27 thoughts on “Supplier preferencing matrix

  1. Great posting. Can you please explain the axis in bit more detail? What do you mean exactly by Account attractiveness and relative value of the business?

    • There are no absolute measures: both depend on individual companies, the industry and markets of both supplier and customer. Keeping it simple, relative value to the supplier might be assessed by account revenue/suppliers total revenue. Attractiveness is more dependent on supplier’s circumstances and strategy; measures might include customer’s market growth, accessible volume from the account and profit potential.
      For a more detailed suggestions follow this link “12 steps to key account management portfolio analysis, part 1” or links in the article.

    • It’s not mine, and it was not my intention to imply that it was. There are a number of variants of this matrix, which I’ve seen used in both procurement and sales (key account management) many times by different people and organisations over 20+ years without reference to its origin.

      • Hi Tony, Thank you! Could you kindly explain what is the difference between: “Account Attractiveness” and “Relative Value of the business”?

        • Hi Bryan. To a certain extent you can define “Account Attractiveness” and “Relative Value” according to context. These are compound measures. You need to think in terms of “What would my supplier regard as attractive, and what relative value would it now put on my business?” I’ll give you a couple of examples:
          (1) Profit potential is a measure of account
          attractiveness whereas current profitability is a measure of (current) relative value. So a customer who offers more volume at disproportionately lower margin might move from “Development” to “Exploitable”.
          (2) Margin % is a measure of account attractiveness whereas % sales turnover is a measure of relative value. So, for example, a customer who takes away volume from a supplier who is on low margins would move from “Exploitable” and become a “Nuisance”.

          I hope this helps.

          • Hi Tony,
            thanks for your explaination.
            My understanding is that this Supplier Preferencing Matrix is the tool that a customer used to analyze that how supplier regard them, is this correct? that means as a customer we based on the fact of suppliers and put them in Core, development or others?

  2. Bryan, your understanding is correct. You can use this matrix to help you develop strategies to deal with suppliers, taking account of their regard for your business – and to influence their view in order to gain advantage.

  3. The first mention that I am aware of is in a couple of publications from PMMS (disclaimer – I work for PMMS but wasnt around at the time). CIPS published a booklet we wrote in the early 90’s and it is covered in Steele & Court’s book “Profitable Purchasing Strategies” (McGraw Hill, and also the name of a successful workshop we ran for CIPS for over 15 years from the late 80’s). Whilst our founders argue about whether Kraljic came came up with “the matrix” before us, I’m not aware Preferencing has any other claimants, but would be interested to hear otherwise…. IH

    • We are happy to attribute “Supplier Preferencing” to PMMS but believe the origins of the matrix to be much earlier in the context of customer portfolio analysis and key account strategy. Would welcome other views.

  4. “for an effective suppliers relationship, a purchasing company should be both attractive and the profit impact to the supplier high”. using the supplier preferencing matrix, explain the meaning of this statement and explicate how a purchasing company faced with scarcity of supply of critical product can improve its attractiveness.

    • This looks like a question from an exam paper. The premise that the profit impact on the supplier needs [necessarily] to be high is incorrect. Effective supplier relationships are possible on low margins, for example, if there are other benefits or synergies.

  5. hello, how can a supplier preference model be used to anaylze a certain supply chain relationship issue lets say new or unfamiliar suppiers.

    • I suggest you read the articles “How to Select Strategic Suppliers” Parts 1 & 2 (Follow link below diagram title) if you have not already done so.

      The articles stress that you need to understand these suppliers and how they view you. So this is not just a matter of desk-top research; you need to have discussions with them. Some suppliers whom are new/unfamiliar to you may have already researched you, and may have already formed strong views. Others may not know you at all. If your desk-top research suggests these suppliers may have substantial impact on your business then it is worth taking the time, not only to introduce yourself and canvass their views but, also, deliberately to influence their stance by reverse marketing.

      Links in the articles to supplier evaluation, value chain analysis and paragraphs on reverse marketing may be of interest.

  6. Hi Tony, just stumbled on a link to hear while reading about suppliers preference model, thank you for the explanation in the boxes, helped me a lot.
    I want to add an explanation for the attractiveness of account using Herzberg’s two-factor theory. So, the attractiveness of account will be judged on
    the Hygiene factors :
    1- Business fit
    2- Payment on time
    3- consistency
    and the motivators:
    1- Relationship
    2- Recognition
    3- Margin
    4- potential
    5- Opportunities
    6- Prestige

    Hope this was a useful addition :)

  7. Tony,
    Are you part of the PMMS Organization I worked with back in the 90’s. The Supplier Referencing diagram looks identical to the one I was provided by Alan C. and Steve M. Remember the concept well along with Supplier Positioning. Two concepts that have been very helpful to me for the past 20 years.

    • Hi Stephen
      The term “Supplier Preferencing” was used by Paul Steele and Brian Court in their book “Profitable Purchasing Strategies” first published in 1996, I believe. Please refer to the earlier comment by Ian Heptinstall. Steele and Court acknowledged that this was derived from market segmentation concepts underpinning Key Account Management, which dated back to the mid-80’s. I’m not sure I have my original source documentation for this but I do know that I obtained it through a Marketing Director, Paul Smith, whom I worked with from 1987 to 1992. I suspect the original was from either McKinsey or Boston Consulting Group, including the phrasing within each segment.

  8. Hi Tony, if I were to use this matrix in a market research study where I was getting this information from my suppliers, what kind of questions would I ask them that would help me when analysing the matrix?

    • Follow the link (above the diagram) to the post “How to Select Strategic Suppliers – Part 1″. There you will find more information on using this matrix including links to other techniques. If you read Part 2 there is a further link to “How to Select Suppliers to Create Value – Supplier Appraisal” which contains guidance on the types of question you might ask. This approach uses questions under 3 headings: is the supplier (1) ready, (2) willing and (3) able to do business. I hope that helps.

  9. Great concern, what’s the impact of customers exploitation to a business entity and the supply chain as whole?

    • Yes, a customer exploiting a supplier will be a concern particularly if the supplier has a high dependency on the customer. This dependency may take many forms, for example, revenue/profit/cash flow, technology, access to markets/consumers. An obvious form of exploitation might be to force down the price. A more subtle form of exploitation might be to use the supplier as a convenience, making unreasonable or varying demands, or threaten to withdraw completely. So the supply chain can also be at risk both in terms of value and if the customer decides to interrupt business or abandon the supplier.

  10. How can the PMMS Supplier preferencing model assist a project manager to negotiate a better position for his project team? Please help me .

    • If you look in the sidebar on the right, below the list of posts you will find a selection box “Categories”. Select “Project Management” and that will bring up five posts, three on Procurement for Projects.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>