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One of the fundamental concepts in sourcing and category management is segmenting your spending into logical
groups of similar items/services from similar suppliers and tailoring your processes that manage them. This is not a
new idea. Peter Kraljic’s seminal 1983 paper titled “Purchasing Must Become Supply Management” helped build
the foundation of the modern procurement organization by stating that strategic procurement organizations should
segment their supply base based on the importance of their spend and buyer/supplier market dynamics such as those
established by Michael Porter (and his 5 Forces framework) in order to formulate effective sourcing strategies.
Kraljic’s paper introduced this famous 2x2 supplier segmentation matrix of spend category importance of the spend
category vs. its supply market “complexity” – and the resultant quadrants
of leverage, strategic, bottleneck and non-critical.
More than 30 years later, the world has become much more complicated, but also has much more sophisticated
techniques and tools. On the demand side over the supply chain, massively sophisticated customer-facing analytics
working on “big data” allow firms to micro-segment their demand and customer bases based on hundreds of
variables to gain a competitive advantage by personalizing product offerings and serving them up in real time – and
making sure the supply chain can support this omni-channel model to the consumer. Yet, when you look at how well
companies can perform that same approach to the supply side, the majority of procurement organizations are still
stuck in the most rudimentary of segmentation models. However, this is starting to change in many ways. Just
consider these segmentations and the questions that you might ask yourself about tailoring your supply management
processes based on them (hint: the answer to all of them is “yes”):