Sourcing, Procurement, and Supplier Relationship Management
From spend to supplier relationship
Procurement starts with spend analysis (who buys what, from whom, at what total cost) and category management. Classify categories on the Kraljic matrix: axes are profit impact (spend/value at risk) and supply risk/complexity. Quadrants: leverage (high impact, low risk - competitive bidding, reverse auctions), strategic (high impact, high risk - partnership, joint development, long-term contracts), bottleneck (low impact, high risk - secure supply, qualify alternatives, buffer stock), non-critical (low impact, low risk - simplify, automate, catalogue buying).
Know the sourcing cycle: need identification → specification → RFI/RFQ/RFP → evaluation → negotiation → contract → purchase-to-pay → performance management. Distinguish RFQ (price for defined spec) from RFP (proposals including solution/approach). Use total cost of ownership (TCO) and should-cost modeling rather than unit price. Understand contract types (fixed-price, cost-plus, time-and-materials) and supplier segmentation with scorecards, SRM governance, supplier development, and risk mitigation (dual sourcing, buffer, contingency).
Traps: awarding on lowest price when TCO favors another bid; running reverse auctions for strategic or bottleneck items; confusing the Kraljic axes; ignoring maverick spend; and treating supplier scorecards as one-off rather than a review cadence.
Rule of thumb: high spend + low risk → compete; high risk → contract and collaborate; low spend + low risk → automate.
Worked example: A patented single-source sensor costing 8% of COGS with no qualified alternate is high profit impact and high supply risk → strategic: multi-year agreement, joint roadmap, dual-qualification project, and contractual continuity-of-supply terms.