The Kraljic matrix classified suppliers into four segments:
non-critical, leverage, strategic and bottleneck. Kraljic’s
premise was an instant hit among procurement
executives, and it soon became the global standard.
Unfortunately, while there might be intent to have
a strategic supplier relationship, the execution can
fall short. A case in point is an analysis of a facilities
management contract for a large telecom company. A
review by UT researchers showed many contradictions
between the buyer’s “intent” and his or her actions. For
• The buyer wanted “innovation” — yet the contract had
an 800-page SOW with exacting detail on how the
supplier should perform each of the activities in scope.
• The buyer wanted “outcomes” — yet the contract
spelled out more than 550 service level agreement
• The buyer outsourced to the expert and wanted
more “insight” — yet the buyer retained a large staff to
provide “oversight” for managing the supplier.
• The buyer wanted the supplier to have “productivity
improvements” — yet its transactional pricing
scheme inherently incentivized the supplier to
have more transactions. For example, if paid hourly
for custodians, what supplier wouldn’t want more
• The buyer wanted a “partner” — yet the contract had a
60-day “termination for convenience” clause.
These are just a few of the inherent structural flaws UT
researchers found as part of a research project funded by
the U.S. Air Force. The research led to the book Vested
Outsourcing: Five Rules that Will Transform Outsourcing,
first published in 2010.
By 2016, UT researchers had compiled six books from
their pioneering work studying successful outsourcing
relationships at such companies as McDonald’s, Procter
& Gamble and Microsoft. Figure 1 on page 34 shows how
the five rules fit together.