Article: understanding YOUR supplier footprint

A guide to Cross 8’s supplier categorisation framework

 

To remain competitive and grow sustainably, leaders face an ongoing challenge – how to unlock value and optimise costs across their organisation.

This often results in attention on reducing supplier costs and/or increasing the value that can be gained from them. But to achieve this, you have to ask yourself:

Do we understand our supplier footprint well enough to effectively tap into our suppliers’ full potential?

Our Supplier Categorisation Framework has been designed to provide businesses with a clear understanding of how to think about their suppliers and begin the journey to realising the full value their suppliers can bring to the business.

By following our strategic approach, leaders can navigate the intricate landscape of supplier relationships with confidence.

 

More than just cost

We often see organisations struggling to understand their supplier landscape, which leads to basic categorisation, usually centred around price.

We’ve found, however, that unravelling the supplier mix extends beyond a mere analysis of costs. It should involve essential attributes, such as:

  • Business Criticality: Suppliers aren’t created equal; some possess a direct influence on the core operations of the organisation, while others provide peripheral support. Identifying the suppliers that hold a pivotal role in your business continuity and performance is essential.
  • Size: When it comes to suppliers, size matters. We’re not talking here about the size of their contracts with your business, but rather the size of their overall organisation. Think in terms of their financial stature, and the number of employees they have. Larger suppliers might offer stability, while smaller ones could provide agility and personalised service.
  • Capabilities: A supplier’s capabilities extend beyond their product or service offerings. It encompasses their technical expertise, innovation potential, and ability to adapt to your evolving needs.
  • Geographic Location: Proximity can impact logistics, lead times, and even cultural compatibility. Understanding where your suppliers are located can be crucial in minimising supply chain disruptions.
  • Offering: The depth and breadth of a supplier’s offerings can influence your organisation’s ability to consolidate and simplify its procurement process. Do they bring something genuinely unique, or can you easily replace what they offer with an alternative product or supplier?
  • Competitor Analysis: Analysing whether your supplier has affiliations with your competitors could reveal potential conflicts of interest or provide opportunities for exclusive partnerships.
  • Risk: Assessing the risk associated with a supplier involves evaluating factors such as financial stability, operational vulnerabilities, and their own network of suppliers.
  • Industry Specialism: Suppliers with expertise in your specific industry can bring valuable insights and tailored solutions that generic suppliers might lack.
  • Integration with Your Organisation: Suppliers that seamlessly integrate with your processes and systems can enhance efficiency and collaboration, leading to more fruitful partnerships. On the other hand it can be harder to replace them if you’re not careful to build handover in early.
  • Strategic / Cultural Fit: A supplier’s alignment with your organisation’s long-term goals and values can contribute to the overall success of the partnership and foster innovation.
By embracing this holistic approach to supplier categorisation, organisations can transcend the limitations of price-centric thinking and make well-informed decisions that strategically align their supplier mix with their broader business objectives.

Recognising the importance of these attributes empowers organisations to build resilient and agile supplier networks that drive growth, innovation, and sustainable success.

 

our four tier category model

As you gain insight into your supplier footprint, you have the capability to construct a detailed supplier profile.
The process of categorisation should be aimed at differentiating between strategic, core and base suppliers, and recognising that even suppliers with lower expenditures might hold indispensable value.

 

1. Strategic Enterprise Suppliers

These suppliers are integral to the overall strategic direction of the organisation.

They often engage in long-term partnerships and provide goods or services that directly impact the organisation’s core operations, innovation, and competitiveness on an enterprise-wide basis.

These suppliers typically have a significant influence on the organisation’s success, and the relationship goes beyond transactional interactions.

Examples:

  • Technology Partner: A specialised software company that provides a critical software solution used across various departments within the organisation.
  • Raw Material Supplier: A supplier of raw materials essential for the production of the organisation’s flagship product.
  • Consulting Firm: A strategic consulting firm that assists in shaping the organisation’s business strategy, market positioning, and expansion plans.

2. Strategic Local Suppliers

These suppliers also hold strategic importance but are more localised in their impact. They might provide specialised services or products that cater to specific regions or markets. While their scope might be narrower than enterprise-wide suppliers, they play a crucial role in regional success and often foster close collaboration and customisation.

N.B. “Local” here can mean a department or function rather than a geography. The key differentiator between these first two categories is how far across your organisation the supplier provides goods/services – smaller businesses might not need to distinguish between categories 1 and 2

Examples:

  • Logistics Partner: A transportation and logistics company that handles the efficient distribution of products within a particular region.
  • Regional Marketing Agency: An agency responsible for tailoring marketing campaigns to suit the preferences and cultural nuances of a specific locality.
  • Local Packaging Supplier: A supplier that provides specialised packaging solutions optimised for the preferences and regulations of a specific region.

3. core suppliers

Sitting between the strategic and transactional tiers, core suppliers provide essential goods or services that are directly linked to the organisation’s primary operations but may not wield as wide-reaching an impact as strategic suppliers. They often exhibit a mix of strategic collaboration and transactional efficiency.

Examples:

  • Manufacturing Equipment Supplier: A company providing specialised machinery required for the production process of the organisation’s products.
  • IT Services Provider: An IT services company that manages the organisation’s network infrastructure, ensuring smooth day-to-day operations.
  • Component Supplier: A supplier of components or parts that are crucial for assembling the organisation’s final product.

4. base suppliers

These suppliers are primarily transactional and provide standardised goods or services that are commoditised in nature. Their products may well be essential for maintaining the operation, but the specific provider could be switched easily without detriment to the business. The relationship with base suppliers is often focused on cost efficiency and reliability.

Examples:

  • Office Supplies Vendor: A supplier that provides stationery, office furniture, and other essential items needed for daily office operations.
  • Cleaning Services: A company that offers routine cleaning and maintenance services for the organisation’s facilities.
  • Uniform Supplier: A supplier that provides standardised uniforms or work attire for employees.

conclusion

By going beyond cost and categorising your suppliers into these four tiers, you can develop tailored strategies for negotiation, supplier management, and collaboration.

Understanding the capabilities of your suppliers more deeply will help you establish more efficient operations, reduce supplier risks, and enhance innovation across your supply chain.

Finally, having a robust framework to follow that has been developed from Cross 8’s experience working across diverse sectors, not only enables you to identify potential avenues for cost savings more easily, it also gives you a clearer picture of the full value that your existing or potential suppliers could bring to your business.

To find out more contact us: contactus@cross8.co.uk or to download our framework infographic click here

 

 

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