Supplier Risk and Profit Impact of BAM Organization


Select a supply chain for an organization of your choice as the basis for this assignment:
Apply and demonstrate the use of the Kraljic positioning matrix to your own/selected organisation. Identify a product or service within each of the four categories to illustrate your answer.
Analyse the extent to which the portfolio of supply identified in (1) drives the sourcing strategy for your selected organisation.



Royal BAM is considered as the top European construction organization which deals in all parts of the construction process. BAM is involved in delivery buildings and infrastructures. It develops, designs, builds, finance, operates and maintains the infrastructure. In this assignment, we analyze the Royal Bam positioning with the help of four tools of Kraljic Positioning. The functioning of the Royal BAM is very complex that resists changing confronted with the risks linked with the procurement of projects. This assignment explains the application of Kraljic matrix on Royal BAM a construction organization, identifying the required adaptations of the tool. Kraljic positioning matrix contains following tools-

  • Classification of Purchase

  • Analysis of Market

  • Strategic positioning

  • Planning of Action

All these tools will be used for analyzing the positioning of BAM group in the market.

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Classification of purchase:-

As it can be seen from figure 1, the Kraljic matrix divides the product as bottleneck, strategic, non-critical and leverage. The dimensions used by the BAM for the classification are supplied risk and profit impact. BAM organization follows a working method with four phase classification namely plotting bargain power between the buyer and different suppliers, setting up new business plans and finally strategic positioning of products which are identified in the classification phase. BAM organization follows these working methods because they are flexible in nature and helps the organization in gaining competitive advantage in the market. For example De Haan et al. used classification approach of Kraljic Matrix in a natural rubber industry, which helped him in measuring the risk and price for profit impact (Padhi, 2012). BAM used the strategic quadrant analytics techniques which supports the organization in taking supply decisions.    

This model includes the following approaches of purchasing for every quadrant:-

  • STRATEGIC ITEMS:- In this approach, those items are included which require high attention from purchasing managers. For the BAM organization construction design is considered as a strategic item because it requires huge attention of management because on the basis of design whole plan is constructed.

  • LEVERAGE ITEMS:-  For the BAM organization facilities management is considered as a leverage item because in this the management of the organization should utilize its whole effort to manage affairs of the business.

  • BOTTLENECK ITEMS:- Construction facilities is considered bottleneck items for the BAM organization because it is a combination of various approaches and functions.

  • NON – CRITICAL ITEMS:- Acquisition of resources is considered as a non- critical items because for this management don’t have to concern more.     

BAM organization uses the classification approach of the Kraljic Matrix provide various service to their customers. One of them is site representatives. By using the classification approach in site representatives, they will effectively demonstrate sound judgment and or coordinate the whole service by performing all the duties.

Analysis of market:-

Market analysis is done for investigating the potential market for the Royal Bam group. In the construction industry, a large number of competitors are available. If the BAM group wants to gain a competitive advantage in the market, then Kraljic matrix can help the organization in gaining the competitive advantage. A market analysis helps the Royal BAM in effectively demonstrate their services to their customers in a suitable manner. BAM provide service of construction management to their customers. By following the Kraljic Model BAM organization can conduct effective construction management because market analysis provides the information about all strategies of the competitors which helps the BAM in formulating effective construction plan. Through using Kraljic Model, the BAM can also improve their services to different customers, which ultimately build customer satisfaction. For example in the classification approach of the Kraljic model, different services are divided into different segments, this will help in managing and keep track on the overall performance of the organization. Market analysis is used to analyze the market strategy used by a company. Following porters five model is used to analyze the market:

  • 1.    Supplier’s force: The supply forces are defined as the force of suppliers on the prices, availability of product and services, cost and others. The supplier's force is low in construction services because the suppliers are limited. For the Royal Bam organization suppliers are few, due to which it  face difficulty while delivering their services.

  • 2.    Buyer’s force: It is defined as the force of buyers on the prices, choice of product and services. The buyer's force construction services are low because the suppliers have monopoly over the supply of needed construction products. 

