The use of Supplier Segmentation for supply base implies categorizing suppliers through analysis and prioritization process solely to allocate suitable resources, manage and monitor them. Unfortunately, no one supplier segmentation applies to every business model. Today, segmentation complexities require multidimensional matrices to address all associated peculiarities and risk factors.
So, What is the Supplier Segmentation Matrix?
The supplier segmentation matrix is created majorly for activities like sourcing negotiations and supply base rationalization. Typical segmentation exercises help define “how dependent your business operation is on a particular supplier(s)?” or “how costly or difficult it is to switching supplier?”.
Nevertheless, there are several other considerations like competition, performance potential, market factors, and other considerations that can add to segmentation challenges. Getting familiar with these attributes or characteristics of critical suppliers can be attained while working with them. A typical approach is examining the supply base by “spend” and “risk.”
·The spend factor entails more concentration on critical suppliers to your business process and on whom you are willing to spend time and resources.
·The risk factor entails the degree of exposure your business has to performance failures from suppliers—for example, late deliveries, service failures, warranty problems, quality defects, and more.
While some risks are common, every business faces its specific types of threats in regards to suppliers. Concerning risk, the identification of vital supplier risk factors that can unfavorably affect your business process can be used for performance evaluations as well as in creating practical preventive actions.
The basic idea of a supplier segmentation matrix is the identification of all suppliers to be considered strategic or critical to the business.
“Strategic supplier delivers a product or service which adds value to a business, and if they fail, it impacts the customers, infrastructure, and operations.”1
“critical supplier delivers a product or service to a business such that if poorly done, either leads to no business operation or unhappiness amongst customers.” 1
Suppliers can be both critical and strategic, as they are not mutually exclusive. Segmentation matrices are mainly useful to initiate a thorough process and discussion within an organization to recognize relevant suppliers who deserve more attention, work, and close monitoring, rather than as a scientific undertaking.
Below are 3 Types of Supplier Segmentation Matrix You Can Use to Classify Suppliers
1)Kraljic’s Classic Supplier Segmentation Model
Kraljic's portfolio model is a classic supplier segmentation model whose main goals are to identify the strategic weight of strategic suppliers, both externally and internally, to aid adapt your business strategies.2
Continue reading the full article here.
