Segmentation

What is procurement segmentation and why is it critical? Segmentation means seeing supply through the lens of cost drivers — not only raw materials, but also labour, logistics, depreciation, various processes and R&D. The aim is to sniff out the money and find the big bottlenecks in the profit margin.

What we will cover

• Why segmentation matters: Grocery, electronics and DIY categories serve the customer and the sales team; why the same categories lose their meaning in supply
• The risks of not segmenting: Failing to see economies of scale, limited negotiating power with monopoly suppliers and serious margin loss
• Linear Performance Pricing (LPP): LPP shows the way — a white goods manufacturer revealing cost deviations by comparing the cost per kilogram of steel in its dishwashers, refrigerators, microwaves, ovens and hobs
• Not being able to buy cost drivers separately: Because you buy the finished product from the supplier, careful management of contracts so as not to be held responsible for problems between Tier 1 and Tier 2
• Starting with small steps: Starting with small, incremental segmentation projects before making big changes
• Specialist roles: Roles in the team focused on segmentation expertise — for example, a plastic injection and polymer specialist

Case study

Using the example of electrical household appliances, we work on a real segmentation proposal that combines volume according to the supplier's process rather than the sales shelf; a well-known furniture retail example is used to discuss the power of buying manufacturing competence rather than the product.

A single Tuesday-morning session, 2 hours, hands-on; all you need to bring is your laptop. When applied in-house, this work can be taken further with real data as a separate consultancy project.