How do you segment your suppliers and identify opportunities for consolidation and rationalization?

Start with ABC and pareto analysis which would give preferred and non preferred suppliers. With time try to get maverick spend in visibility and manage the tail spend. A panel of suppliers in the preferred section would help... Once the category matures and you have the visibility go for Kraljic matrix and subcategory mapping.

A segmentação de fornecedores é um processo essencial que envolve agrupar fornecedores com base em critérios como volume de gastos, risco, desempenho, importância estratégica e valor potencial. Isso ajuda a priorizar esforços e recursos, personalizar relacionamentos e contratos, e aumentar o poder de negociação. Dependendo dos objetivos e disponibilidade de dados, diferentes métodos e ferramentas podem ser utilizados, como a matriz Kraljic, o princípio de Pareto ou a análise ABC. Cada abordagem oferece insights valiosos para uma segmentação eficaz dos fornecedores, permitindo uma gestão mais estratégica e eficiente da cadeia de suprimentos.

Supplier Classification: Categorize suppliers based on criteria such as strategic importance, product or service category, and financial stability to create distinct segments. Performance Metrics: Evaluate suppliers using key performance indicators (KPIs) such as delivery reliability, quality, and responsiveness, identifying high-performing and underperforming segments. Cost Analysis: Analyze costs associated with each supplier segment, considering factors like procurement, logistics, and inventory holding costs to identify opportunities for consolidation. Strategic Alignment: Align supplier segments with the overall business strategy, focusing on partnerships that contribute most effectively to organizational goals.

Suppliers are an essential cog in the Supply Chain. They are one of the levers through which organizations make their competitiveness stronger. You could always look at your suppliers based on the following lenses:- 1) Exclusivity - Works only for you vs works for all 2) Prod. Quality - Acceptable standard vs Best In Class 3) Price - Market competitive vs Expensive than market 4) Delivery SLAs - On Par vs Better than competition This would give you a rough idea on how your entire supplier network is spread out. One could assign a weightage factor to each of these and arrive at a supplier ranking. Then you could easily find out the Pareto of the same, and segment them basis your need.

Segmenting suppliers helps tailor your procurement strategy to manage them effectively. For instance, by dividing suppliers into categories such as strategic, preferred, and transactional, you can identify high-impact opportunities for consolidation. If 60% of your spend is with top 10 suppliers, consolidating these relationships might yield a 15% cost reduction through volume discounts. This segmentation enables targeted negotiations and more efficient management, driving better value and optimizing your supply base.

Suppliers are on boarded based on vendor card viz: 1.Quality 2.Penetration 3.Credit holding capacity 4.Pricing 5.Fill rate Consolidation is a postmortem on above parameters breached.

In my experience, especially in the MRO/indirect space, there is always a long "tail" of smaller/redundant suppliers. Having accurate spend data makes this easy as you can identify which suppliers have a low spend and you can use the line item detail for those suppliers to get quotes from strategic partners in order to consolidate spend. Once the consolidation is completed, there needs to be robust master data procedures in place in your organization to prevent new redundant suppliers. Any new suppliers must be consistent with the overall strategy, otherwise they are not considered and the purchase should be redirected to a strategic or other approved supplier.

Outro ponto relevante é o papel da avaliação de desempenho dos fornecedores no processo de consolidação. Após a seleção e negociação com os fornecedores escolhidos, é crucial estabelecer métricas claras e mensuráveis para avaliar seu desempenho ao longo do tempo. Isso pode incluir indicadores-chave de desempenho (KPIs) relacionados a qualidade, entrega, custo e serviço ao cliente. Monitorar regularmente o desempenho dos fornecedores permite identificar áreas de melhoria e oportunidades de colaboração para garantir que eles estejam cumprindo suas obrigações contratuais e atendendo às expectativas da empresa. Essa abordagem proativa ajuda a manter a eficácia da consolidação de fornecedores a longo prazo.

