Segmenting a Category

Category management uses segmentation to determine the business impact and supply market risk. Category segmentation is a key part of analysis because strategies differ depending on the category's nature. Because category managers need to manage several purchasing categories and large amounts of spending, segmentation allows them to be more efficient with their spending by developing different strategies.

In this video, Alex explains the value of segmenting a category:

The Kraljic matrix aids in segmenting categories based on business value (vertical axis) and supply risk (horizontal axis). This matrix comprises four quadrants, assisting category managers in tailoring strategies for different segments:​

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1. Strategic: High business impact and low supplier availability. Examples include critical raw materials. Strategies involve partnering with suppliers or considering in-house production.​
2. Bottleneck: Low business impact but low supplier availability. Examples include essential electronic components. Strategies include long-term supplier contracts or exploring alternatives.​
3. Leverage: High business impact and high supply market risk. Examples include common materials like plastic. Strategies focus on aggressive negotiations, supplier switching, and high-volume orders.​
4. Routine: Low business impact and high supplier availability. Examples include office supplies. Strategies aim to optimize inventory and reduce purchasing costs. ​

Generative AI enhances category segmentation, providing category managers with an empowered user experience. This reduces onboarding time and accelerates the strategy and plan development process.

In this simulation, you'll learn how to create category segmentation:

Category management leverages segmentation to evaluate the business impact and supply market risk of various purchasing categories. This practice enables category managers, who handle multiple categories and substantial spending, to tailor strategies effectively.​

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The Kraljic Matrix: ​

The Kraljic matrix aids in segmenting categories by considering business value (vertical axis) and supply risk (horizontal axis). It consists of four quadrants:​

1. Strategic: High business impact and low supplier availability.
2. Bottleneck: Low business impact but low supplier availability.
3. Leverage: High supplier availability and low supply market risk.
4. Routine: Low business impact and high supplier availability. ​

Steps to Create Category Segmentation:

1. Identify Categories: List all purchasing categories that need to be managed.
2. Evaluate Business Impact: Assess the financial and operational impact of each category on the business.​
3. Assess Supply Market Risk: Evaluate the risk associated with the availability and reliability of suppliers for each category.​
4. Apply the Kraljic Matrix: Use the Kraljic matrix to plot each category based on its business impact and supply risk.​
5. Develop Tailored Strategies: Create specific strategies for each quadrant of the matrix, tailored to manage the unique characteristics of the categories.​
6. Implement and Monitor: Execute the strategies and continuously monitor their effectiveness, making adjustments as needed.​

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Generative AI in Category Segmentation:​

Generative AI enhances category segmentation by providing category managers with an empowered user experience. This reduces onboarding time and accelerates the development of strategies and plans.