How to create transparency on your your supply markets and suppliers as starting point for sourcing strategies or SRM plans.
A critical step in your development of a sourcing or category strategy, the design of a supplier relationship management (SRM) plan or even an analysis of your supply chain risk environment or end to end supply chain is the segmentation of your supply markets. This will give you full transparency of your category market, the suppliers who participate, both current and potential, by clustering the suppliers according to their profile and their competencies. As important, it is a robust and persuasive tool you can use the analysis to share your ideas and strategic thoughts with your stakeholders.
This video shows you how to apply the concept and uses a case study to illustrate key points. You will be guided through the four steps required to analyse your supply base and shown how to draw actionable conclusions.
Supply Market Segmentation is often seen as tool for the development of sourcing or category strategies only. However, this approach can be applied to Supplier Relationship Management (SRM), risk management or an end to end analysis of your supply chain. Supplier segmentation is a process of dividing suppliers into distinct groups with different needs and characteristics or behaviour (Kotler et al., 2005). Comprehensive analysis and segmentation of your supply market will provide answers to the following questions and give guidance on potential actions.
1. What’s the status quo?
Fully understanding the current state is a MUST before initiating any other activity. A simple 2x2 matrix using parameters most relevant to your circumstances or activity (sourcing, risk analysis, SRM etc.) will provide you with a base line from which you can develop a plan of action.
2. What could be done to improve the status quo?
Your current state matrix, allows you to start thinking about potential ideas and approaches to solving a problem. For example, the 2x2 matrix might serve as one input for the decision whether to go for lower cost single sourcing but with higher risk which therefore needs close management or for potentially higher cost multiple-sourcing strategy with its inherently lower risk but higher relationship workload.
3. Where should I invest my time and resources?
Your supply market segmentation can also guide on the distribution of your resources. If you are developing an SRM plan the 2x2 matrix could identify actual and potential strategic suppliers, that is those whom are most aligned with your own strategic imperatives and could provide you with greater product development options. The output of the segmentation exercise thus provides the basis for greater resource allocation to more strategic suppliers or those who have the potential to be developed to your mutual advantage.
One of the greatest benefits of a supply market segmentation is that the current situation and desired actions can be shown in a logical and very persuasive manner. Your stakeholders will appreciate the structured approach and focus on key facts and potential actions. The simple 2x2 matrix is a perfect example of the saying “a picture is worth a thousand words”.
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