Segmenting Your Suppliers

Leverage segmentation for better returns

Supplier Segmentation enables you to focus on suppliers that offer the highest potential for ROI. By aligning your resources with the most valuable partnerships, you can drive greater returns.

Does your segmentation model reveal the value potential of your supply chain? Segmentation sets the stage for effective governance, and, in turn, appropriate supplier treatment strategies. Based on our SRM Research, the majority of organisations use spend, criticality and risk as the criteria for segmenting their suppliers. This is great when risk and performance management is the focus, but shouldn't be the only deciding factor. Such a limited approach can miss high value opportunities.

The mismatch between value creation goals and segmenting to protect criticality is illustrated in the diagram below.

Why Conduct Supplier Segmentation?

Supplier segmentation is essential for businesses seeking to maximise value from their supply chain. Without a clear understanding of which suppliers provide the most strategic value, companies often waste resources on low-value relationships, missing out on key opportunities for growth and cost savings. Conducting a supplier segmentation enables you to:

Focus on high-value, strategic suppliers.
Allocate resources more efficiently, reducing time and costs spent on less impactful relationships.
Build stronger partnerships with suppliers that offer the most potential for innovation, cost savings, and growth.
Drive greater returns by aligning your efforts with suppliers that truly matter.

Our Approach

Our supplier segmentation process ensures that your resources are directed where they can deliver the most value. We take the following steps:

Supplier analysis:
Begin by analysing your current supplier base to identify key metrics such as spend, performance, risk, and strategic importance.
Segment suppliers:
Categorise your suppliers based on their value to your business, placing them into tiers such as strategic, preferred, and transactional suppliers.
Action plan:
Develop a tailored action plan for each segment, ensuring that you focus your time and resources on the suppliers that offer the highest ROI.
Ongoing assessment:
Continuously monitor and adjust your segmentation strategy to ensure that you are always aligned with the most valuable opportunities.

The Benefits

A focused segmentation strategy will deliver the following benefits:

Increased ROI:
Maximise the value from your most strategic supplier relationships, leading to higher returns and better business outcomes.
Improved efficiency:
Spend less time managing low-impact suppliers and more time focusing on high-value opportunities, improving operational efficiency.
Stronger supplier partnerships:
Strengthen relationships with key suppliers by dedicating resources to those who drive innovation, cost savings, and growth for your business.
Better resource allocation:
Ensure your procurement team is focusing their efforts on the partnerships that offer the greatest potential, leading to a more effective and strategic supply chain.