Comparative Analysis of the Markowitz Model and the Kraljic Matrix Model in Portfolio Optimization and Procurement Management

Abstract

This research studied two important models of portfolio management: the Markowitz model and the Kraljic Matrix Model. The Markowitz model is the basis of modern portfolio theory and is designed to optimise asset allocation by minimising risk while maximising returns. This paper provides a system to build a balanced portfolio by utilising diversity. On the other hand, the Kraljic Matrix Model classifies products based on supply risk and profit impact and provides a strategic tool for purchasing management. This model categorises products into four categories: noncritical, leverage, strategy, and bottleneck to support informed purchasing decisions. Despite its usefulness, the Kraljic matrix has been criticised for not taking into account the supplier’s perspective and for not providing guidelines for managing the movement of goods within the matrix. This paper studies the application and limitation of the two models, emphasises the need to adapt to the strategy in the portfolio and procurement management, and adjust according to the market dynamics.