When Leverage becomes Bottleneck items in the Kraljic Risk-Value Matrix: don’t forget the service

The Kraljic Risk-Value Matrix is a great way of thinking about the B2B buying (i.e. supply management, procurement) and B2B marketing process. And its really important to remember to remember the service elements of the both leverage and bottleneck items.Why? Because the Kraljic model came about at a time where manufacturing and products was all you were thinking about and lot of work was done by full time employees with organizations. To illustrate, think about a bottleneck item like a particular type of stainless steel pneumatic valve in a food processing plant in developed country markets that becomes a leverage item for new factories or plants in overseas growth markets.

As a leverage item: The valve marketers are very interested in selling volumes of valves and can only find large volumes in new markets where many valves are needed for new factories. In those new factories that may be in global growth markets the valves are leverage items in terms of the Kraljic Matrix. Accordingly, there would be an RFP and bidding process and a lot of B2B sales effort would be needed with possibilities of a big payoff with booking the large order. The RFP might be just for the valves because there might be a separate contract for setting up the plant and equipment that goes to a different installer/service provider.

As a bottleneck item: The very same valve becomes a bottleneck item for existing factories in developed country markets. The valve is not very expensive compared to the equipment but production would stop if the valve failed hence B2B supply folks would consider keeping a few spare valves just so that there is no crisis.The valve marketers are happy to ship a few valves and might have higher pricing for small orders. In this transaction, the skill and service required to replace the valve might not be available among employees in the running plant because maintenance may be outsourced to a contractor to save labor cost on full time plant maintenance folks.

B2B buyers and marketers should thus think explicitly about how the valve will be installed in (a) the leverage new plant situations and (b) the bottleneck old factory situations.For the valve without proper installation will not deliver the solution it is supposed to deliver.

A similar logic applies to software and technology solutions but more on those in a later post.

To summarize, whether you are a B2B buyer or marketer even though you might just be buying or selling a “product,” don’t forget to figure out the service parts of your offering. For you are not selling or buying a product or service but a solution to a problem. About StratoServe.