Supplier segmentation: Invest or foster competition?
-- Purchasing, 4/6/2006
Pressures to assure supply, mitigate risks, and deliver value in the face of tightening and inflationary supply markets is forcing supply management executives to come to grips with a dilemma: when to collaborate and strategically align with suppliers and when to foster highly competitive bidding markets.
The technical answer to this conundrum is: “It depends.” What it depends on is the strategic nature of the commodity being sourced, the supplier(s) providing it, and the current and future supply market dynamics and risks. Leading companies are constantly re-sizing and segmenting their supply base based upon these attributes and assigning different sourcing and management strategies to each segment. At one end of the spectrum, strategic suppliers deliver the highest level of strategic value, supply highly complex components, of represent a high volume or strategic portion of spend. It is in the best interest of supply managers to foster deeper relationships with these suppliers to shore up supply, capture innovation, and gain market advantage. Sourcing approach: use more collaborative and flexible negotiations that involve less competition and encourage suppliers to offer alternative suggestions and bundles. Some advanced sourcing automation solution now provide functionality to support such flexible negotiations. Supplier management: collaborate and communicate constantly with these suppliers, from the earliest stages of product development throughout production. Invest in these partners, with dedicated development and improvement teams. Jointly identify and execute strategies to eliminate waste and costs. At the other end of the supplier stratum, commodity suppliers offer relatively low strategic value and provide generally low-complexity commodities. In this segment, enterprises typically have multiple sources that compete aggressively for their business, reducing exposure to risk and capacity constraints Sourcing approach: use competitive, frequent negotiations – especially online reverse auctions – to ensure optimal cost performance and to take advantage of changing market dynamics. Constantly examine alternative and lower cost sources, particularly those in emerging markets. Supplier management: low-touch methods or automated supplier performance measurement solutions to monitor performance. Require suppliers to develop and execute corrective action plans. Do not hesitate to swap out poor performers. It is not uncommon for large enterprises to have tens of thousands of suppliers, making effective supplier segmentation and management difficult–if not impossible – with the aid of technology. Automation has a role in each phase of the supply lifecycle: Supplier rationalization and segmentation: spend data cleansing, classification, and analysis solutions can provide the much-needed intelligence to assess spending patterns, compliance, and redundancies in supplier capabilities. Strategic sourcing: sourcing management automation (i.e., e-sourcing) tools can be used for not only basic, price-based reverse auctions, but also for more collaborative and flexible negotiations as well as advanced optimization-based award-allocations. Supplier management: supplier performance measurement and scorecarding solutions can help monitor suppliers and identify potential risky performers. Web-based portals can be used to collaborate on supplier development, improvement, and corrective action plans. Enterprises employing supplier rationalization and segmentation strategies – and utilizing supporting technologies – are able to strike an optimal balance between lower total costs, improved supply assurance and performance, and reduced supply risk.Source: Procuri Inc.
View All Blogs
