Toolbox "Sourcing Strategy": The Sourcing Gemstone

A guideline on the usage AT Kearney’s Sourcing Gemstone in conjunction with the Kraljic Category Positioning Matrix

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Step two of AT Kearney’s 7-step sourcing process is “Develop Sourcing Strategy”. This video discusses two tools which when used together, will help focus your thoughts and help you develop effective sourcing strategies, regardless of category, in a systematic way.

The Kraljic Matrix plots the profit impact of a category or product against the risks that exist in the supply market. The positioning of the product or category in the resulting 2x2 matrix - Leverage, Strategic, Non-critical or Bottleneck - guides on the relative power of buyers and suppliers, what buying strategies might be appropriate and what long terms approaches are available.

The Sourcing Gemstone guides on what practical approaches to sourcing are appropriate when set against the buyer/supplier power balance.


Peter Kraljic’s 1983 game changing paper, “Purchasing must become Supply Management” (HBR September 1983), argued that Purchasing was strategically important for companies and therefore an important management issue. His central idea was that sourcing strategies should be driven by the classification of categories or products using 1) their impact on company profit and 2) the riskiness or complexity of their supply market. He identified 4 classifications - Non-critical, Leverage, Strategic and Bottleneck - each with appropriate approaches to sourcing.The development of a sourcing strategy consisted of four steps:

Step 1:

The classification of a category or product according to 1)its impact on company profit in terms of the value added by product line, the percentage of raw materials in total costs and their impact on profitability, and (2) the complexity of the supply market gauged by supply scarcity, technology change, potential for substitution, barriers to entry, logistics complexity, and monopoly or oligopoly conditions.

Step 2:

The supply market analysis plots the relative strength of suppliers against the buyer’s power in the market. Factors such as quantity, quality, relative capacity and utilisation are considered. Different categories/products will have different criteria.

Step 3:

Based on step 1 a company or buyer can position the category in the Purchasing Portfolio Matrix. This identifies buyer opportunities and supplier vulnerabilities and makes it possible to develop strategies either Exploit where the buyer is dominant, Balance where power is equal or Diversify if the supplier dominates.

Step 4:

The final step is to create long term plans taking the output of stage 3 into account. The overall objective is to improve strategic sourcing options and clearly articulate options, objectives, process steps, responsibilities and measurements.

A criticism of the Kraljic approach is that it is too general and does not guide on specific actions. In response, AT Kearney developed the Sourcing Gemstone which when used with Kraljic provides the buyer with extremely powerful and practical approaches whether buyer or supplier are dominant.

Where the buyer is dominant it should exercise that power by, for example, concentrating volume by consolidation or redistribution; addressing price by unbundling, modeling or renegotiating and addressing sourcing options by expanding the geographic supply base and exploiting any imbalances.

Where the supplier is dominant, the objective should be to create buyer advantage by perhaps rationalising specifications, supporting supplier process improvements or restructuring the supplier relationship. The gemstone consists of six overall sourcing approaches with a number of sourcing levers for each. An effective and comprehensive sourcing strategy will consist of a number of these levers derived from combining Kraljic with the Gemstone.

Faculty name: Holger Schober
Duration: 19:10 Min.
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