3
3 ¼ moderate; E. Logistics complexity 1/3 5 3 7 1 1 5 1 1/3
5 ¼ strong; 7 ¼ very F. Mean cost 1/3 3 3 5 1 1 1 1/3 1
strong and G. Number of managed products 1/5 1 1 3 1/5 1 1 1/5 1/5
9 ¼ extreme H. Payment 1 5 5 5 1 3 5 1 1
importance I. Quality 1 7 5 3 3 1 5 1 1

Criteria A B C D E F G H I Weights

A. Supplier relevance 0.23 0.17 0.25 0.28 0.41 0.31 0.24 0.19 0.19 2.26
B. Bargaining power 0.05 0.03 0.04 0.03 0.03 0.03 0.05 0.04 0.03 0.32
C. Pace of technological advance 0.03 0.03 0.04 0.03 0.05 0.03 0.05 0.04 0.04 0.34
D. Production capacity 0.03 0.03 0.04 0.03 0.02 0.02 0.02 0.04 0.06 0.28
E. Logistics complexity 0.08 0.17 0.11 0.21 0.14 0.10 0.24 0.19 0.06 1.30
F. Mean cost 0.08 0.10 0.11 0.15 0.14 0.10 0.05 0.06 0.19 0.98
Table VII.
Normalized matrix, G. Number of managed products 0.05 0.03 0.04 0.09 0.03 0.10 0.05 0.04 0.04 0.46
weighted sum of H. Payment 0.23 0.17 0.18 0.15 0.14 0.31 0.24 0.19 0.19 1.80
criteria (priorities), I. Quality 0.23 0.24 0.18 0.09 0.41 0.10 0.24 0.19 0.19 1.87
eigenvalue and CR Notes: Eigenvalue (λ ¼ 9.551); consistency ratio (CR ¼ 0.047)
risk criteria. The detailed steps and equations used for AHP application are described in Supply chain
Saaty and Ozdemir (2003). redesign
Step 4: supplier portfolio analysis. After criteria selection and prioritization, the
purchasing manager positioned criteria on their scale by considering each supplier. Then,
the scale value was multiplied by criterion weight. The score obtained by each supplier is
defined in the following equation:
1203
X
n
Score of jth supplier ¼ Criteria Weighti UScale valuei ði ¼ ith criterionÞ: (6)
i¼1

Step 5: Kraljic matrix construction. Finally, for each supplier, two scores were calculated, one
for profit impact and one for supply risk. With these values, it is possible to enter in the
Kraljic matrix, positioning the supplier in a cell.

2.3 Lead-time analysis

Lead-time has a focal role in the economic and financial evaluation of production concept.
It can be defined as the time measured from the moment of customer purchase order to the
moment when customer receives the order. It includes planning, procurement, inspection,
manufacturing, handling, picking, packing and delivery. In particular, lead-time can be
divided mainly in three stages: order entry, this is the time lapse between customer order
and production begins and it considers an administration, planning and design time and the
material procurement time; production lead-time, required to produce or process the order,
which includes also its waiting between two sequential operations; delivery lead-time that is
the time for an order or product to be delivered to the customer once it has been produced
and all relevant production activities such as quality testing completed. In addition,
lead-time for handling and storing can be considered. This sub-division is fundamental to
highlight when problems occur (Mohamed, 2015).
Customers want to know exactly when they will receive the required products and
manufacturers have to control product lead-time (Sievers et al., 2017; Kristoffersen, 2015).
A reduction in the mean lead-time allows a greater competitiveness in the market and
improves the internal operation of production and distribution systems. Lead-time interacts
with ordering decisions and with other sources of inefficiencies and delays in the supply
chain bringing more complications in managing consumer demand. In particular, a high
lead-time corresponds to a decreased customer satisfaction, which needs a more safety stock
to guarantee the required level of service (Ponte et al., 2018; Lin, 2016; De Treville et al.,
2014). The new business strategy of the company aims to reduce the actual mean lead-time
(purchasing and production) from 60 to 40 days. It implies that the purchasing procurement
does not go beyond the 35th day after the order confirmation. With this purpose, the bills of
material of street lamps were analyzed through Gantt diagrams. The supply chains which
overcome the limit of 35 days were identified as critical and were associated to the suppliers
involved in the procurement and production phases.

