Industrial Engineering

The Procurement Process

Procurement Management. Business Concept.

Picture source: http://dslsa.org/
INDUSTRIAL ENGINEER – VOLUME 45, NUMBER 2
BY STEPHAN M. WAGNER, SIDHARTHA S. PADHI AND CHRISTOPH BODE

The Kraljic Portfolio Matrix (KPM) has been used to match external resources provided by suppliers with the internal needs of the buying firms. Basically, in using KPM, purchased items are grouped in a two-by-two matrix that has 4 categories: bottleneck, noncritical, leverage, and strategic commodities. However, KPM may not be 100% accurate since the commodities are grouped subjectively. Therefore, a Multidimensional Scaling (MDS) approach is tested to help placing the items in the proper KPM’s quadrant.

Before moving on to the new approach, we must understand the concept of KPM. The goal of KPM is to develop a different purchasing and supplier strategies by commodities on profit impact and supply risk. Profit impact can be described as impact on profitability, importance of purchase, and value of purchase. Supply risk can be defined as market risk, performance risk, and complexity risk.

In the proposed method, there are 6 steps to do. Firstly, a 10-point rating scale is designed. Secondly, experts score the preference score of profit impact and supply risk attribute from each commodity. Thirdly, the weights for each attribute is determined and then normalized. After that, experts score the total utility scores of the commodities. Next, calculate the total utility scores of the commodities by multiplying normalized weights of attributes and commodity performance scores. The last step is calculating the Euclidean distance matrix from the total utility score. The result will be the input for the MDS.

By:

  1. Ardelia Christabel Tobing (1601215903)
  2. Dousmaris Omega (1601275650)
  3. Siti Hadita (1601275316)