Analyze and Prioritize: Assess your current supplier base. Prioritize suppliers based on their impact, cost, and strategic importance. Focus on influential suppliers first. Use scoring model or TCO, for example. Negotiate Aggressively: Leverage consolidation to negotiate better terms. Seek volume discounts and favorable contracts. Use fact-based negotiations to push suppliers. Main idea - the supplier will have more volumes when we decrease the number of suppliers, so it has to be flexible with prices.

You can define the main purchasing categories based on the Kraljic matrix and within you define your Strategic, backup and renewal suppliers. This will cause them to specialize, reduce the quantity per type of purchase and ultimately improve costs, times, administrative/operational processes and have global, standardized purchases with savings in scale. In this way you will turn your suppliers into allies that make your business more competitive and profitable.

Supplier rationalization is the process of optimizing the performance and value of your existing suppliers, whether by improving their capabilities, aligning their expectations, or incentivizing their behavior. It helps improve your supplier relationships, increase visibility and control, and create a competitive advantage in your market. To rationalize your suppliers, you need to measure and monitor their performance, communicate and collaborate with them regularly, and reward or penalize them based on their outcomes.

In order to rationalize suppliers, it is important to have a thorough supplier scorecard or monitoring system in place. This should be in conjunction with an escalation policy where the supplier is held accountable if they violate certain criteria. But in a practical sense, you should be able to monitor and measure key factors for both direct and indirect suppliers e.g. quality performance, delivery performance, payment terms, certification status, etc. By doing so, you are able to give the supplier a clear view of where they stand with your company based on their own performance and they know that to win any new business they will have to maintain a good score or be required to put an improvement plan in place.

To rationalized suppliers, I found it helpful to first deep dive on the current situation 'gemba walk' and understand why it is that way. Understand the key strengths of each supplier based on Supplier Review Meetings, if this are not happening, I would highly recommend it before embarking on Rationalization. Sometimes especially for global suppliers, their performance in different countries could be different and it's important to note this and address it before hand. Understand the spend and what is the best way to optimise or aggregate. Understand the macro environmental factors of the region so that the rationalization fits the socio-political, socio-economic and Demographics. Leverage on existing systems and infrastructure.

Rationalize your supplier base by evaluating supplier performance, capabilities, and alignment with strategic objectives. Conduct supplier performance reviews to assess quality, reliability, responsiveness, and innovation. Identify underperforming suppliers and assess the feasibility of consolidating or replacing them with more capable alternatives.

Use 2 steps: Form a Cross-Functional Team: Assemble a team comprising members from IT, sourcing, procurement, and supplier relationship management. Their direct experience and supplier interactions are invaluable. This team will oversee and execute the rationalization process. Segment Suppliers Strategically: Categorize your suppliers based on their value and risk to your business. Consider segments like strategic, preferred, tactical, or non-critical. Define specific objectives for each segment, such as collaboration enhancement or cost reduction. Remember, supplier rationalization aims to reduce costs and increase efficiency.

Segmenting your suppliers and pursuing consolidation can unlock powerful benefits. Imagine trimming your supplier list to top performers, which could cut procurement costs by 15% and boost delivery reliability by 20%. By focusing on fewer, high-impact suppliers, you gain better leverage and foster stronger partnerships. Think of it as simplifying your supply chain for smoother operations and enhanced innovation. The result? Streamlined procurement that not only slashes costs but also elevates service quality, turning supplier management into a strategic powerhouse.

Consolidation: -reducing the number of suppliers for similar goods/services leads to volume discounts. -fewer suppliers mean simpler procurement processes and reduced administrative costs -with fewer suppliers, it's easier to maintain and monitor quality -a higher spend with fewer suppliers can provide more leverage in negotiations. - simplifies the management of supplier relationships, contracts, and communications.

Segmentation: - possibility to concentrate on suppliers that are critical for operations or have the potential for strategic partnerships - tailored supplier relationship management, ensuring the right level of attention - better tracking of supplier performance against specific criteria or expectations - provides insights into the importance of each supplier, leading to more informed negotiation strategies.