3. Results
The described methodology allowed the positioning in the Kraljic matrix of the suppliers
which belong to the two classes A and B of Pareto analysis (78 suppliers). Due to the
obtained scores, both the axes of the matrix start from a value of 4, since starting from
the origin would determine an empty cell and decentralize other points. The matrix results
with: 34.4 percent of leverage suppliers, 29.5 percent of strategic suppliers, 20.5 percent of
non-critical suppliers and 15.4 percent of bottleneck suppliers. Figure 5 shows the
BIJ Kraljic matric
26,4 22
LEVERAGE SUPPLIERS STRATEGIC SUPPLIERS
21
20
19
18
1204 17
16
15
Profit impact

14
13
12
11
10
9
Figure 5.
Suppliers positions in 8
the Kraljic matrix, 7
divided in the four 6
classical cells (non-
5
critical, bottleneck, NON-CRITICAL SUPPLIERS BOTTLENECK SUPPLIERS
leverage and critical 4
4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
suppliers)
Supply risk

positions of analyzed suppliers within Kraljic matrix resulted by the application of

purchasing portfolio analysis.
The position of a supplier in the Kraljic matrix is not itself positive or negative, but it
must be justified by a real interest of the company to have a specific relationship with the
supplier. In this study, suppliers positioning is evaluated in relation to critical lead-time.
In particular, two supply chains resulted critical since their procurement activities overcome
35 days. For both of them, the involved suppliers are analyzed by Kraljic matrix.

3.1 PCB supply chain

The first problem is the printed circuit board (PCB) supply chain, which concerns the
luminaires and consists of the manufacturing and assembly of electronic components (LED)
on their supports. PCB supply chain determines a purchasing lead-time of 52 days, which are
unacceptable. The main problem is the electronic components procurement, provided by a
European vendor in 40 days. From the Kraljic matrix, the electronic components supplier
results as strategic with high ranks both for profit impact, due to the great company
purchasing value (this supply chain involves 2/3 of the products), and supply risk, due to
supplier monopoly bargaining power. In fact, if LEDs are not available from the vendor,
obtaining this component in a short time could be difficult. In the past the company adopted
the strategy to stock a great number of electronic components to reduce supply risks.
Now, this strategy is not convenient anymore since, in a competitive market, the risk is to
overpay products, which are also characterized by a quick obsolescence. Consequently, orders
are managed with a long-term history-based program, stressed or postponed in relation to the
customer demand. A more effective strategy could be sharing with the involved suppliers
the business forecasts, which are available for the following four months. Moreover,
integrating the business forecasts with purchasing program could allow an improved
organization of the orders: for example, possible production peaks could be compensated by
reduction of orders number and increasing their quantities (Yu et al., 2001; Zhang et al., 2015).
3.2 Foundry supply chain Supply chain
The second critical path is the foundry supply chain. The foundry, in cast iron or aluminum, redesign
is characterized by one of the greatest company purchase values since it is used in all the
products. Aluminum foundry lead-time is 52 days, while cast iron foundry lead-time varies
from 58 to 72 days. The foundry supply chain consists of three activities, which are the
foundry itself, machining operations and paintwork.
About cast iron foundry, three suppliers are strategic, four are leverage and one is a 1205
bottleneck. The cast iron foundry does not require a long production time, but the high
lead-time derives from the typical internal organization of the suppliers. In fact, different
types of cast iron require different manufacturing, consequently, when the supplier receives
a production order with a specific raw material, all the orders with a different cast iron type
move forward in time, in relation to the requirements of other customers. Sharing business
forecasts with the involved suppliers could be the best solution also for this critical supply
chain. Naturally, it is fundamental for the forecasts to be updated and reliable, otherwise
stocks could increase excessively.
About aluminum foundry, it is involved in all the luminaires and its supply lead-time
consists of 40 days for foundry itself and 12 days for paintwork. Its supply chain includes
six strategic suppliers, five leverage suppliers and one bottleneck supplier. In this case, also
machining operations and paintwork can be critical. About machining operations, the
involved suppliers have all a monopoly position. For the paintwork, the critical aspect is
given by the high value of the operation: the paintwork influences product aesthetic, which
is the first parameter perceived by the customer. Moreover, this phase is strongly influenced
by the quality of previous activities, which can compromise product conformity and
postpone the delivery time. Once again, the involved supplier has a monopoly power, but in
this case the company is aware and accepts this condition since recognize some fundamental
aspects, such as high flexibility, level of service, quality and competitive prize. Nevertheless,
a higher production level could generate serious problems for the company. In order to
reduce the negative effects of a monopoly relationship, some strategy could be: double
sourcing, finding a new alternative supplier, investing on the growing of the actual supplier
and binding it with specific procurement plans and incorporating the paintwork with an
internal plant or acquiring external suppliers.
Table VIII summarizes the critical supply chains, the classification of involved suppliers
and some possible strategies for lead-time reduction.

