What are the best practices for supplier segmentation and categorization?

Supplier segmentation & categorization involve dividing suppliers into groups based on specific criteria aligned with business strategy & needs.The process includes defining criteria such as spend, supplier risk, or strategic value to effectively manage relationships & spending.Steps for effective segmentation include data collection, analysis, criteria selection, and implementation.Best practices recommend considering the Pareto Principle for focusing on critical suppliers first,taking a holistic approach by considering various supplier aspects,& reviewing supplier performance regularly.The Kraljic Matrix is a valuable tool for supplier segmentation, helping organizations optimize their supply chain by understanding supplier value & risks.

There are many approaches to segmentation and there is no one size fits all. In some oragnizations there are supplier segments and contract segments which makes the language even more confusing. The first question to answer is what outcomes will the segmentation drive? If the answer for example is tail spend management, then a simple tiering by spend is enough to segment. If the answer is something like how to I manage risks better, then a more complex segmentation like a Risk/impact matrix with say spend as a bubble in the analysis is required. As Simon Sinek says "Start with Why"

O que deve ser segmentado s?o as categorias de compras, clasificando-as de acordo com o risco que elas representam. Uma abordagem muito tradicional classifica as categorias pelo volume de compras (Curva ABC ou Pareto). Essa abordagem utilizada individualmente hoje está obsoleta já que categorias de baixo volume podem gerar grandes prejuizos. Após segmentar as categorias pelo seu risco devemos identificar os fornecedores que atendem nestas categorias e determianr se s?o id?neos e íntegros. Após isso podemos realziar diferentes tipos de gest?o.

Organizations need to build sustainable partnerships with their strategic suppliers to obtain the best value possible. Suppliers you can identify as strategic or key to your operations need a high level of engagement and closer focus than others. By segmenting your suppliers into groups based on certain criteria, you can decide on the type and level of attention needed. Segmenting suppliers can also identify your level of exposure to risk, e.g. a single source of supply for a product or service. The overall end goal, though, is to create more strategic relationships with suppliers.

Best practices for supplier segmentation and categorization include analyzing supplier performance, risk factors, and strategic importance to the business, and then categorizing suppliers based on criteria such as reliability, innovation capability, and alignment with organizational goals. Regularly reviewing and updating segmentation criteria ensures relevance and effectiveness in supplier management strategies.

Applying a segmentation model in supplier segmentation and categorization involves categorizing suppliers into different tiers based on specific criteria like spend, supplier risk, or strategic value to the business. This process allows companies to effectively manage relationships and spending, focusing on high-value partnerships while avoiding resource wastage on low-value ones. The steps for effective supplier segmentation include data collection, analysis, criteria selection, and implementation. Best practices recommend considering the Pareto Principle for prioritizing critical suppliers, taking a holistic approach by evaluating various supplier aspects, and regularly reviewing supplier performance.

Reviewing and validating the results of supplier segmentation and categorization is a critical step to ensure accuracy, consistency, and relevance in assigning suppliers to appropriate categories or tiers based on defined criteria. This process involves assessing the effectiveness of the segmentation model, verifying data accuracy and completeness, and aligning results with the organization's strategic objectives and priorities. Regular reviews and validation help optimize supply chain management, enhance supplier relationships, and drive informed decision-making for sustainable business growth.

Communicating and implementing supplier segmentation results is a crucial step in guiding Supplier Relationship Management (SRM) strategies and actions. It involves sharing the rationale, benefits, and expectations of each supplier category or tier with suppliers, aligning SRM activities with segmentation results, and prioritizing efforts based on supplier value. Organizations should develop tailored SRM plans for each category, defining objectives, actions, roles, and responsibilities. Monitoring supplier performance against segmentation results is essential for adjusting SRM plans as needed to optimize supply chain management and enhance relationships, ultimately driving sustainable business growth.