- Segmentation: Enables tailored strategies, resource allocation, and performance measurement for different supplier groups. Improves visibility and control over supplier relationships. - Consolidation: Drives cost savings, reduces complexity, and streamlines procurement processes. Strengthens negotiating power and improves supplier collaboration and relationship management. - Rationalization: Enhances supplier performance, quality, and innovation. Reduces supplier risk and increases supply chain resilience. Optimizes resource allocation and enhances overall supply chain efficiency.

Supplier Consolidation: Streamlining operations by combining suppliers. A historical example involves Toyota during the 2008 financial crisis. They consolidated suppliers, negotiated better terms, and improved efficiency or Apple reduced its supplier base, leading to cost savings and better quality control for components like iPhone screens.

Segmenting and consolidating suppliers can be a game-changer, but it’s not without its hurdles. Imagine trimming your supplier list by 20%—while this can cut costs and streamline operations, it may also disrupt existing relationships and introduce risk if a key supplier falters. Balancing power dynamics becomes crucial; relying on fewer suppliers might increase dependency. Additionally, accurately measuring potential benefits requires meticulous data analysis and negotiation, which can be complex and time-consuming. Overcoming these challenges involves strategic planning and clear communication. By navigating these obstacles effectively, you can turn supplier consolidation into a powerful lever for cost savings and operational excellence.

- Segmentation: Requires accurate and comprehensive data for effective segmentation. May face resistance from stakeholders accustomed to existing supplier relationships or processes. - Consolidation: Challenges include identifying suitable consolidation opportunities, negotiating with incumbent suppliers, and managing change internally and externally. - Rationalization: Challenges include assessing supplier performance objectively, managing relationships during rationalization efforts, and mitigating potential disruptions to supply continuity.

Internal Resistance and Conflict: Challenge: Reducing suppliers may face resistance from internal stakeholders. Employees resist change due to familiarity with existing vendors. For example, A manufacturing company consolidates office supply vendors. Some employees resist, fearing disruptions to preferred suppliers. Supplier Dependency and Single Points of Failure: Challenge: Relying heavily on a single supplier is risky. Disruptions affect the entire supply chain. Example: An electronics manufacturer consolidates microchip suppliers. A fire at the sole supplier’s factory halts production.

Segmentation, consolidation, and rationalization pose several challenges. Segmentation requires accurate data and analysis, which can be resource-intensive. For example, categorizing 50 suppliers effectively demands detailed performance metrics. Consolidation may risk over-reliance on fewer suppliers, increasing vulnerability if issues arise. Rationalization can lead to disruptions if key suppliers are phased out improperly. For instance, losing a critical supplier might impact production timelines. Balancing cost savings with these risks and managing the transition smoothly are essential to overcoming these challenges and achieving the desired benefits.

To kick off supplier segmentation, consolidation, and rationalization, start by diving into your supplier data. Categorize suppliers by spend, performance, and importance—like sorting them into “strategic” and “transactional” categories. Look for overlaps and inefficiencies; for instance, if you’re working with five suppliers for similar products, aim to consolidate to two or three high-performing ones. Next, develop a phased consolidation plan to minimize disruptions. Measure success by tracking key metrics such as cost savings—target a 10% reduction—and improvements in service levels, like a 20% boost in on-time deliveries. This approach not only streamlines your supply chain but also enhances overall efficiency and partnerships.

By applying these strategies, we ensure that our supply chain is resilient and efficient, paving the way for sustainable growth and innovation. Let's continue to share and implement best practices in category management to achieve greater success in our respective industries.

Segmentation, consolidation, and rationalization come with challenges such as data complexity and risk management. For example, accurately categorizing 40 suppliers can be time-consuming and require detailed analysis. Consolidation may increase dependency on fewer suppliers, potentially disrupting supply chains if a major supplier faces issues. Rationalization can cause initial disruptions if key suppliers are cut. Balancing cost savings with these risks and ensuring a smooth transition are crucial to addressing these challenges effectively.