I remember when "digital transformation" meant moving from a typewriter to a desktop computer, and when "supply chain visibility" meant calling a factory manager on a landline to ask if the truck had left.
Now, as we close out 2025, the noise level in our industry is deafening. For the last two years, the conversation has been dominated by the dazzling promises of Generative AI. And don’t get me wrong, I love what the new "Agentic AI" tools are doing for our tail spend and contract analytics. But in the rush to automate, I see too many leaders forgetting the architecture that holds the building up.
We are entering 2026 facing a paradox: we have better tools than ever, yet the world is more fractured than it has been in my lifetime. It is time to pause, look past the algorithms, and get back to basics. But "basics" doesn't mean "old school." It means applying our foundational models, specifically the Kraljic Matrix and the often-overlooked Kenton Supply Model, with a modern, dual-lens perspective.
The 2025 Landscape: It’s Not Just About "Stopping the Line"
If 2024 was the year of AI hype, 2025 has been the year of geopolitical and regulatory reality checks.
We aren't just dealing with price volatility anymore. We are navigating a trade environment defined by "friendshoring" and active decoupling. The geopolitical friction of late 2025, from new tariff regimes to the fragmentation of global shipping lanes, has turned "global sourcing" into a high-stakes chess game.
Furthermore, sustainability is no longer a "nice-to-have" marketing slide. With the full weight of Scope 3 reporting requirements now hitting our balance sheets, carbon is a currency. A supplier offering the lowest price but the highest carbon footprint is no longer a cheap option; they are a liability.
The challenge today isn't just buying well; it's knowing who you are buying from (Upstream) and how that impacts your customer (Downstream).
Back to Basics: The Dual-Lens Approach
To navigate this storm, we need to stop treating segmentation as a one-time PowerPoint exercise. We need to integrate Supply Risk (Kraljic) with Demand Exposure (Kenton).
1. The Upstream View: Kraljic Matrix Reloaded
Peter Kraljic gave us his famous segmentation model in 1983. Forty-two years later, it remains our compass for Supply Risk vs. Profit Impact. But here is how we must calibrate it for 2026:
- Routine (Low Risk, Low Spend):
- The 2025 Way: Ruthless Automation. If a human on your team is touching these POs, you are failing. This is where Agentic AI tools shine. But beware: "Low risk" doesn't mean "no risk." Ensure your automated systems check for cyber vulnerabilities. A paperclip supplier can still be a backdoor for a data breach.
- Leverage (Low Risk, High Spend):
- The 2025 Way: Squeeze for Carbon. Don't just leverage for price; leverage for sustainability. Recent data shows that suppliers in this quadrant are desperate for volume. Make your ESG standards the gatekeeper.
- Bottleneck (High Risk, Low Spend):
- The 2025 Way: Engineer Them Out. These are the silent killers. In a world of trade wars, a niche chemical from a volatile region is a ticking bomb. Your strategy here isn't "security"—it's elimination or radical diversification.
- Strategic (High Risk, High Spend):
- The 2025 Way: Customer of Choice. You are being segmented by the supplier too. Strategic sourcing in 2026 is about radical transparency. It’s about being the partner they call first when the crisis hits.
2. The Downstream View: The Kenton Supply Model
While Kraljic looks at the market, the Kenton Supply Model (1995) looks at us. It segments based on Usage (Volume) and Exposure (Impact on our customer/production). It asks: If this fails, how bad is the bleeding downstream?
- Basic (Low Usage, Low Exposure):
- Strategy: Automated Efficiency. Minimal inventory, highly automated ordering. These items have no direct impact on production or market share. Don't tie up human capital here.
- Active (High Usage, Low Exposure):
- Strategy: Agile Sourcing & Cost Reduction. These are high-volume items that won't stop the line if delayed briefly. The goal is to actively manage the supply base for short-term contracts, flexibility, and continuous price improvement. This is the engine room for cost savings.
- Choke (Low Usage, High Exposure):
- Strategy: The "Spare Part" Paradox. These items are rarely used but shut down the plant if missing (e.g., a specific pump seal). The mistake procurement makes is treating them as "low spend" (Kraljic Bottleneck) and ignoring them. The Kenton model correctly identifies them as high exposure. You must hold inventory here, regardless of the cost of carry.
- Insight: This is where the two models meet. A Kraljic "Bottleneck" is often a Kenton "Choke." Identifying this overlap is where you save the business.
- Decisive (High Usage, High Exposure):
- Strategy: Fortress Inventory. These are your lifeblood items. Unlike Kraljic's "Strategic" (which focuses on buying relationship), Kenton's "Decisive" focuses on availability. For these, we need "Safety Stock Plus," predictive demand sensing, and zero tolerance for stockouts.
Future Outlook: The Next Three Years (2026-2028)
Looking ahead, the pace isn't going to slow down. Here is what I see coming down the pipe:
- Dynamic "Liquid" Segmentation: By 2027, our platforms will automatically re-classify suppliers from "Leverage" to "Critical" (and "Active" to "Decisive") in real-time based on live geopolitical news feeds or financial distress signals. The annual strategy review is dead; long live the continuous strategy.
- The Rise of the "Value Officer": The CPO role is evolving into a Chief Value Officer role. We will be measured not on cost savings, but on the speed of innovation we bring into the business and the risk we keep out of it.
- The Human Renaissance: As AI takes the analytics, the premium skills for 2028 will be negotiation, emotional intelligence, and relationship building. You can't automate trust.
Final Thoughts
We have an incredible opportunity right now. The businesses that survive the volatility of the late 2020s will be the ones that have strong foundations.
Don't let the technology dazzle you into passivity. Use the tools, yes, but lead with strategy. Go back to your matrix. Overlay the Kenton model to see your downstream exposure. Challenge your assumptions.
We’ve got this. Now, let’s get to work.