Procurement and Supplier Management
Domain 3 tests sourcing strategy, supplier selection, contracting, supplier relationship management, and total cost of ownership.
Segment the spend
Start with spend analysis. The Kraljic matrix uses spend and supply risk: leverage items (high spend, low risk) suit competitive bidding; strategic items (high spend, high risk) need partnership and joint planning; bottleneck items (low spend, high risk) need supply security and dual sourcing; noncritical items should be simplified and automated. Total cost of ownership includes price, freight, duties, quality defects, inventory carrying cost, switching cost, and risk.
Selection and contracts
Use RFI for capability, RFQ for defined specifications, and RFP for solutions. Supplier scorecards should track quality, delivery, cost, responsiveness, and sustainability with defined weights. Contracts need clear KPIs, service levels, change control, and exit terms. SRM governance turns scorecards into improvement actions.
Worked example
Supplier A: price $100, freight $8, defect cost $6, inventory carrying $4, total $118. Supplier B: price $95, freight $12, defect cost $15, inventory carrying $5, total $127. Choose A despite the higher price because TCO is $9 lower. The reasoning is to add all relevant cost elements, not to compare quotes.
Traps that cost marks
Awarding on lowest price; ignoring switching and quality costs; using an RFQ when requirements are unclear; failing to define KPIs and SLAs; single-sourcing a bottleneck without a risk plan.