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C. Deciding which suppliers to appraise
The first step is to develop a segmentation approach so that risk can be assessed. Typically this is done by looking at supply risk and supplier importance or criticality.
Peter Kraljic stated that the strategic importance of a given supply item (and in aggregate a contract or supplier) is related to its profit impact and its supply risk.
Profit impact can be volume or value purchased, impact on supply chain “value-add”, business growth potential or dependency. Supply risk can be product availability, number of suppliers, ease or cost of switching supplier or the availability of substitute products or services.
Segmenting your supply items can, therefore, be mapped out using the Kraljic diagram below.
Such an approach allows buyers and contract managers to position each contract systematically and determine whether appraisal is required. Those falling in the “bottleneck” and “strategic” categories are higher risk so should be properly appraised and checked. Those falling in the “routine” and “leverage” categories may not pose such a risk so may not require the same approach.
If category management is being used it is likely this segmentation will already have been completed as part of developing the category strategy. It should also provide;
• A view of existing contracts, suppliers and performance;
• The risk profile of the category, current contracts and suppliers;
• What issues and opportunities need to be addressed;
• A plan or strategy for the category and each major supplier.
The strategy also informs how existing suppliers should be developed and what performance targets have been set at a category and supplier level and how these will be achieved and monitored.
>> What to check
