Activity 20
Supplier preferencing
Overview
Originated by Paul Steele and Brian Court in the mid-1990s, this model enables procurement functions to understand how a supplier might value its account with them. It suggests that from the supplier’s perspective there is a correlation between the attractiveness of the buyer’s account and the revenue generated, which in turn affects how the supplier will manage its account with the buyer.
In many ways, this matrix provides a counterview to the Kraljic matrix in that it is a representation of the supplier’s perspective of business.
Elements
The horizontal axis of the matrix is represented by the relative value of business to the supplier, which serves as a measure of potential revenue. The vertical axis of the matrix represents the attractiveness of the account, which can be quantified in terms of prestige, future business and so on. Each quadrant can be interpreted as follows:
- Develop/nurture – These are accounts that bring little in terms of value to a supplier but are very attractive in terms of potential. They are often seen as the supplier’s future, and much focus is placed on developing this segment of customer relationships.
- Core/protect – These are accounts of both high value and high attractiveness. They are seen as core business, and the supplier places emphasis on levels of service in order to defend its position, while attempting to increase business.
- Nuisance – These are organisations that bring little in terms of value and potential. In this case the supplier might be expected to show little interest or support, and may be actively making efforts to withdraw.
- Exploit – These are organisations that may have a high volume of sales, forming substantial revenue, albeit from an account that is not considered to be attractive. In this case, the supplier may concentrate on driving short-term benefits, as retaining the long-term relationship is not considered important.
So what?
This is a useful segmentation model for category managers. It provides a counterperspective to Kraljic’s purchasing portfolio matrix and can help explain a supplier’s approach towards customer relationship management.
The procurement function can use the outputs from the segmentation exercise to orientate resources and inform decisions in relation to category and supplier relationship-management strategies, amongst others.
Category management application
- Assists in the development of category management strategies
- Aids both supplier and supply-market analysis
- Provides focus to category management activities
- Helps interpret supplier behaviour
Limitations
One of the obvious limitations of this particular model is that it is predicated totally on guesswork. The category manager is required to make assumptions as to how attractive the account might or might not be, as well as what the value of the account is in relation to the supplier’s other accounts. From here, the category manager then is expected to use this model to second-guess how the supplier will react.
Some criticism has also been levied at the terms given to the two lower quadrants. The model was developed in the mid-1990s, and since this time, greater emphasis has been placed on customer service and account management. While the model may contain some truisms, the notion that suppliers will treat some customers as a nuisance, while exploiting others, is disingenuous to most modern service-based organisations.
Finally, although billed as a counterview of Kraljic’s matrix, care should be taken when comparing the outputs of these two models. Kraljic’s focus is about profiling a category of expenditure, while supplier preferencing is about profiling a specific supplier’s account-management style. The two are very different and should not be automatically cross-referenced.
Template
The following template can be used to understand the suppliers’ perspective:
- Template 20: Supplier preferencing