Managing such suppliers requires a diverse array of skills and can subsume a significant proportion of executive time in sponsoring and directing the relationship. These items only represent a handful of suppliers, but ensuring an effective and predictable supplier relationship is key to the future of the buying company. Lastly, high supplier risk and high profit impact items cover strategic suppliers. Innovative internal activities can redevelop product requirements such that the material can be replaced with another and preferably sourced from a leverage supplier.

More creative buyers will seek to alter the terms of trade. Procurement must recognize that few opportunities will arise from this category. The main strategy rests upon damage limitation. The market structure forces buyers to accept an unfavorable deal.

The supplier relationship is demanding, even though they have a limited impact upon company profitability. Procurement Leaders found that these suppliers absorb more of buyers’ time compared to any other segment. The market consists of few suppliers that can behave oligopolistically to force prices upward. Here, the strength is in the hands of the supplier. The flip side of leverage: risk is high, but profitability is low. The only limitation for buyers is perhaps over-playing their hand and forcing a low-profit margin vendor into insolvency. Suppliers can be easily substituted as their offerings are much the same. The market dynamics of this relationship rest upon an abundance of highly commodified parts. Traditionally, procurement professionals have exploited this status to lower prices, but increasingly more advanced companies are looking to unlock the innovative potential of their suppliers. Where items have a high profitability, but a low risk factor, buyers possess the balance of power in the relationship and leverage this strength to obtain greater returns. Techniques such as e-auctioning and catalogs are an excellent means to redirect responsibilities either directly to suppliers or to internal customers that are requisitioning the goods. As such, the sourcing strategies deployed here focus on efficiency and reducing administrative burden. It clogs up time with peripheral concerns. Although important for employees to perform their duties, pens and paper do not have a significant impact upon the business, nor does their absence represent a serious threat.įor buyers, stationery is a nuisance. The most commonly used example in this segment is office stationery. These items are low risk and have a low impact upon organizational profitability.

Patagonia bcg matrix