12 June 2019by Roseanne Spagnuolo
Virtual roundtable: Segmenting the supply base to deliver customer value
Business PartneringRecruiting & Attractingstakeholder managementsupplier managementSupplier Relationships and CollaborationsSupply Base Management & Governance
Procurement Leaders facilitated a discussion on the challenges related to supplier segmentation with procurement executives from a range of industries including pharmaceutical, retail and technology, among others. All participants shared similar challenges around ways to segment the supply base in a more business- and value-driven way, methods of engaging the organisation in supplier relationship management (SRM) and what is needed to make it successful.
- Supplier segmentation must include the business: Nearly half (47%) of supplier collaborations fail and this is often due to poor supplier segmentation. Procurement functions that segment suppliers without business input risk misaligning objectives and outcomes. If this happens, SRM will fail to deliver against business need. As such, procurement teams must include business partners upfront when segmenting the supply base.
- Not all suppliers are treated equally: Segmentation drives the extent to which procurement functions partner with their suppliers. Invest time in developing shared key performance indicators (KPIs), strategies and relationships with key suppliers. Facilitate quarterly reviews that drive strategic thinking, problem-solving and deliver solutions that solve business problems.
- Link SRM value to the customer: Organisations often fail to articulate the value proposition of good SRM and, as such, struggle to gain buy-in from suppliers or the business. Like any procurement activity, SRM must enable the business strategy and those mature functions that link it to the customer are driving network value throughout the business and supply chain but also across customers.
- KPIs must align to SRM objectives: While cost savings is the primary metric by which category managers are judged, this directly contradicts the objectives of any good SRM programme. Develop KPIs for category managers that drive the right behaviours around collaboration, innovation, problem-solving and strategy. The relationship in SRM is critical to a successful collaboration.
- Segment suppliers based on their criticality and ability to support business objectives, as well as impact the bottom line.
- Determine the most appropriate approach for each segment.
- Provide strategic and operational groups with consistent partnering strategies within their supply bases, as well as a strategic view of their supplier portfolios based on relationship value.
- Redefine KPIs for category managers that balance the tension between finding cost savings and collaborating successfully with suppliers.
Procurement Leaders members should work directly with their account manager to dive deeper into the takeaways and receive supporting materials.
If you would like to learn from Procurement Leaders about SRM or other topics, please contact us.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.
Posted by Roseanne Spagnuolo