What are the key criteria and tools for supplier segmentation and prioritization in your supply chain?

2 What criteria to use for supplier segmentation and prioritization?

When it comes to supplier segmentation and prioritization, there is no one-size-fits-all approach as different businesses may have different objectives, requirements, and challenges. However, some criteria that can be used for this purpose include spend, criticality, complexity, performance, and risk. Spend looks at the amount of money spent on a supplier or a category of suppliers. Criticality measures the degree to which a supplier or a category of suppliers is essential for core products or services. Complexity examines the level of difficulty or uncertainty involved in sourcing, contracting, or managing a supplier or a category of suppliers. Performance evaluates the quality, reliability, and responsiveness of a supplier or a category of suppliers. Risk considers the likelihood and impact of a supplier or a category of suppliers causing supply disruptions, quality issues, compliance violations, or reputational damage.

3 What tools to use for supplier segmentation and prioritization?

Various tools and frameworks can assist in segmenting and prioritizing suppliers. The Kraljic matrix classifies suppliers into four segments based on their spend and criticality, while the SCOR model measures and compares suppliers' performance across five dimensions. The supply risk matrix assesses suppliers' risk based on complexity and impact, while supplier portfolio analysis evaluates suppliers' performance and potential based on multiple criteria. These tools help you identify best-in-class suppliers, prioritize risk mitigation actions, and recognize strengths and weaknesses of your suppliers.

4 How to segment and prioritize suppliers in practice?

Segmenting and prioritizing your suppliers is an ongoing process that requires data collection, analysis, and review. To do this effectively, you must define supply chain objectives and criteria for supplier segmentation and prioritization. Additionally, you need to collect and validate data from internal and external sources such as invoices, contracts, surveys, audits, ratings, and reports. Utilize tools and frameworks that are suitable for your needs and context to create a visual representation of your supplier segments and ranks. It’s important to communicate and share your results with stakeholders to get their feedback and input. Furthermore, develop and implement strategies for each supplier segment and rank, as well as monitor their outcomes and impacts. Finally, review and update your supplier segments and ranks periodically to adjust your strategies accordingly.

5 What are the benefits and challenges of supplier segmentation and prioritization?

Supplier segmentation and prioritization can bring many advantages to your supply chain optimization and risk management, such as better alignment with your business strategy, greater visibility of your supplier base and performance, more efficiency in supplier management processes and practices, stronger relationships with key suppliers, and higher value from supplier collaborations. However, challenges may arise from data availability and quality issues, resource constraints and trade-offs, supplier resistance or dissatisfaction, and dynamic and complex supply chain environment.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?