Categorization matrix items & suppliers

Matrix purpose is to help purchasers maximize supply security and reduce costs, by using the most of their purchasing power. By using it, a business can better understand the potential profit in relation to the supply chain weaknesses and vulnerabilities.

This matrix can be used for categorizing both items and suppliers.
Items – all focus is on one specific item and its importance.
Suppliers – focus is on supplier’s overall importance for the company.

Categorization matrix has 2 axis, the profit impact of a product on one, and supply impact on the other. This enables company to see which relationships are important and focus on strengthen these and identifying less important relationships.

The matrix 4 categories

  • Critical category (High profit impact and high supply impact) - These types of products are often purchased from one supplier. These products are those that are included in the critical needs of the buyer because of the fact that these products may either be difficult to deliver, hard to find, costly, or directly impact the profitability of the company.

     

     

    The purchasing strategies we would typically use for these types of items include tendering and competitive bidding.

  • Blocking category (High profit impact and low supply impact) – These types do not represent a high value but they are a vulnerable factor in the entire supply chain. These are products that are essential for the production process but they are difficult to obtain. There is an imblance of power betwen the company and the supplier, in which the supplier is the dominant factor.

     

    By creating a buffer stock of these items and by finding alternative suppliers, a company can undermine this position.

  • Influential category (High profit impact and low supply impact) – These types of products can easily be purchased from different suppliers. A minor change in price or a change in quality will strongly affect the cost price. In the balance of power between the company and the supplier, the company is the dominant factor.

     

    The purchasing strategies we would typically use for these types of items include tendering and competitive bidding.

  • Standard category (Low profit impact and low supply impact) – These types of products cause the least problems for purchasing performance. Such products represent a low value and they can be purchased in different varieties and from different suppliers. There is a balance of power between the company and the supplier.

     

    By increasing product standardization, much time and money can be saved. Thus, the purchasing strategies we recommend for these types of items focus around reducing administrative costs and logistical complexity.