Supplier segmentation is the procurement discipline of categorizing vendors into groups — typically strategic, preferred, approved, and tactical — so that governance, contracting, and relationship investment can be matched to each group's actual strategic importance. The Kraljic Matrix is the most widely-used framework for this, but several alternatives layer different dimensions on top.
The four standard segments.
- Strategic. Few in number (typically 3–7 in an IT portfolio). Hard to replace, high enablement value, multi-year horizon. Three-tier governance, joint roadmap, executive sponsorship.
- Preferred. The next tier — important but not strategic. Recurring high-volume relationships, leverage-quadrant in Kraljic terms. Standard governance cadence, scorecard-driven, regular benchmarking.
- Approved. Vendors that have passed onboarding gates and can be engaged when a need arises. Light-touch governance, transactional relationship, annual review.
- Tactical. One-off or low-frequency engagements. Standard T&Cs, no relationship investment, exit on completion.
How segmentation is performed.
- Inventory. Every vendor with active spend in the last 12 months.
- Score. Each vendor scored on supply risk and profit impact (the Kraljic axes), or on a richer scorecard if available — strategic enablement, switching cost, knowledge concentration, innovation contribution.
- Plot and group. Vendors cluster into segments. Groupings are reviewed by category leads, not just produced by formula.
- Assign management model. Each segment gets its own governance cadence, scorecard depth, contract template, and renewal review path.
The mistakes worth avoiding.
Segmentation by spend alone. Spend is a poor proxy for strategic value. A €200k-a-year specialist running a critical legacy platform has more strategic dependency than a €2M-a-year commodity-hardware vendor.
Segmentation as a one-time exercise. Vendor segments shift with architecture, market, and business changes. Annual review is the minimum.
Segmentation without operational consequence. If the segments don't translate into different governance cadences, scorecards, and contract templates, the exercise was theatre. The point is to differentiate management effort.
Where it intersects with consolidation.
A consolidation program is, in effect, a re-segmentation: routine and tactical work is migrated up into preferred and strategic relationships, and the long tail of low-value vendors is sunset. Without prior segmentation discipline, consolidation programs don't have a structured target state to consolidate toward.
FAQ.
How often should supplier segmentation be reviewed?
Annually at minimum, with material reviews triggered by significant business changes (acquisition, divestiture, transformation program, major architectural shift).
How many segments should there be?
Three to four works for most organizations. More segments increase administrative overhead without producing meaningfully different management approaches.
Is supplier segmentation the same as the Kraljic Matrix?
The Kraljic Matrix is the most common framework for segmentation, but segmentation is the broader discipline. Some organizations layer additional axes on top of Kraljic — innovation potential, ESG profile, geographic dependency — to produce richer segments.
