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The objective of segmentation is to identify the tiers of suppliers that will attract different management treatment strategies. The focus for SRM as a collaborative and value creating activity, is the group classed as ‘tier one’. The size of this group is partly a result of the segmentation exercise, and partly a pragmatic choice made on the basis of appetite, resource availability or projected return on investment. It may also be influenced by external regulatory factors, which may well dictate the type of treatment required. While resource is without doubt a constraining factor, it should not in itself be used as a segmentation criteria. We would recommend that the true segmentation outcome is understood, and then another process is employed and documented to prioritise suppliers in line with resource constraints. In this way the true strategic nature of the supplier base is understood, and the risk of not being able to manage all relationships to the optimum is understood and considered. Segmenting suppliers is one thing, deciding the management or treatment strategy is another. The following models describe how the output from the segmentation process relates to the treatment strategy, and therefore the effort and resource required to achieve success for each tier of the segmentation pyramid.
SUPPLIER SEGMENTATION TREATMENT STRATEGIES
PERFORMANCE + RELATIONSHIP + STRATEGIC FOCUS
TIER 1
PERFORMANCE + RELATIONSHIP FOCUS
TIER 2
PERFORMANCE FOCUS
TIER 3
FOCUS FOR SRM
SRM OPPORTUNITY
LITTLE OR NO OPPORTUNITY / BENEFIT
APPROACH: HIGH CRITICALITY, HIGH COLLABORATIVE VALUE OPPORTUNITIES (SRM + SPM + CM)
TIER 1
APPROACH: HIGH CRITICALITY, LOW COLLABORATIVE VALUE OPPORTUNITIES (SPM + CM)
EFFORT, RESOURCE & COMMITMENT REQUIRED
VALUE POTENTIAL & RETURN ON INVESTMENT
TIER 2
APPROACH: MEDIUM CRITICALITY, LOW COLLABORATIVE VALUE OPPORTUNITIES (CM +MBE)
TIER 3
Having a robust segmentation process and clearly defined treatment strategies, is an important aspect of planning and building an SRM approach. It will enable an organisation to identify risk and opportunity in the supply base, and also plan resource, investment and training requirements. However, no process is able to accommodate all the variations around these complex relationships, so the approach must remain flexible and pragmatic. In general, suppliers should only be ‘managed up’ this model if there’s a risk or opportunity the process could not capture is evident. Suppliers should never be ‘managed down’ without a clear understanding of the risk and other measures put in place to mitigate.
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