Procurement Glossary
Critical materials: definition, identification and strategic management
November 19, 2025
Critical materials are raw materials, components or materials that are indispensable for production and at the same time have high procurement risks. These materials are characterized by limited availability, few suppliers or geopolitical dependencies. They require special attention and special procurement strategies in strategic Procurement . Find out below what characterizes critical materials, what methods exist for identifying them and how companies can successfully minimize supply risks.
Key Facts
- Critical materials combine high importance for production with increased procurement risks
- Rare earths, lithium and certain metals are considered particularly critical raw materials
- The EU Commission regularly updates a list of critical raw materials for Europe
- Diversification of the supplier base is a key strategy for minimizing risk
- Recycling and substitution are gaining importance as alternative procurement approaches
Contents
Definition: Critical materials
Critical materials are essential raw materials and materials that are characterized by a combination of high economic importance and increased supply risk.
Characteristic features
The criticality of materials is determined by several factors:
- High economic importance for key industries
- Limited geographical availability of raw material deposits
- Concentration of production in a few countries or companies
- Low substitution possibilities in applications
- Low recycling rates or technical recycling hurdles
Critical materials vs. strategic materials
While strategic materials are primarily classified on the basis of their importance for competitiveness, critical materials also focus on supply risks. The material groups often overlap, but require different management approaches.
Importance of critical materials in Procurement
For strategic Procurement , the procurement of critical materials means increased complexity in the procurement strategy. Companies must reconcile security of supply and cost efficiency.
Methods and procedure for critical materials
The systematic identification and management of critical materials requires structured analysis methods and strategic planning approaches.
Criticality analysis and evaluation matrix
The assessment is typically carried out using a two-dimensional matrix that compares supply risk and economic importance. Factors such as market concentration, political stability of the countries of origin and substitution possibilities are included in the market analysis.
Supplier management and diversification
Central methods include the implementation of multiple sourcing strategies and the geographical diversification of the supplier base. Long-term contracts and strategic partnerships ensure availability.
Inventory management and buffer strategies
Higher safety stocks and strategic reserves are often built up for critical materials. The stockpiling strategy must strike an optimal balance between capital commitment and security of supply.
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Key figures for controlling
Monitoring critical materials requires specific key figures to measure security of supply and procurement efficiency.
Security of supply key figures
Key indicators include supplier diversity (number of qualified suppliers per material), geographical distribution of procurement sources and range of safety stocks. Suppliers are evaluated using reliability and stability indicators.
Cost and efficiency metrics
Important key figures include the capital commitment period for safety stocks, procurement costs per unit including risk premiums and the development of the total cost of ownership. Price volatility measurements support budget planning.
Risk and compliance indicators
Monitoring metrics record the number of critical suppliers, compliance rates for sustainability standards and the frequency of supply interruptions. Claim management metrics document downtime costs and claims.
Risks, dependencies and countermeasures
The procurement of critical materials involves a variety of risks that can be minimized through systematic countermeasures.
Supply interruptions and price volatility
Production stoppages due to delivery failures and extreme price fluctuations represent the greatest operational risks. Early warning systems and flexible contract design help to minimize risks. Supply chain visibility enables proactive action.
Geopolitical and regulatory dependencies
Export restrictions, sanctions and political instability in producer countries can disrupt supply chains. Diversification of sourcing regions and political risk analyses are essential protective measures.
Technological obsolescence and substitution risks
Technological breakthroughs can make established critical materials superfluous or create new criticalities. Continuous market monitoring and investment in research and development are necessary countermeasures.
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Practical example
A car manufacturer identifies lithium as a critical material for battery production. The criticality analysis shows high market concentration and limited substitution options. The company implements a multi-sourcing strategy with suppliers from three continents, concludes long-term purchase agreements and invests in recycling technologies. In addition, strategic partnerships are entered into with mine operators and safety stocks are built up for six months.
- Reduction of the supply risk by 60% through diversification
- Cost stabilization through long-term contracts
- Development of recycling capacities as a secondary source
Current developments and effects
The importance of critical materials is constantly increasing due to digitalization, the energy transition and geopolitical tensions.
Digitalization and AI-supported risk analysis
Modern technologies enable more precise predictions of supply bottlenecks. AI in Procurement supports the real-time monitoring of market developments and the automated risk assessment of suppliers.
Circular economy and recycling initiatives
Companies are increasingly investing in recycling technologies and circular economy models. Urban mining and the recovery of critical materials from electronic waste are gaining economic relevance.
Geopolitical developments and trade policy
Trade conflicts and export restrictions are increasing the criticality of certain materials. Supply chain resilience is becoming a decisive competitive factor, while nearshoring strategies are gaining in importance.
Conclusion
Critical materials require a balance between security of supply and cost efficiency in strategic Procurement. Systematic identification, continuous risk monitoring and proactive diversification strategies are crucial for competitiveness. Companies that invest in alternative procurement sources and recycling technologies at an early stage create sustainable competitive advantages. The integration of AI-supported analysis methods will further improve the precision of risk management in the future.
FAQ
What distinguishes critical from strategic materials?
Critical materials combine high economic importance with increased supply risks, while strategic materials are primarily classified on the basis of their competitive relevance. Critical materials require special risk management strategies and often higher safety stocks.
How do you identify critical materials in the company?
Identification is carried out using a systematic evaluation matrix that takes into account factors such as sales relevance, substitution opportunities, supplier concentration and geopolitical risks in the countries of origin. Regular market analyses and supplier evaluations support the process.
Which procurement strategies are suitable for critical materials?
Proven strategies include multiple sourcing, long-term contracts, strategic partnerships, increased safety stocks and investments in alternative technologies. Geographical diversification of the supplier base significantly reduces geopolitical risks.
How can companies manage price risks for critical materials?
Price risks can be reduced through long-term contracts with price escalation clauses, hedging strategies, volume flexibility and the development of substitution options. Continuous market monitoring enables timely adjustments to the procurement strategy.
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