Segmenting supplies and suppliers: bringing together the purchasing portfolio matrix and the supplier potential matrix

Abstract

Supplier segmentation is one of the most important supply chain-related activities for most firms working with multiple suppliers. Purchasing portfolio matrix (PPM) is a segmentation method that considers two dimensions (profit impact and supply risk) against which the materials purchased by the company are classified. Despite its popularity, PPM has been the subject of serious criticism. A new approach to supplier segmentation, called supplier potential matrix (SPM), aims to fulfil the need for a unifying framework that includes all the important variables under two overarching dimensions: supplier capabilities and supplier willingness. While the focus of PPM is on supply, SPM mainly focuses on relationship. However, it is important to include both the supplies and the relationship with those who supply, the suppliers. The main purpose of this study is to bring these two approaches together through a hybrid matrix called PPM-SPM. Data is collected from a company working with 70 suppliers. Best worst method (BWM), is used to determine the weights of the criteria we need for the two segmentation approaches. The suppliers are segmented based on the two approaches. A combined PPM-SPM segmentation is then proposed and discussed. The results show that the combined approach improves supplier management.