Supplier Segmentation

Supplier Segmentation
Summary
The Larger Supplier Base Company should do the supplier Segmentation every 2 to 5 years time interval.
Based on the Supplier Risk and relative spend , suppliers can be segregated as such as Routine Supplier,
Collaborative Supplier , Bottleneck Supplier and Strategic supplier.
Author:
Kalandi Nayak
Company: Accenture
th
Created on: 19 May 2011
Author Bio
Kalandi Nayak is SAP SRM (Supplier Relationship Management) Consultant in Accenture with 7
years experience in SAP MDM Catalog, Sourcing and Procurement (P2P). He has completed 3
Implementation project in large Companies in Auto Industry, Healthcare and Oil and Gas Industry.
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Table of Contents
Business Objective ............................................................................................................................................. 3
Problem Statement ............................................................................................................................................. 3
Supplier Segmentation Benefit ........................................................................................................................... 3
Segmentation Criteria ......................................................................................................................................... 3
Segmentation Model ........................................................................................................................................... 4
Factors need to be considered for Supplier Segmentation. ............................................................................... 4
Segmentation Implementation ............................................................................................................................ 5
Related Content .................................................................................................................................................. 6
Disclaimer and Liability Notice ............................................................................................................................ 7

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Business Objective
Manage Risk and Vulnerability of Supplier

Maximize Supplier Performance
Develop Preferential Relationship with Supplier
Have Close Supplier Management
Problem Statement
Too Many Suppliers

Little Time Spent per Supplier
Supplier Data Error
Difficult to Analyze Supply Base
Difficult to reduce Supply Base
Data Cleanup required
Maverick Suppliers Added
Disconnected GPO (Global Procurement Officer) IT Tools
Supplier Segmentation Benefit
Ensures optimal allocation of limited management time and resources.

Helps determine what kind of relationship to develop for different types of suppliers.
Ensures internal alignment such as supplier management roles, responsibilities, actions.
Guides sourcing and negotiation strategy, relationship management structure and supplier
activity.
Helps clarify and manage supplier expectations
Avoid any potential disruption of production.
Obtain Major cost savings and maximize value.
Segmentation Criteria
Degree of interdependence
Level of spend by amount.
The Volume of procurement from the supplier.

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Strategic importance of supplier

Number of BUs served by a supplier
Complexity and frequency of changes in supplier requirements
Type and number of products or services a supplier provides
Cost/difficulty of switching suppliers
The criticality of the service level necessary
The suppliers technology capability and compatibility of process implementation
The suppliers anticipated quality level.
Segmentation Model
Factors need to be considered for Supplier Segmentation.
Product
Service
Quality
Continuity
Capacity
Complex city of Specification
Social Responsibility
Suppliers Relationship with Competitors
Financial Stability
Environmental Issues
Supplier also a customer

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Supply chain process integration

Global Presence
Competitive Pricing
Compatibility and strategic alignment
Innovation and technology
Segmentation Implementation
Relationsp
Category
Routine Supplier
Bottleneck
Supplier
Collaborative
Supplier
Strategic
Supplier
Lower potential to
Minimize cost
Sole source
Maximize value;
lowest total cost
control number of
suppliers and
business volume
awarded
Medium to long
term
Critical need
relationship
manager; internal
customer
coordination
committee
Robust and frequent,
with some executive
contact
supplier
oversight
board; dedicated
relationship
manager
Robust and
multilevel,
with senior
executive contact
Joint effort, equal
investment
Implication
Driver
Price
Negotiation
Strategy
Maximize price
leverage
Presumed
Duration
Short to medium
term
Governance
Commodity group
portfolio manager
Communication
Limited to
transactional
exchange of info
Regular, though
limited in scope
Quality
Management
Managed on
exception basis;
leverage penalties
Managed on
exception basis;
leverage incentives
Planning
Annual; narrow in
scope
Regular, but limited

in scope
Suppliers
Viability
N/A
Investment in
Relationship
Low
Safeguard when
benefits outweigh
costs
Medium to low

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Dependent on
Market
environment
Dedicated
relationship
manager
Joint effort;
customer investment
driven by switching
costs
Joint and frequent;
time horizon varies
by context
Understand and
Monitor
Medium
Win/Win Maximize
joint gain and good
precedent
Long term
Integrated, frequent,
and long term
focused
Safeguard
High

5
Related Content
http://www.supplymanagement.com/
http://sdn.sap.com
For more information, visit the Supplier Relationship Management homepage. .

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6
Disclaimer and Liability Notice

This document may discuss sample coding or other information that does not include SAP official interfaces and therefore is not
supported by SAP. Changes made based on this information are not supported and can be overwritten during an upgrade.
SAP will not be held liable for any damages caused by using or misusing the information, code or methods suggested in this document,
and anyone using these methods does so at his/her own risk.
SAP offers no guarantees and assumes no responsibility or liability of any type with respect to the content of this technical article or
code sample, including any liability resulting from incompatibility between the content within this document and the materials and
services offered by SAP. You agree that you will not hold, or seek to hold, SAP responsible or liable with respect to the content of this
document.

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Created on: 19 May 2011

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Manage Risk and Vulnerability of Supplier

Too Many Suppliers