New supplier segmentation models for the AI age: Moving from managing resource scarcity to organisational focus
The key economic problem, from Marx to Krugman, is scarcity. Theorists have been troubled by the opportunity costs of misallocation. This anxiety over resource maximisation has cascaded from high theory to all areas of business practice. From hardnosed corporate strategies (think calculations such as the Growth/Share Matrix) to the softer guides for change management (think Bridges' Transition Model) we worry about resources.
Similarly, thinkers in supply chain management have puzzled over scarcity. All the classic tools wheeled out by generations of management consultants have focused executives’ minds upon prioritisation.
Take, for example, the Kraljic Matrix. Not only does this populate the slides of slick corporate presentations, but this is a near-ubiquitous model is present in almost every category strategy across the globe. In fact, of the 400 supplier segmentation models that Procurement Leaders have collected over the years, a quarter use an unedited original version and another two-quarters use a tailored variant.
Kraljic advises us to manage not individual suppliers, but segments. We pre-determine strategies of individual suppliers based on their risk/profitability impact. This saves time in strategising and aligns the organisation in clear, efficient directions.
This logic is not only compelling but delivers clear, simple edicts on resource maximisation: Focus efforts on the biggest relational opportunities. Support this with governance. Go big with the strategic opportunities. Automate the rest.
However, one of the cornerstones of supply management struggles to accommodate the potential of artificial intelligence.
In a telling APAC CPO session last week, one of the participants revealed that his organisation has dabbled with using generative AI. Bots had been brought in to listen in to live negotiations, to provide suggestions as to how the humans could improve their performance. So impressed were the leaders by the commercial outputs, that they’re now looking to send out the bots themselves to negotiate with vendors directly.
Similarly, in the space of risk management, performance management or even innovation, bots have the potential to strike autonomously in virtually any direction, as they swim in vast lakes of data they can provide highly accurate and timely executive interventions.
The potential of these systems is to provide inexhaustive sources of insight but also a wide range of direct action. In fact, the ever-growing use cases of AI are growing almost daily. Today bots are executing deals, tomorrow they will be managing disaster responses, developing suppliers and cutting carbon emissions.
In 2025, it may be trite to talk of focused strategies or governance, as we may assume oversight and potential for all suppliers. This year, Procurement Leaders has been focused on Total Procurement as a focal topic, but we may see a totality of automation impact in a panoply of human domains.
The only remaining, essential question of future supply management will relate to the management of our only remaining scarce resource: Humans.
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But, armed with potentially limitless insights, marshalling endless armies of bots, capable of fulfilling any request, even the price of executive time may start to fall through the floor. ?In fact, the productivity advances of virtual collaboration tools may even make live meetings an extravagant conceit of an unenlightened age.
Does that mean we are all redundant?
Unfortunately, procurement executives cannot plan their beachside retirements yet. But rather, they have the potential to focus on their real value add. The digital revolution will reveal the deeper insights that lay at the heart of past management tools: the importance of scarce organisational attention.
Kraljic didn’t only talk about assigning governance and deep strategies towards the small numbers of strategic suppliers, but also focusing executive attention on those segments of suppliers that have the potential to generate transformational value for the business.
Future supplier segmentation models should capitalise on the insight that attention is more important than material resource allocation, which governed previous models. A sketch of a future segmentation model is above.
This represents a fundamental shift in how we analyse opportunities in the supply base and how we perceive our role in the ecosystem. Suppliers on the periphery of our attention are still afforded the totality of procurement's value add, but we still ensure the business' attention is focused on the central core of key suppliers.
The question for future supply management will not be a question of mobilising scarce resources but focusing organisational attention.
The change may seem like a nuance. But the shift will be critical to procurement’s enduring competitive advantage. The noise from a period of infinite data and limitless potential will create a paralysing din for boards.
Suppliers at the centre of attention must be a priority for CPOs and the wider business. They too must be at the heart of decision-making in the company. The totality of information and alignment will be assumed (as it will for all suppliers). The difference is the incorporation of these suppliers and their capabilities into all major decisions in the company.
Practically, this will mean that corporate strategies, investments and other big bets must be made in consideration of those central suppliers that provide the organisation with its ultimate competitive value.
Unlike in the age of scarcity, those on the periphery of organisational focus will enjoy the full range of supplier management. Suppliers at the peripheral fringes of direct attention will provide deep insight, openness and reach that hitherto may have only been reserved for all but the most traditionally strategic suppliers.
Not only must our operational practices adapt to the rapidly evolving potentials of the autonomous world, but leaders must shift their mindsets to account for the potential of new technologies to transform our strategic thinking.