A 'should cost' analysis and value analysis can be completed on items procured by a buyer. Which of the following categories of spend are these tools most applicable for?

'Should cost' analysis and value analysis are resource-intensive techniques aimed at optimising cost and function. Their application is most suitable for the 'Leverage' category in the Kraljic purchasing portfolio matrix. This category is characterised by high expenditure (high profit impact) and low supply risk (many alternative suppliers). The high spend means that even small percentage savings result in significant financial gains. The low supply risk and competitive market provide the buyer with the necessary power to use the findings from these analyses to negotiate favourable terms, switch suppliers, or drive value improvements without jeopardising supply continuity.

A. Strategic: The primary focus here is on long-term collaboration, innovation, and risk mitigation, not purely on aggressive cost reduction which can damage the partnership.
B. Bottleneck: The buyer has very little power due to high supply risk and few suppliers, making it difficult to demand the transparency needed for a 'should cost' analysis.
D. Non-critical: The low value of spend in this category means the cost and effort of conducting a detailed 'should cost' or value analysis would likely outweigh any potential savings. ---

1. Kraljic, P. (1983). Purchasing must become supply management. Harvard Business Review, 61(5), pp. 109-117. In his seminal article, Kraljic identifies 'Leverage items' as having high profit impact and low supply risk. The recommended strategic thrust is to "Exploit full purchasing power," for which tools like price and cost analysis are fundamental.

2. CIPS (Chartered Institute of Procurement & Supply). (2018). Managing Supply Chain Risk (L5M6) Study Guide. Profex Publishing. The guide explains that for the Leverage quadrant, procurement's strategy should focus on maximising commercial advantage through tactics like competitive bidding and detailed cost analysis, as the high spend and availability of suppliers create significant opportunities for savings.

3. Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2016). Purchasing and supply chain management (6th ed.). Cengage Learning. Chapter 7, "Supplier Evaluation and Selection," discusses portfolio analysis. It specifies that for leverage items, where buyer power is high, strategies include using competitive bidding and leveraging volume with preferred suppliers, which are activities directly supported by should-cost and value analysis.