Supplier Qualification, Classification and Segmentation

Ariba, Indkøb, Teknologi | oktober 30, 2015 |

These days, large corporations typically have a very large supplier database. Some supplier lists consist of several hundred suppliers, while others may exceed tens of thousands. What all these cooperations have in common is that a regular maintenance of the supplier lists is needed.

You could say that it is enough to just have a look at whether or not you have done business with the suppliers in the last months. But is that really sufficient? It might even be that a particular piece of work only happens once a year and that a high potential supplier barely missed out in the last 2 negotiations. Should you then remove these suppliers from your list?

Now I would like to suggest a way to organize your supplier list. This is based on an average of several projects international projects covering a multitude of different categories. Therefore this method is intended to act as inspiration (from which you can cherry-pick according to your own needs) and not as a one-size-fits-all approach.

Läs guiden: Ariba Strategic Sourcing in a nutshell

Firstly, there are 2 different levels where you can put any relevant details concerning the supplier.

  1. At the supplier level This way you can place your findings for the supplier as a whole.
  2. At a combination of Supplier, Region and Category (or any other relevant combination)
    This way you can specify for instance that a certain supplier is welcome to supply product X at location A. But under no circumstances can they deliver product Y at location B.

Secondly, you should take the following criteria’s into account as well:

  1. Qualification: grouping suppliers based on whether they have gone through an internal qualification process. Different statuses could be: In Qualification, Qualified, Not Qualified, Qualified Under Conditions.
  2. Classification: grouping suppliers based on how Purchasing considers them. Different statuses could be: Potential, Standard, Preferred, High Value Partner, Key Supplier.
  3. Segmentation: grouping suppliers based on their impact on the business. Different statuses could be: Potential, Operational, Tactical, Strategic.

Now you can look at what criteria’s should exist at what level.

In an ideal world one could say that suppliers should be qualified, classified and segmented for all different products and services for all different locations. There are indeed huge benefits to be achieved by this such as; higher customer satisfaction, reduced friction costs and there are many more benefits which are all leading towards a lower TCO. On the flip side of all these benefits, are the maintenance costs which go hand in hand with the work required to do this for all of the combination of supplier, location and products/services.

In a more realistic world – where there are no unlimited amount of time, resources and budget – one should probably go for a combination of these thing. One way to do this would be the following:

  1. At supplier level, you can do Classification and the Segmentation
  2. At a combination of Supplier, Region and Category level, you can set the Qualification

This way you do get the benefits of identifying the supplier as a whole as i.e. Strategic and High Value Partner. And you can also specify whether the supplier is qualified (or not) to deliver something at one of your locations.

And once this is done, you can even follow it up with extra deliverables for all of your Key Supplier or easily making sure that all of your High Value Partners are included in future sourcing initiatives or any other benefits which comes out of a structured and up-to-date supplier list.

Whether or not the above mentioned example is sufficient for your organization still depends of many things, but I sure hope that you may find some inspiration out of these thoughts and I wish you all the best in making the continuous effort of turning your supplier database into an even more useful database.

Curious to learn more about strategic sourcing ? Check out our White Paper Strategic procurement.

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