I built the Supplier Pool Matrix as a practical tool when just starting a new assignment as regional category manager. I needed to understand the current supplier situation and to establish a plan for spend concentration and SRM programs aligned with the company’s business needs. Moreover, as a regional procurement team, we needed to have one agenda driving in same direction without colliding initiatives concerning the supplier strategy. At a first glance, the Supplier Pool Matrix looks like a simple table only with some supplier names stated. It’s so much more than that! In fact, this little table became the most important document and working tool in the entire procurement category team. Read more, and you will understand why.
Make your own Supplier Pool Matrix. Look at the illustration below, and simply follow the guide.
Decide on your specific X- and Y-axes
The first thing you need to do is to divide your category (spend scope) into relevant “spend pockets”. In above example, the X-axis is sub-categories (i.e. applications, technologies, industries) ) and the Y-axis geographical clusters (i.e. countries, group of countries, regions). A certain sub-category and a specific geographical cluster becomes a “spend pocket”. Each spend pocket will have its own pool of suppliers, hence the name “Supplier Pool Matrix”. You will need to spend a good amount of thinking power before deciding on your X- and Y-axes, as your entire sourcing strategy and supplier management activities will be organized based on the structure of the Supplier Pool Matrix.
Populate the table with your supplier data
Insert all suppliers in your category (spend scope) in the table, using MS Excel. After each supplier name, state the annual spend with the supplier (i.e. the spend value with the supplier within the specific spend pocket) as well as the relationship type. The sum of the spend of all suppliers should correspond to your total spend value of the sub-category in the geographical cluster. Are you not familiar with the relationship types? You may learn all about supplier relationship types in the SRM 4-Step Process. Structure the suppliers within each spend pocket with the most preferred suppliers of that spend pocket on the top and the least preferred suppliers in the bottom.
The key supplier(s) on the top of each spend pocket (normally with growing spend) are marked green, while suppliers subject to upcoming discontinuation are marked red. The suppliers with white background, or in the middle of the supplier pool, are not fully defined. Their destiny may be decided by next RFQ/bidding, becoming either green or red, or remaining white and in the middle. This color coding makes the Supplier Pool Matrix a very powerful internal communication tool – going forward it becomes crystal clear what suppliers are selected as preferred/growing and what suppliers are in exit plan.
The Supplier Pool Matrix needs to be updated – and COMMUNICATED – regularly, and immediately after RFQ’s when business allocations to suppliers are agreed and internally approved.
Use the Supplier Pool Matrix as Risk Assessment Tool
Risk assessments can be done in many different ways. The Supplier Pool Matrix is quite a good tool for assessing supply risks, when used supplementary to more detailed risk evaluation methods. Note the vertical bars in green/red/amber color on the right side of each spend pocket. You simply evaluate the supply risk by considering the amount of players in the supplier pool, both incumbent and potential suppliers. Also the magnitude of the impact for the business from an eventual supply disruption may be taken into consideration.
Red risk (level 3) means that qualification of new supply sources for a spend pocket will be included among your sourcing strategy actions. Green risk (level 1) tells you that the supply risk is very low. If the amount of incumbent suppliers is high there is an opportunity to reduce the suppliers in the supplier pool. Be strategic in your supplier reduction efforts (if that is a priority for your company), and reduce most suppliers in the green spend pockets, while being very careful in reducing suppliers in amber (level 2) spend pockets.
Analyze your supplier portfolio through the Supplier Pool Matrix
Have a closer look at the suppliers in the illustration. What does the category manager actually need to do in this case? What actions should be among the prioritized in the sourcing strategy plan?
- There are currently two Partner suppliers in the region, Deltacom and Giller. These suppliers are the most strategic suppliers for the buying company managed through SRM programs. Supplier Betos is a Collaborative supplier, supplying in several geographical clusters and being potential supplier in some spend pockets. Betos could be candidate for an enhanced relationship and SRM program, making three Partner suppliers totally in the spend scope
- Sub-category C is generally lacking supplier options. We need to understand the reasons for that. Could it be the product/service specifications in that sub-category that limits the choices on the supplier market? The category manager needs to deeply analyze this situation and eventually agree with R&D and Marketing to simplify the specifications. That will open the door for more suppliers to enter that sub-category
- Geographical cluster 4 has overall too many suppliers. Here is the largest opportunity for supplier reduction. A competitive bidding should be conducted, and business allocations given to fewer suppliers than today’s situation
- Despite the fact the Deltacom is a trusted Partner supplier, the category manager may need to build an alternative supplier for Sub-category B in Cluster 2 (sole supplier situation)
- In Cluster 5, something has gone wrong with supplier Lurcom. This was a key supplier until recently, and the category team has concluded that discontinuation of this supplier is the only way forward. As a result, swift qualification of alternative suppliers (i.e. potentially incumbent Regarded, Collaborative or Partner suppliers) is required for sub-categories B, C and E
Have you found any other relevant action needed, on top of the 5 above?
Well, that’s basically it about the Supplier Pool Matrix.
By doing above steps, you should by now have a great tool to strategically track and manage your supplier portfolio. Please read as well the related post on Smart Supplier Database. Ensure that you keep your supplier strategy documentation well updated. Communicate it frequently and hammer your clear and winning messages into the minds of your team members, collaborators and stakeholders.