Supplier segmentation becomes critical for resilience and strategic advantage post-pandemic

The COVID-19 pandemic has elevated supplier segmentation from a best practice to an essential strategy, enabling organisations to enhance supply resilience, optimise resources, and foster innovation through targeted vendor relationships.

The supply disruptions triggered by the COVID-19 pandemic forced many organisations to re-examine how they manage vendors, prompting a sharper focus on which supplier relationships merit close attention and which can be handled more tra...

nsactionally. Supplier segmentation has emerged as a central tool for directing scarce procurement resources where they produce the greatest strategic and operational benefit.

Supplier segmentation is the practice of grouping vendors according to criteria such as strategic importance, supply risk, spend and the difficulty of replacing them. According to SearchITTarget, practitioners commonly apply the Kraljic model, a two‑axis matrix originally proposed in 1983, to differentiate suppliers by risk and value, creating categories that range from commodity providers to those supplying critical, hard‑to‑replace technologies. David Saunders, senior consultant at Ultra Consultants, describes segmentation as a way to “understanding a company’s vendors and their importance to the organization,” and as a foundation for targeted supplier relationship management.

Industry commentators and procurement platforms echo the practical advantages. Prokuria and Supply Chain Dive note that segmentation enables procurement teams to allocate effort and budget more efficiently, reduce exposure to disruption, and cultivate innovation by prioritising collaboration with strategically important partners. GraphiteConnect emphasises that segmentation supports tailored engagement strategies, helping firms manage supplier risk and improve overall supply‑chain performance.

Organisations most often implement a tiered approach. The Deloitte priority model, cited by SearchITTarget, divides vendors into three broad bands, transactional, important and strategic, roughly corresponding to a base‑to‑apex pyramid. Peter Bolstorff, formerly of the Association for Supply Chain Management, notes that transactional relationships typically account for the bulk of supplier counts, while the strategic and important tiers absorb most procurement spend and require senior oversight. He warns that segmentation must be owned at the highest level: “Segmentation is a strategic issue, and it has to happen at the highest level with the chief procurement officer and chief supply officer,” and “They [need to] own it and [be] accountable for it.”

Beyond categorical frameworks, many organisations assess suppliers using a risk‑versus‑value lens. Supply Chain Dive reports that COVID prompted renewed scrutiny of high‑risk vendors, whether high‑value or low‑value, and encouraged firms to diversify sourcing geographically to reduce concentration risk. Bolstorff recommends adding alternative sources, such as nearer‑shore suppliers, even at higher unit cost, to balance resilience against price.

Technology plays a pivotal role in making segmentation practical at scale. SearchITTarget and supply‑chain consultants identify ERP and SCM suites, plus specialised procurement platforms such as Ariba, Coupa and newer networked products like One Network, as enablers of automated supplier analysis, scorecards and category management. Michael Wohlwend of Alpine Supply Chain points out that the pandemic accelerated demand for systems able to provide fast, granular visibility into what is being sourced and from whom. ProcurementJourney and other sources emphasise the need for specific functionality, invoice processing, supplier communication, contract lifecycle management, intelligent analytics and ESG compliance, to turn segmentation from a static exercise into ongoing governance.

Measuring success requires both external and internal indicators. Bolstorff suggests tracking supply reliability and agility, the ability to meet fluctuating demand and absorb shocks, as customer‑facing metrics, while monitoring inventory levels, payment terms and cost performance internally. Supplier scorecards, supported by performance‑management tools, provide the continuous feedback loop needed to adjust segmentation as market conditions change.

Practitioners also stress that segmentation should not become a purely mechanistic exercise. Several industry pieces caution that qualitative judgements, on a supplier’s innovation potential, strategic fit or collaborative willingness, must complement quantitative scoring. SupplyChainDive and PackSend argue that grouping suppliers thoughtfully can unlock innovation through strategic partnerships, while commodity suppliers can be managed for efficiency through standardised processes.

The pandemic has turned supplier segmentation from a best practice into a business continuity imperative for many firms. SearchITTarget reports that companies which had embedded segmentation among their SCM practices were quicker to detect demand shifts and rebalance supply in late 2019 and early 2020; those firms generally achieved better outcomes during the crisis. For organisations that lagged, the lesson was stark: without robust segmentation and governance, procurement risks slipping into reactive survival mode.

Supplier segmentation, when combined with the right governance and technology, offers procurement leaders a means to concentrate attention and investment where it matters most, reduce exposure to disruption, and build partnerships that contribute to long‑term competitive advantage. According to the various industry sources surveyed, the discipline works best when treated as an executive‑owned strategy, operationalised through targeted capability investments and maintained through continuous performance monitoring.

Source: Noah Wire Services