Vendor management improves how vendors affect the business. It centres on working together, following rules, and making payments efficiently. It decreases risks such as fraud. It simplifies supply problems using tactics like grouping suppliers.

Segmentation categorizes vendors based on spending volume and risk. It enhances targeted management. Vendor consolidationreduces vendor numbers, streamlines processes, and cuts costs. This blog explores how these strategies improve supplier management and business efficiency.

Understanding Supplier Segmentation

Supplier segmentation is one of the fundamentals of supplier relationship management (SRM). It categorizes suppliers based on specific criteria, enabling the efficient allocation of resources.

Benefits

Success in vendor management depends on having a well-designed supplier segmentation model. Other supplier segmentation model benefits are:

• Focuses on key suppliers driving the most value.
• Allows tailored management approaches.
• Realizes efficiency gains in procurement, inventory, and supply chain finance.

Also Read: Mastering the Art of Supplier Relationship Management (SRM)

Critical Factors for Segmenting Suppliers:

Strategic suppliers typically represent about 10% – 15% of the total number of suppliers in a database. The Kraljic matrix is used in procurement and supply chain management to categorize goods and services based on supply risk and profit impact. This classification, derived from the Kraljic matrix, can be further refined to create detailed sub-groups within each quadrant, enhancing the precision of supplier management.

Statistics and Key Factors for Segmenting Suppliers:

1. Spend, Value, and Strategic Importance: Suppliers are categorized based on spending volume and business importance.


2. Risk and Performance: Suppliers should also be assessed regarding potential supply disruption or financial instability.


3. Complexity of Products/Services, Innovation, and Improvement: Suppliers are segmented based on their required specialized management strategies for complex products/services.


4. Geographic Location and Business Unit Interaction: Suppliers’ segmentation is determined by the impact of their global or regional presence on logistics and market reach .

Also Read: How Businesses Can Drive Efficiency Through Vendor Consolidation?

The Way Forward

Supplier segmentation can elevate a business’s potential to the next level. Here is a case: Moglix implemented a vendor management system for a leading tyre manufacturer with operations across India and Europe, dealing with over 600 suppliers and 8000+ line items.

This system addressed challenges like fragmented suppliers, sourcing inefficiencies, and delayed deliveries by improving supply chain visibility and efficiency. The solution resulted in a 3% savings on the total cost of ownership, optimizing the manufacturer’s working capital, real estate, and resource bandwidth.

Suppose an organization is dealing with supply chain issues. In that case, it can seek expert consultation in the industry who can provide real-time insights, understand its core issues, and enhance its vendor management capabilities. For this, it can connect with Moglix for a consultation.