  • 3.    Threat of New Entrants: It is defined as the force of new entrants which creates a threat for the existing players in a market. The new entrant's threat is low in construction services because the risk is also very high, so the new entrants don't to prefer enter into this market. 

  • 4.    Threat of substitute: It is defined as the force of substitutes which affects the demand and supply of goods and services. It changes the mindset of consumers and forces them to change their opinion. The threat of substitute is low in construction organizations because it is the expensive and high risky. 

  • 5.    Competitors force: It is defined as the force of new entrants which creates a threat for the existing players in a market. The competitors in construction organizations are very high because the suppliers are unlimited in a market. 

Strategic Positioning:-

Strategic positioning is an important tool of the Kraljic Matrix. BAM organization should divide all its services and products by using purchasing portfolio matrix. Strategic positioning helps the BAM in providing strong infrastructure design to their existing customers. The design of an infrastructure contains various elements. By strategic positioning all these elements are divided in a significant manner which will lead the BAM in designing the effective and attractive infrastructure design BAM can manage its services offered to different customers.  Strategic positioning can be done as per following figure:-

Action plans:-

If the Royal BAM group develops the action plan as per the strategic positioning approach of Kraljic Matrix it will help the organization in improving its brand image. All this helps in enhancing its customers as well as revenue of the organization. The action plan is prepared while following every process. Through proper action plan, BAM organization can effectively fulfill all its services and can easily compete in the market by providing effective design and structure of the infrastructures. 

All these strategies mentioned in figure describe in the following manner:-

  • EXPLOIT: - If the Royal Bam organization wants to secure good prices on its products and services then it should develop high buying powers of customers, by doing this it can avoid all supply risk which is involved in all these items.  Organization also able to develop "spot purchases" of different individual batches of all the items, if any of an individual supplier offers the organization a best deal for their products.

  • BALANCE: - Royal Bam Group should choose a middle way between the diversification approach and approach of exploitation. 

  • DIVERSIFY: - If the Royal Bam Group wants to continue their functions without any stoppage than the firm should have multiple suppliers or multiple services. 

Steps for purchasing process:-

Peter Kraljic recommends the following steps of purchasing process which should be adopted by every organization. Royal Bam should follow all the steps for position effectively itself in the market. These steps are following:-

  • Organization should prepare its portfolio analysis.

  • It should determine the criteria for supply risk or for-profit impact.

  • It should properly develop the detailed portfolio analysis.

  • Organization should fill all steps in the matrix.

  • Measure and discuss the result.

  • Developing strategy of purchasing portfolio.

  • Implement and monitor all strategy.


The Kraljic model helps the BAM in effectively fulfilling and delivering all its services to their target customers. Using the Kraljic model by the BAM groups will help in improving its work performance through which organization can save any extra cost incurred by the organization and can easily maximize its profit. Kraljic model helps the organization in determining which actions should be taken to achieve a better positioning in the market. For each part of the model, the organization should develop a different strategy. This strategy concluded whether a product is placed in the right quadrant or not. All these helps the BAM group in building its good image in the market and can deliver quality products to satisfy their customers and can easily win their confidence.

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  • Padhi, S.S., Wagner, S.M. and Aggarwal, V., 2012. The positioning of commodities using the Kraljic Portfolio Matrix. Journal of Purchasing and Supply Management, 18(1), pp.1-8.

  • Ippolito, A., and Viggiani, V., 2014. Positioning matrix of economic efficiency and complexity: a case study in a university hospital. The International journal of health planning and management, 29(4), pp.362-372.

  • Handfield, R., 2015. Book Review: Sourcing Portfolio Analysis. Power Positioning Tools for Category Management & Strategic Sourcing. Journal of Strategic Contracting and Negotiation, 1(3), pp.231-235.

  • Arabzad, S.M., Kamali, A., Naji, B. and Ghorbani, M., 2013. DEA and TOPSIS techniques for purchasing management: the case of aircraft manufacturing industry. International Journal of Logistics Systems and Management, 14(2), p

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