B2B marketers think about providing value and innovation to their customers. These include existing customers and also new customers. How can our product or service add more value to the buying company’s business? is the question B2B marketers constantly ask themselves, their teams and their own organizations. Innovation is somewhat spurred by this organizational motive to provide “value” to its customers.
On the other hand the Supply Manager of the buying organization considers value but is more concerned about “risk” to the value chain of the buying company. The supply manager is accountable for buying stuff that works and delivers as promised. It is this risk question that prompted the famous old quote when IBM was in computers: no one ever got fired for buying IBM.
The Risk-Value Matrix or the Kraljic model is a useful way of breaking down the categories of the Risk -Value matrix is a popular post in the CPSMBlog sponsored and maintained by StratoServe. The four categories are:
- Non-Critical Items are Low-Risk and Low-Value or the bottom left quadrant is one where there are many suppliers and items have low value and low strategic impact. Examples include stationery items like paper and pencil. For these items more sophisticated supply management organizations might have a P-Card issued to users. Sometimes when the volumes are very large then there might be an “approved supplier” list.
- Leverage Items are Low Risk but High Value and include major raw materials. For a food company these include packaging purchases, raw material and ingredient purchases. There are several possible suppliers but the volumes are very large and has a huge impact on operating cost. Here quality is important as is the ability to really mesh with the processes,systems and user folks at the buyer organization. If a packaging machine malfunctions the packaging supplier should be able to send out a technician who is able to resolve the problem and who also is able to connect with the operators who operate the machine.
- Bottleneck Items are Low Value but High Risk. This might be a critical valve in a chemical plant and a failure might cause great production loss. The bottleneck valve might cost only a few hundred dollars and there would be a few suppliers. When such items are clearly identified, Supply Managers prefer to keep ready stock. Since the item is of small value to the B2B Marketer, they tend to not give a great deal of attention to this type of item. It’s important for marketers to review items that are ordered in ones and twos and examine whether these are bottleneck items. If so, you can be sure that the buyer company wants to know you and maybe there is something else you can provide value with.
- Strategic Items are seen high value and high risk. These items can be consulting services that can involve a high value contribution and also considerable risk for the buyer. In the heyday of the IBM quote (no one ever got fired for buying IBM)- the computer was seen as a “strategic” purchase unlike today where computers are commoditized. Here the Supply Manager works with other members of the organization more closely and it is useful to reach out to the managers who would have an input in the decision making ( eg. the CIO for IT, the Quality Department for Lab Equipment etc.).
The four quadrants of the Risk-Value matrix helps both B2B marketers and Supply Managers to get a better understanding where each is coming from.