4. Conclusions
In this paper, a purchasing portfolio analysis, based on Kraljic matrix, was applied to an
Italian SME, leader in the production of urban lighting systems. The result is a systematic

Critical Critical lead- Involved suppliers

supply chains time (days) typology Possible strategies

PCB supply 52 4 strategic suppliers Sharing business forecasts with the involved suppliers
chain 2 leverage suppliers
Cast iron 58–72 3 strategic suppliers Maintaining updated and reliable business forecasts
foundry 4 leverage suppliers and sharing them with the involved suppliers
1 bottleneck supplier
Aluminum 52 6 strategic suppliers (1) Double sourcing
foundry 5 leverage suppliers (2) Investment for supplier growth Table VIII.
1 bottleneck supplier (3) Incorporating activities Critical supply chains
Notes: Classification of involved suppliers (resulted from purchasing portfolio analysis) and definition of in terms of high
some possible strategies for lead-time reduction lead-time
BIJ and flexible model to classify suppliers in relation to their relevance and to identify the
26,4 presence of some critical relationship. The model, developed in Excel, runs simply
modifying some parameters (supplier data, criteria weights, etc.) and the matrix is
automatically updated. Moreover, this instrument results robust and can be periodically
updated. It can be used for different purposes, such as the monitoring of the supply
relationships or the provision of new guidelines when company business strategies vary.
1206 For example, in case of production capacity growth, modifying the inherent criteria weights
allows a quick vision of how buyer–supplier relationship varies too. In this paper, the model
was applied to identify the critical supply chains to respond to the company requirement of
lead-time reduction and consequently to develop new business opportunities. Purchasing
managers could already have the awareness of the problems, but the model highlights the
critical aspects, identifies supplier–buyer relationship nature and the influent criteria and
provides also some potential solutions to better exploit company resources. For the analyzed
company, sharing the business forecasts with purchasing managers and suppliers could be
an efficient approach, which would be able to improve the company’s performance.
The developed model consists of a simple and practical tool which can be easily
implemented by practitioners in SMEs, also with their limited resources and access to
quantitative and elaborated information about suppliers. Moreover, this instrument is
independent and consequently fully compatible with every business management strategy.
Its implementation can bring the same benefits of larger companies with low efforts.
In particular, improved product quality, increased operational flexibility, shorter lead-time
and cost reduction are some advantages brought by the developed tool. The strength of
such tool is the realization of an effective and complete picture of the purchasing portfolio,
which deals with the typical SME tendency to consider everything very important.
The assignment of weights reveals the prior supply risk exposure and gives a visualization
about strategies to mitigate unfavorable situations.

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Corresponding author
Augusto Bianchini can be contacted at: augusto.bianchini@unibo.it

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