How do you integrate supplier segmentation with other supply chain management tools and processes?

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Amit Singh

12+ Years in Product Development | Supplier Management | Google | Hardware-Manufacturing Supply Chain | Global…
Eman Abouzeid

Global Procurement, Logistics and Supply Chain Operations Expert |??TOP 100 Most Influential Supply Chain Woman in…
Idar Nouti, EMBA

#SupplyLinker | LinkedIn Top Voice | SCM Content Strategist | Enhancing Organization's Supply Chain Capabilities |…

1 Define your segmentation criteria

When segmenting suppliers, it's important to define criteria that are tailored to your business goals, challenges, and opportunities. You can use spend, criticality, performance, risk, and innovation as criteria to score and rank your suppliers. Spend refers to the amount spent annually with each supplier, while criticality is the importance of each supplier for core products or services. Performance looks at how well each supplier meets quality, delivery, and service standards. Risk assesses the vulnerability of each supplier to disruptions, compliance issues, or market changes. And innovation evaluates the contribution of each supplier to your innovation and differentiation. Different weighting factors can be used to reflect business priorities and objectives.

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Eman Abouzeid

Global Procurement, Logistics and Supply Chain Operations Expert |??TOP 100 Most Influential Supply Chain Woman in Africa
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? Align with Procurement Strategy: * Segment suppliers based on factors (spend, risk, criticality, strategic importance). * Prioritize strategic partnerships with high-value or high-risk suppliers, while focusing on cost reductions with lower-impact suppliers. ? Supplier Performance Management: * Define KPIs specific to each supplier segment (quality, delivery time, cost savings, innovation contributions). * Schedule reviews for critical suppliers more frequently, while periodic reviews for non-critical ones. ? Risk Management: * Segment suppliers by risk, considering factors like geographic location, financial health, and dependency levels. * Prioritize contingency planning & backup supplier strategies for high-risk suppliers.

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Idar Nouti, EMBA

#SupplyLinker | LinkedIn Top Voice | SCM Content Strategist | Enhancing Organization's Supply Chain Capabilities | Expert in SRM, Sourcing, Procurement and Contract Management, and Supply Chain Digital Transformation |
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Aligning segmentation criteria with strategic objectives, using segmentation insights to guide supplier selection and relationship management decisions, and integrating segmentation data into forecasting, inventory management, and risk mitigation strategies are all part of integrating supplier segmentation with other supply chain management tools and processes. This maximizes supply chain performance overall.

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2 Categorize your suppliers

The next step is to categorize your suppliers into different groups based on their segmentation scores. There are different models and frameworks that you can use to do this, such as the Kraljic matrix, the portfolio model, or the power matrix. The main idea is to create a visual representation of your suppliers that shows their relative position and importance in your supply chain.

For example, the Kraljic matrix divides suppliers into four categories: strategic, bottleneck, leverage, and non-critical. Each category has different implications for how you should manage and interact with them. For instance, strategic suppliers are high-value and high-risk, so you should focus on building long-term partnerships and collaboration with them. On the other hand, non-critical suppliers are low-value and low-risk, so you should aim to minimize costs and simplify transactions with them.

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Amit Singh

12+ Years in Product Development | Supplier Management | Google | Hardware-Manufacturing Supply Chain | Global Sustainability
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Categorizing suppliers based on segmentation scores is a data-driven approach to understand their relative importance in the supply chain. Models like the Kraljic matrix, portfolio model, and power matrix can be used for this purpose. These categorizations help allocate resources, develop tailored strategies, and prioritize efforts based on supplier significance. It enables organizations to optimize supplier performance, mitigate risks, and make informed decisions to ensure a robust and efficient supply chain.

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3 Align your segmentation with your supply chain strategy

The final step is to align your supplier segmentation with your overall supply chain strategy and objectives. This means that you should use your segmentation results to inform and guide your decisions and actions regarding your suppliers. For example, you could develop and implement specific sourcing strategies for each supplier category, such as competitive bidding, sole sourcing, or co-development. Additionally, you should allocate and optimize resources based on the value and risk of each supplier category, as well as monitor and evaluate the performance and relationship of each supplier group. Moreover, it's important to adapt and update your segmentation as business needs and market conditions change by revising criteria, scores, and categories periodically. Integrating supplier segmentation with other supply chain management tools and processes can help enhance supplier relationship management and achieve better outcomes for your business.

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Bhushan Suryawanshi

Head - Supply Chain | Mechanical Engineer | MBA - Operations & Material Mgmt.| Lean Six Sigma Black Belt | ESG Strategy | Digital Transformation | Operational Excellence | Ex PRAJ Ltd., Ex Thermax Ltd, Ex Kirloskar Ltd.
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Supplier segmentation optimizes SCM by categorizing suppliers based on performance and risk. 1. Supplier Selection: Match supplier category to strategic needs, i.e. "Strategic Partner" for critical items. 2. Performance Mgmt.: Tailors KPIs and SLAs, e.g., cost and delivery for routine suppliers, innovation and quality for strategic one. 3. Risk Mgmt.: Link risk assessment to segmentation, prioritizing mitigation. 4. Inventory Mgmt.: e.g., VMI for strategic partners. 5. Comm.n and Collab.: Intensifies engagement with shared plans and platforms. 6. Supplier Development 7. Cost Optimization: bulk purchasing - routine suppliers, cost-reduction - strategic partners. 8. Data Analytics: Monitors performance, risks, trends for proactive decisions.

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4 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?

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Amit Singh

12+ Years in Product Development | Supplier Management | Google | Hardware-Manufacturing Supply Chain | Global Sustainability
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By following these steps, businesses can improve their overall supply chain performance and achieve their business goals. 1. Segment suppliers based on spend, risk, or strategic importance. 2. Use supplier segmentation data to develop tailored supplier management strategies. 3. Prioritize supplier risk assessments and develop tailored supplier contracts. 4. Improve supplier communication by tailoring it to each segment's needs. 5. Regularly review and make changes to your supplier segmentation strategy as needed.

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How do you integrate supplier segmentation with other supply chain management tools and processes?

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2

3

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1 Define your segmentation criteria

2 Categorize your suppliers

3 Align your segmentation with your supply chain strategy

4 Here’s what else to consider

Supplier Relationship Management

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