THE KRALJIC MATRIX FOR THE MANAGEMENT OF NEGOTIATIONS IN THE CONSTRUCTION SECTOR

Construction of Hydrosanitary and Fire-Fighting Networks Housing
3 October, 2018
Wood
4 October, 2018

THE KRALJIC MATRIX FOR THE MANAGEMENT OF NEGOTIATIONS IN THE CONSTRUCTION SECTOR

One of the recurrent questions asked by the constructors affiliated to LICIFY is how from the platform we can suggest a method to properly structure the management of purchases and contracting of services with a process that allows generating win- win negotiations with suitable suppliers. An excellent method is to carry out the analysis of the company's expenses through the management by categories used by the KRALJIC MATRIX. The objective of the method is to correctly identify the ideal negotiation strategy according to the location of the category according to the
quadrant (Figure 1). The implementation of the MATRIX KRALJIC in the supply departments of the construction sector will allow defining the purchase and contracting policies of services for each quadrant of the matrix, translated into
better payment conditions, optimization of logistics times in deliveries, and increase in productivity of the parties involved.

The first step to apply the method is to group the purchases of goods and services into categories, identifying the volume of expenses incurred in the organization during the last year. In the construction sector, categories such as steel supply,
cement, stone aggregates, concrete, supply and installation of hydro-sanitary networks, gas, fire-fighting network, elevators, structure, masonry, are common categories for analysis. The second step of the method is to qualify each category from two dimensions: the first dimension is the financial impact of the category (Y axis) versus the total project costs; The second dimension is risk in the supply or non-compliance by the supplier (X axis). The third step is to make the location of the categories according to the scores obtained in each quadrant:


After realizing the location of the categories, we proceed to perform the fourth step regarding the identification of the respective quadrant to define the negotiation strategy to be used:

STRATEGIC CATEGORIES: In this quadrant will be located products and services that are usually part of the 80% of the pareto of the construction projects such as steel, cement and concrete supply. The best negotiation strategy for this quadrant will be the implementation of strategic alliances with the supplier that ensure quality and good long-term price. The strategic alliance must generate a close relationship between the parties where the supplier is linked from an early stage of the projects with vertical integration and reverse logistics techniques, guaranteeing a long-term value approach that allows to negotiate the technical specifications with high precision. delivery conditions, logistic conditions, form of payment, environmental requirements and health and safety requirements at work.

LEVERAGE CATEGORIES: (The best quadrant to negotiate) In this quadrant will be located the products and services with the greatest possibility of saving due to its high financial impact and high number of suppliers offering in the market where the quality is standardized, so which the risk in the supply is low. The recommended negotiation strategy for this quadrant will be to promote healthy competition between proponents with short negotiation methods such as the
reverse auction with aggregation of demand, which will allow the buyer to achieve savings and reduce costs that will have a very positive impact on the financial statements of the projects.

ROUTINE CATEGORIES: In this quadrant will be located purchases of materials and services with low risk in supply, a significant number of suppliers in the market, a low financial impact and a high level of operation (purchases of low amounts repetitive over time ), which is why the best negotiation strategy will be the implementation of contracting systems by volume (framework agreement with long- term pricing). The consequence of the negotiations by framework agreements will be the reduction of the number of suppliers by category where the most important savings are obtained by optimizing the operative times of the negotiation, automatic generation of purchase orders (reduction of purchase operability), simplified approval flows and optimization of delivery logistics by suppliers. It is recommended that negotiations for this quadrant focus on increasing
productivity through standardization and reduction of references, optimization of logistics processes, inventory optimization and reduction of operating times, inviting suppliers to provide solutions of this type from the negotiation. A good example is to carry out a negotiation that guarantees the delivery of the products in a standardized package (volume and standard weight) of easy handling on site in order to optimize not only the transport costs for the supplier but also the inventory and the replenishment in the projects.

CATEGORIES BOTTLES: The categories located in this quadrant are characterized by having a low financial impact, but great dependence on the supplier for the supply of products or services with a high degree of specialization (supplies developed specifically for the customer). The best negotiation strategy will be to guarantee the implementation of tactics aimed at reducing dependence on the supplier from two possible perspectives: the search for substitute products or services with alternative suppliers (new construction systems, innovation and different technological processes) or guaranteeing the supply through formalized long-term agreements with penalties against breaches that guarantee supply.
The greatest benefit of the implementation of this methodology will be the development, professionalization and consistent specialization of the suppliers that are part of the company’s productive chain, being these strategic allies for the fulfillment of the goals established for the organization.

In LICIFY we want to be part of the transformation of your purchasing and contracting process. Contact us to learn more (+57) 310 8077414 | contacto@licify.co

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