A multi-variable approach to supplier segmentation

The aim of this paper is to develop a new approach to supplier segmentation that considers the various variables used in existing literature to segment suppliers. A literature review reveals a serious problem from a management perspective. The problem is that many different supplier segmentation methods have been proposed in the last three decades, each of which uses different segmentation variables and hence results in different segments. An overarching supplier segmentation method, considering various segmentation variables, is lacking. Based on an extensive literature review, we have analysed the current methods and we conclude that the literature on supplier segmentation can be divided into three different schools of thoughts. By clearly identifying the deficiencies of the existing theory on supplier segmentation, we developed a new approach. As the basis for this new approach, we developed three requirements to make an overarching approach to supplier segmentation. Firstly, supplier segmentation should be based on their long-term potential, which we propose to assess in terms of supplier capabilities and willingness to cooperate. Secondly, other functional areas beyond purchasing have to be considered when segmenting suppliers. Thirdly, supplier segmentation should be viewed as a step in a longitudinal process that includes selecting suppliers, segmenting them, managing the relationship with them and actively developing their role over time. We illustrate the proposed approach by segmenting the suppliers of a company in the food industry.