The document discusses procurement strategy and characterizes procurement items into four categories based on risk and expenditure: 1) Routine items with low risk and low spend, 2) Leverage items with low risk and high spend, 3) Bottleneck items with high risk and low spend, and 4) Strategic items with high risk and high spend. For each category, the document outlines the main characteristics and provides examples of potential operational strategies to manage procurement in that area. These include minimizing costs, establishing long-term agreements, developing alternative suppliers, and maintaining close communication with key suppliers.

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(Guta Mengesha 2021)Procurement strategy: Characterizing level of risk, Spend categories with possible operational strategies.
Procurement strategy: Characterizing level of risk,
Spend categories with possible operational strategies.
By Guta Mengesha
gutamengeshadinagde@gmail.com
Abstract
Procurement has an impact on organizational outcomes and results. Thus, it is better to link
supply strategy with and priorities with organizational corporate strategy. Supply strategy
will relate to issues such as supply quality, availability and lead time, supplier service and
responsiveness, and cost reduction. Strategy simply means identifying your rival weakness and
responding it with intention of grasping an opportunities. Yet, strategy is a means, an option or
mechanism of responding to reactions made by competitors. Concerning items to procure there
are four categories naming routine type of categories of items with low risk and low
expenditure, Leverage type with low risk and high spend, bottleneck good or service with high
risk and law spend and Strategic or critical items with high risk and high spend.
Key words: procurement strategy, routine, leverage, bottleneck and strategic, risk, expenditure

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(Guta Mengesha 2021)Procurement strategy: Characterizing level of risk, Spend categories with possible operational strategies.
Introduction
The ultimate objective of procurement function is to add a value so that organization fulfil its
goal and objectives by obtaining necessary input for organization to do its work. Kraljic 1983
in his book purchasing portfolio have identified a four supply positioning models.
Purchase items are categorized on the basis of two parameters which serve as axes in the
above chart : level of expenditure and the impact/ supply opportunity/ risk rating. Purchase
items are positioned against these two dimensions
1.ROUTINE ITEMS
These items are low volume and low value. They should require minimum procurement
processing as both risk and costs are low. It represent up to 90% of organization supplies and
transaction cost can be greater than value of items. Are generally competitive local supply
market. There are generally no high priorities for routine items, so minimum contract
management effort would be expected.
Main characteristics of items in routine quadrants
There are many suppliers and the product or service is readily available in the market and such
items are standard in nature. The annual expenditure is low and the items are low risk to
procuring organization. The expenditure account for only a small proportion of an individual
supplier’s turnover.

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(Guta Mengesha 2021)Procurement strategy: Characterizing level of risk, Spend categories with possible operational strategies.
Operational strategies for routine items
The possible operational strategies should be minimizing administrative and its associated costs
by delegation of call-off responsibility to end users, elimination of inspection or quality
assurance, re-engineering of internal process by automation, E-commerce, purchase cards,
consolidated billing and the like. Further focusing ordering and payment terms with suppliers
on transaction efficiency like direct debiting, aggregation of orders, monthly accounts, payment
cards. Lastly, encourage local suppliers to view your organization as valuable client resulting
in lower transaction cost and holding stock strategies. In certain circumstance if the procuring
organization purchase the routine items on a continuous basis a supply strategy should be use
of one supplier, with minimum intervention with long term contract. Such supplier should be
responsive, able to supply many items of your organization requirements as possible and willful
to continue supply the required product for long period.
2.LEVERAGE ITEMS
These items should not require significant contract management effort either, as risks are low.
Instead there will be a focus on any aspects of contract that can have an impact on cost, such as
specification changes or exchange rate movement in volatile case like in Ethiopia.
Main characteristics of items in routine quadrants
Markets are served by few suppliers with extensive distribution network and mature and
competitive supply market. They represent commodities where there is potential for reduction
of inventory management, handling and storage costs and such items are also standard. The
commodities used across the entire organization is with high volume with high annual
expenditure and low risks.
Operational strategies for leverage items
The possible operational strategies is total cost reduction and securing high service level from
supplier by establishing automated supplier interface to minimize process related cost,
establishing long term agreement to simplify procurement, regionalizing supply by using local
supplier that are agents of centralized arrangement, forming a collaborative initiative with other
organizations to build leverage, target of pick periods in supply market. Hereafter, demand
forecasting is very important. Lastly, if switching cost and price variability seems significant
is important to have more suppliers depending on constraints in the market with a framework
or call-off type of contract with lowest cost over contract terms.

