segmentation is a strategic process in supplier management that falls between two
processes of selection and supplier relationship management (Rezaei and Ortt 2012).
The role and importance of supplier segmentation in supplier relationship management is very significant, and failure to properly execute it by the buyer company can
result in wasted time, too much cost, and collaborating with undesirable suppliers.
Rezaei and Ortt (2012) stated that:
Supplier segmentation is referred to as grouping a number of suppliers that share
common and similar characteristics and formally it is defined as follows (Rezaei and
Ortt 2012):
Supplier segmentation is the identification of the capabilities and willingness of suppliers by
a particular buyer in order for the buyer to engage in a strategic and effective partnership
with the suppliers with regard to a set of evolving business functions and activities in the
supply chain management
Supplier segmentation was examined by a number of researchers using a variety
of approaches and techniques. Parasuraman (1980) was the first to discuss the issue
of supplier segmentation. In his descriptive study, he introduced a four-step process
for supplier segmentation, which was based on customer segmentation. He argued
that the criteria used in supplier segmentation should be based on customer-related
criteria. Kraljic (1983) can be considered as the most influential scholar in the area of
supplier segmentation. The Kraljic matrix, based on supply risk and profit impact,
divides goods into four categories: noncritical items, bottleneck items, leverage
items, and strategic items. He proposed strategies for dealing with suppliers in
each of these sectors. Following Kraljic, many researchers have applied this
approach. As mentioned earlier, Kraljic’s approach was based on product characteristics and did not include SRM. In their study, Olsen and Ellram (1997) proposed
a three-step portfolio model based on different kinds of supplier relationships: (Step
1) analyzing the company’s purchases, (Step 2) analyzing the supplier relationships,
and (Step 3) developing action plans. They also proposed a two-dimensional
approach to supplier segmentation based on the difficulty of managing the purchase
situation and strategic importance of the purchase – along with its criteria). Svensson
(2004) conducted his quantitative research on supplier segmentation in the automotive industry. A two-dimensional approach was used based on supplier commitment
and the importance of commodities among vehicle manufacturers, and accordingly,
four supplier relationship strategies were introduced. Finally, a four-step process
designed to manage supplier relationships was proposed: analysis of the business
environment, analysis of the relationship criteria, selection of the relationship strategy, and managerial decisions involving the relationship strategy. Day et al. (2010)
found that all studies on supplier segmentation, up to that point, were conceptual or
based on questionnaires and case studies. The authors conducted a thorough review
of the available articles in terms of market conditions, supplier characteristics, buyer
characteristics, and buyer and supplier relationships. Rezaei and Ortt (2012) proposed a different approach to supplier segmentation, which became the basis for
many other studies. They developed a new approach based on three requirements:
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H. F. Lajimi
processes of selection and supplier relationship management (Rezaei and Ortt 2012).
The role and importance of supplier segmentation in supplier relationship management is very significant, and failure to properly execute it by the buyer company can
result in wasted time, too much cost, and collaborating with undesirable suppliers.
Rezaei and Ortt (2012) stated that:
Supplier segmentation is referred to as grouping a number of suppliers that share
common and similar characteristics and formally it is defined as follows (Rezaei and
Ortt 2012):
Supplier segmentation is the identification of the capabilities and willingness of suppliers by
a particular buyer in order for the buyer to engage in a strategic and effective partnership
with the suppliers with regard to a set of evolving business functions and activities in the
supply chain management
Supplier segmentation was examined by a number of researchers using a variety
of approaches and techniques. Parasuraman (1980) was the first to discuss the issue
of supplier segmentation. In his descriptive study, he introduced a four-step process
for supplier segmentation, which was based on customer segmentation. He argued
that the criteria used in supplier segmentation should be based on customer-related
criteria. Kraljic (1983) can be considered as the most influential scholar in the area of
supplier segmentation. The Kraljic matrix, based on supply risk and profit impact,
divides goods into four categories: noncritical items, bottleneck items, leverage
items, and strategic items. He proposed strategies for dealing with suppliers in
each of these sectors. Following Kraljic, many researchers have applied this
approach. As mentioned earlier, Kraljic’s approach was based on product characteristics and did not include SRM. In their study, Olsen and Ellram (1997) proposed
a three-step portfolio model based on different kinds of supplier relationships: (Step
1) analyzing the company’s purchases, (Step 2) analyzing the supplier relationships,
and (Step 3) developing action plans. They also proposed a two-dimensional
approach to supplier segmentation based on the difficulty of managing the purchase
situation and strategic importance of the purchase – along with its criteria). Svensson
(2004) conducted his quantitative research on supplier segmentation in the automotive industry. A two-dimensional approach was used based on supplier commitment
and the importance of commodities among vehicle manufacturers, and accordingly,
four supplier relationship strategies were introduced. Finally, a four-step process
designed to manage supplier relationships was proposed: analysis of the business
environment, analysis of the relationship criteria, selection of the relationship strategy, and managerial decisions involving the relationship strategy. Day et al. (2010)
found that all studies on supplier segmentation, up to that point, were conceptual or
based on questionnaires and case studies. The authors conducted a thorough review
of the available articles in terms of market conditions, supplier characteristics, buyer
characteristics, and buyer and supplier relationships. Rezaei and Ortt (2012) proposed a different approach to supplier segmentation, which became the basis for
many other studies. They developed a new approach based on three requirements:
122
H. F. Lajimi