1. What is the decision problem the group faced in this case?

At present one of the issues that the social occasion is going up against is to keep up its
enormous stock base involving 8,700 direct material suppliers. Having such endless
suppliers is risky for a couple of reasons.

● The spend per provider and the volume of material provided by the provider is
divided to the point that it is difficult to acquire volume influence on crude
materials from providers, which doesn't make the association exceptionally cost-
effective.

● It is hard to keep up an especially colossal relationship with suppliers considering

the gigantic degree of work resources expected to pull in suppliers in gainful
undertakings.

● Moreover, the group recognizes that in order to maintain its leading position, it
needs to be innovative, which is not always possible if it is only done with its own
research team.

Therefore, it is imperative for it to develop strong relationships with suppliers that will
help it to innovate. Having a large supply base limits this possibility.

2. What are the key considerations for segmenting the suppliers?

Supplier Segmentation: No two suppliers are alike, as they can impact your business
in different ways. Because of this, suppliers must be divided into different groups.
Supplier segmentation is the process of dividing suppliers into distinct groups based on
needs, characteristics, or behavior.

This process incorporates:

1. Differentiating suppliers
2. Preparing supplier segmentation teams
3. Reviewing supplier segments
4. Identifying opportunities with suppliers
 5. Developing product/service agreements
6. Implementing agreements
7. Measuring performance
8. Generating supplier/cost profitability reports.
9. Types of supplier segmentation
10. Based on the product/service supplied, suppliers can be classified into one of
four quadrants (also known as the Kraljic Matrix.)
11. Commodity
12. Strategic
13. Standard

However, the classification can also depends on:

1. Money spent
2. Product/service complexity
3. Breadth of supply base
4. Volume of supplied goods and/or services

Taking into account these attributes, you could segment your suppliers by:
Spend: Annual spend with a supplier is essential. You should also take a look at the
spend growth as there could be a supplier that doesn’t have substantial spend, but you
plan on increasing their scope and consider them as a strategic partner in the future.

Innovation/collaboration: This refers to the specificity of the offers whether the

supplier is offering a unique or customized product/service or an off-the-shelf one.
Breakthrough offers together with your supplier, you’re creating a new market segment,
entering a new market, capturing market share, etc.

Supplier risk: This not only influences the supplier segmentation but also your sourcing
strategies and supply plans. There are two types of risk you should consider.
Potential failures: This helps you assess the magnitude of the impact on your
organization caused by a failure of supplier products/services.

Actual failures: past incidents/events are analyzed to determine the effect they had on
business continuity.

Customer impact: suppliers whose products/services enable you to enhance your

customers’ experience or increase your customer base significantly should be
considered strategic partners.

Key consideration supplier Should have:

● Suppliers that co-invest, co-develop products. The suppliers are difficult to

replace because of a high level of integration.

● Suppliers who have a moderately deep relationship with the company. These
suppliers have short to midterm agreements (1–3 years) with the group. The
suppliers are expected to have high operational performance in terms of cost,
quality, delivery and responsiveness. The group /divisions /regions /entities have
a significant amount of spend with them. The suppliers are difficult to replace
because of the high spend with them. Segment

● The suppliers that fulfil the minimum requirements, such as the Code of Conduct
for the group. The group only has transactional relationships with these suppliers
and may or may not have a contract with them. There are many alternative
suppliers in the market, hence, these suppliers are easy to replace. Segment

● Suppliers that have not fully met the criteria of the group's Code of Conduct.
Suppliers that have failed any of the audits (sustainability or quality). Segment 5
Suppliers that have very low annual spend volume and can be replaced by an
existing more capable supplier. Suppliers supplying to only one entity (e.g., a
manufacturing unit or a sales unit of the group.
3. What alternative segmentation models are available to the decision maker?
The provided alternative segmentation models in the Decision Makers are:
1. Caniëls & Gelderman Model, 2007
2. Dyer, Cho, & Chu Model, 1998
3. Haghighi, Moradi, & Salahi Model, 2014
4. Kaufman, Wood, & Theyel Model, 2000
5. Kraljic Model, 1983
6. Nellore & Söderquist Model, 2000
7. Olsen & Ellram Model, 1997
8. Pagell, Wu, & Wasserman Model,2010
9. Rezaei & Ortt Model, 2012
10. Svensson Model, 2004
11. Alticor Model, 2005

It was the team leader's next lead to come up with another segmentation model for
consideration. According to Dyer et al. (1998), there are two dominant types of supplier
segmentation models: the arm's length and the partner model.

Some other authors (Day et al., 2010) classify supplier segmentation in two taxonomical
constructs power and dependence and the relational factor.

The Kraljic model falls under the arm's length model category, which is based on the
buyer–supplier power relationships in the market. The partner model, in contrast, values
the supplier's commitment and focuses on the buyer–supplier commitment relationships
to each other. For the team leader the partner model proposed by Svensson (2004) for
the automotive industry seemed a suitable choice for consideration.
4. What segmentation model do you recommend for the case organization and
why?
Well I read the case and would like to recommend a model Alticor (2005). developed by
a consultant company

Why do I recommend this Model for the case:

According to this model, only 1% of the supply base can be tagged as a partner.
Moreover, organizations should strive to maintain a close relationship with the partner
suppliers with a high level of integration.

The preferred suppliers according to this model are, on the contrary, the ones critical to
the organization's success and those that are difficult to replace.

The level of integration with the suppliers should still be high but not as high as it is with
partner suppliers. With approved suppliers, the organization should have a transactional
relationship.

The approved status comes from the suppliers passing the minimum requirements (e.g.,
agreeing to a code of conduct) to be a supplier of the buying firm. The conditional
segment according to the model should contain suppliers which are easily replaceable.

Suppliers Beyond Models The suppliers in this segment do not have any signed
contracts with the organization and relationships with these suppliers are necessarily
the arm's length type. The last segment of the suppliers, which is termed as “eliminate,”
is for those suppliers that the organization is considering eliminating in the near future.