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(Guta Mengesha 2021)Procurement strategy: Characterizing level of risk, Spend categories with possible operational strategies.
3.BOTTLENECK ITEMS
They involve low expenditure yet are high risk that require special attention. Such contract
should be a living document to reviewed frequently and also in some detail so that any
unwanted events could be identified at an early stages.
Main characteristics of items in bottleneck quadrants
Items are highly specialized goods, service or works, procurement activities of such items
should be undertaken by technical experts rather than procurement professionals, technical
specification are inappropriately detailed and limit the supply bases. Often there are few
potential suppliers in this category and annual expenditure on the item is low. Bottleneck items
are also non-standard items.
Operational strategies for bottleneck items
The possible operational strategy should be reducing your organization market vulnerability
and securing ongoing supply by identifying alternative source of supply or substitute goods or
service, holding extra stock where possible reduce cost, developing supplier capabilities or
changing demand requirements, ensuring long term agreement, encouraging new supply
participant in the market, considering a local supplier development strategy, developing a
contingency plan to deal with potential disruption in supply, developing a functional or
performance specification to ensure a wider sourcing base, developing a mixture of
procurement and technical expertise to manage well a supply.
4.STRATEGIC ITEMS
They are non-standard items with few suppliers with few alternative exits. Both the risk and
annual expenditure is high.
Main characteristics of items in strategic quadrants
These items are good, service or works that are critical to procuring organization, it often require
innovative solution and high level of expertise from supplier side, the supplier attitude to the
procuring organization had a high impact on the value and quality of good, service or worse
delivered, the cost in offering contract are substantial for both supplier and procuring
organization, it often involve a complex “bundle” or “package “of good and associated service.

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(Guta Mengesha 2021)Procurement strategy: Characterizing level of risk, Spend categories with possible operational strategies.
Operational strategies for strategic items
Managing relationship and performance through regimes and system which are essential to
secure value for money and reduce risks by encouraging effective supplier relationship
management for complex and costly bundles of goods and service, understanding supplier need
and agree to performance management criteria and interfaces, maintaining a regular
communication with supplier to ensure innovative and continuous service improvement,
encouraging local suppliers with incentive to deliver long term value rather than supplier for
which the business is not significant, helping in developing suppliers performance level, value
analysis, optimization and re-engineering of process of buyer supplier scope, protecting future
cost and availability, quality assurance tools, and total cost ownership modelling if possible as
well as demand forecasting. Considering cost benefit stock holding and contingency planning
are appropriate strategies.
CONCLUSION
A procurement falling in leverage, bottleneck and strategic categories would be considered
significant purchase. In leverage category possible to hammer down a price as your business
is more attractive. In bottleneck as level of expenditure is low, procuring organization have
little ability to control their supply. For strategies items your expenditure is higher and those
have ability to influence supply. A supplier with a procuring organization with in strategic
item have ability to be low cost provider or be a technological leader in the long term and the

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(Guta Mengesha 2021)Procurement strategy: Characterizing level of risk, Spend categories with possible operational strategies.
requirement should be a core business for supplier. Such supplier must be financially capable
with sustainable market position, should not have any professional relation with your
company competitors and finally the supplier should not exploit the procuring organization
position.

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(Guta Mengesha 2021)Procurement strategy: Characterizing level of risk, Spend categories with possible operational strategies.
REFERENCE
1. Geoff Crouch(Achilles) commodity management bid consulting company USA 2007
2. Kralic P. Purchasing must become supply management, Harvard Business review
2007
3. Neef D. E-Procurement from strategy to implementation, Financial times Printic hall
2011
4. NIGP Thaikiv. Introduction to public procurement LEAP text book 2004 and 2012
5. UNDP procurement manual 2015
6. UNHCR procurement manual 2013
7. UNPOS, Ethiopia office procurement draft manual 2012
8. UNICEF supply manual 2016( book G)
9. WFP: Goods and service procurement