A recent piece over on Procurement Leaders noted how the author had several recent conversations about how the Kraljic Matrix has become outdated (and, as per our series last week, it has) and how one consumer goods company came up with their own approach to supplier segmentation to “leverage critical supplier capabilities to maximise value”. More specifically, he company has focused its supplier segmentation on two completely different matrices: first, the level of engagement; and second, suppliers’ ability to execute commercial growth and capabilities in an attempt to allow the company to do is to segment suppliers based on the strength of their relationship and the specific value they should bring to the business.

And, in effect, shift the Kraljic matrix from “noncritical, leverage, bottleneck and strategic” to “transactional, essential, visionary and strategic”.

It’s progress, but not much. It’s making the same error that every analyst firm (and even analyst) is making, and that’s thinking that segmentation can be appropriately captured by a 2*2.

As per our series last week on what the Busch-Lamoureux Exact Purchasing framework really is, it’s not a matrix, it’s a pocket cube^* — which accomplishes the goal of the Kraljic matrix by appropriately segmenting categories in a manner that allows them to be properly managed from a supply-assurance based Procurement perspective. This is the point you need to start from if you want to create a supplier segmentation strategy for appropriate supplier management.

Then you see it’s not just

• transactions (transactional in Exact Purchasing)
• essential (governance in Exact Purchasing)
• visionary (risk monitoring in Exact Purchasing)
• strategic (architecture in Exact Purchasing)

Because

• transactions can be low impact (and non-critical) or high impact (and create a bottleneck if they don’t show up)
• governance can be accomplished at the spend level if the spend is low impact, but needs to be relationship level if the spend is high impact
• risk monitoring is enough (and no vision required) for low impact spend but detailed risk management with mitigation plans that involve strategic, and maybe visionary, relationships will be key for high impact spend
• strategic can be accomplished through cost architecture and mitigation strategies for low impact categories, but require detailed supply chain architecture with supplier participation in the high impact categories

This means that there are at least seven categories that need appropriate supplier management — all of the high impact transactions, plus the cost architecture (as you need supplier input), market risk management (as you need supplier relationships to rapidly shift demand), and relationship governance (as you need cooperation to manage obligations). And the degree of management depends on the categories.

Plus, to make matters even more difficult, some suppliers will cross multiple categories — which means that you can’t just put them into the most intense management category and treat all interactions as interactions in that category. You have to take the category into account, and focus the management on what’s critical, not what isn’t. Management requires HUMAN INTERACTION, and you only have so many people with so much time to build the RELATIONSHIPS, so you have to focus based on the category being supplied.

In other words, it’s not a matrix, it’s a cube that manages the supplier based on the category impact to the P&L, the market risk (that lies primarily with the supplier or the supply chain they introduce), and the complexity (where the supplier needs to be able to produce items that meet the complex requirements). And suppliers who supply more than one category will fall into more than one bucket.

In other words, to fix supplier management, first fix Purchasing.

(And that’s why it’s so critical to Take Purchasing.)

^* and, one that’s different for every industry, which might make it a 4-polytope, but since each company can customize the pocket-cube, we’ll stick with the pocket cube