Supplier’s Analysis Model
Now you know the fundamental steps to select the right suppliers for your organization (If you haven’t read about it yet, check it here!). So let’s look at what your suppliers think about your business. It is very easy to assume that your suppliers feel the same way you feel about them, but it isn’t always the case. I will introduce you a model that helps you to stand in your supplier’s perspectives in order to understand the power balance between your organization and the suppliers.
It is, as you already read the title, the Supplier’s Analysis Model (Booth, 2010) or also known as Seller’s Perception matrix (see figure 1 above). There are four quadrants based on the horizontal axis (Sales potential) and the vertical axis (Account attractiveness). First, let’s understand the meaning of each dimension and then go into detail of each quadrant. Sales potential represents for the value of your business to your suppliers. For example, what are the revenue they receive from your account in respect of your spend to them as well as with regard to their total revenue and other large clients. Moving to account attractiveness, this measurement is usually rather subjective and to some extent will be driven by the alignment of your strategy with that of your suppliers. For instance, if you are a pioneering organization, you maybe interested in piloting your supplier’s products or collaborating on new ventures. Let’s investigate each quadrant!
It can be seen that the sales potential is low, but the account is attractive to the supplier, meaning your business is perceived as something to nurture. Thus, your business, as a client, is located in a good place where the supplier will be keen on to build your business and go the extra mile.
If the sales potential is high and the account is attractive to the supplier, he will view your business as core to its success. As a result, you can expect that the supplier will give your business board-level attention, which leads to reliable service, keen pricing and a focus on your strategic ambitions and its contribution to them. Connected with the Kraljic Model, if this supplier also supplies strategic goods or services, you really want to treat this relationship as an alliance.
This stage is where your business is not valued either from a sales or account point of view. Consequently, your supplier will not be much bothered about wining or retaining your business, which could cause low-quality service and a limited interest in responding to any tender you issue. In this case, feasible options are to improve your business attractiveness, or to seek alternative suppliers.
If your sales potential is high while your account is not valued, you will be seen as exploitable. In this scenario, the supplier will be willing to take your business as a way to maximize his current income, but won’t be bothered about its quality or the values delivered to your business. So for these circumstances, you really want to review your relationship with the supplier, adjust contract terms, improve negotiations and possibly the supplier’s view of your business, or seek for new suppliers.
What could be more useful is to combine this matrix with the Kraljic Portfolio in order to identify the relative dependence between the supplier and the buyer, which could possibly point out the level of risk in the buyer-supplier relationship. This combination can also be used to determine an overall picture of the relationship over the next 1 to 3 to 5 years, and whether a match exists currently and how it may change in the future. An illustration of the combined Kraljic and Supplier’s Analysis matrix with advised actions in each combination (e.g. strategic and core, leverage and opportunity, etc.) is shown below.
Figure 2. The combined Kraljic and Supplier’s Analysis matrix (Spring Tide, 2010)
Take your time to study the matrix!
Another better way of visualizing this combination is called the Dutch windmill purchasing model (figure 3). It demonstrates 16 business-to-business relationships, each of which calls for a different sourcing strategy.
Figure 3 – Dutch windmill purchasing model (van Weele, 2018)
In conclusion, it is important to look at your expenditure and supply base together with your position in the suppliers’ view. If poor supplier engagement occurs, you can focus on securing better supplier performance by making your business more attractive to them. If you better manage your leverage category, you can bring cost reductions. What to say more is that a buyer-supplier match could lie in the cultural fit and strategic alignment, together with the growing direction of building a long-term partnership rather than cost-orientation.
Thank you for reading and share if you find it useful!
IMPROVING THE BUYER ATTRACTIVENESS FOR SUPPLIERS: How to improve the position of a depending buyer? (van der Schans, 2014)
Purchasing and Supply Chain Management (van Weele, 2018)
Series Supply chain digitalisation, procurement and inventory management
Find the balance between your organization and suppliers by using Supplier’s Analysis Model.
Selection of the right suppliers for your supply chain (Part 2): suppliers evaluation and criteria of suppliers selection.
Selecting the right suppliers for your supply chain using Market maturity curve model.
Procurement process, the Maturity Curve model, the Supplier’s analysis model, and the Kraljic Portfolio.
Supply chain digitalisation via an IT platform which connects different companies’ ERP systems while improving the focal company’s supply chain performance.