Understanding suppliers' distribution in terms of quantity and spending is something crucial for an organisation for mainly 3 reasons. Not only it identifies suppliers that contribute the most to your overall expenditure, but it also helps assess the resilience and vulnerability of the supply chain while evaluating the performance of each individual supplier. Here's an high level view on how to perform this analysis:
Collect the supplier and spending data from your procurement or purchasing records. Ideally, this data should be collected via a Supplier Relationship Management (SRM) System as it would be complex to be managed on a simple spreadsheet.
Group the suppliers into categories based on your requirements. Categorising suppliers will help you gain a better understanding of the distribution across different supplier segments.
Analyse the quantity of items received from each supplier within each category to identify the suppliers that contribute the most to your overall quantity of goods or services.
Analyse the spending associated with each supplier within each category to identify the suppliers that account for the highest proportion of your total expenditure.
To gain a clearer understanding of the distribution, create visual representations of the quantity and spending data using Business Intelligence (BI) tools. Visualisations make it easier to identify the suppliers that have the highest quantity or spending share.
Identify key suppliers: Based on the analysis, identify the suppliers that have the highest contribution in terms of quantity and spending. These suppliers may have significant leverage in your supply chain, and it's crucial to assess their performance, reliability, and impact on your overall business operations.
Analysing the distribution of quantity and spending can help you identify potential risks and opportunities. For example, if you discover that a significant portion of your quantity or spending is concentrated with a single supplier, it could pose a risk to your supply chain if that supplier faces issues. On the other hand, if you find that certain suppliers offer competitive pricing or consistently provide high-quality products, it could present an opportunity for strategic partnerships or negotiations.
This 7-step approach for analysing suppliers' distribution is relatively straightforward to launch. However, like any analytical process, there are potential pitfalls to be aware of. In my next article I will focus on the common traps and on how to avoid them.