How Segmentation Drives Use Cases for Supplier Marketing
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Supplier Segmentation: One Size Does Not Fit All
As Dr Epstein points out, “The way in which we work with our suppliers has to change.” Never has this statement been more true or more urgent. As the recent HICX Suppliers’ Perspective Survey revealed, 61% of suppliers said that they find it challenging to do their best work for their most important customer – and, if nothing changes, this number can only go up.
On the other hand, one key emerging differentiator of leading-edge enterprises is the increasing ability and desire to use more sophisticated supplier segmentation techniques for the purposes of supplier marketing – that is, the ability to share the most relevant and useful information with the right suppliers at the right time; to influence their behaviors through targeted messaging and offers; and to customize or personalize technology landscapes, user interfaces and processes so that it more closely matches a supplier’s expectations. One size does not fit all and different customers and products have different success requirements.
In this article, we discuss how segmentation can be applied to the growing number of use cases that are emerging in the Procurement function, with guidance on how the segments may be defined, how they can be used in the execution of initiatives and the wider benefits that result.
The growing remit of Procurement
The body of work that a procurement function is expected to undertake and the remit of the function has been steadily growing. There are a number of trends that have been driving this, which have been accelerated by recent macro-level developments and disruptions.
These include increased demands for reporting in areas such as sustainability, risk and compliance; and the need to improve relationships and foster better trust with suppliers, especially in light of increasing volatility.
All of these efforts rely upon a frictionless exchange of information between the enterprise and its entire base of suppliers. Therefore, supplier adoption of tools and securing ongoing engagement with suppliers is crucial, which is where supplier marketing, underpinned by segmentation, becomes key.
Supplier segmentation examples
Here are three major supplier segmentation examples/use cases that talk to the growing procurement function demands:
Use Case 1: Requirement to report on greenhouse gas emissions
Let’s start with a sustainability use case and an area that we are all having to become more and more familiar with – greenhouse gas (GHG) emissions reporting.
It’s little wonder that this topic is high on the agenda. The impact of supply chains on climate change (and the World Economic Forum’s view that reducing greenhouse gas emissions within them could be a game-changer) means there has been increasing scrutiny in this area and it is attracting more attention from those business executives committed to climate action.1
The Business Need
The US Environmental Protection Agency’s (EPA) report ‘Emerging Trends in Supply Chain Emissions,’ provides four reasons for managing and reducing GHG emissions2:
- to demonstrate their sustainability commitments and retain or enhance their brand’s reputation recognizing that supplier impacts extend to their overall environmental impacts
- to reduce costs
- to mitigate risk and pursue new opportunities
- to respond to downstream corporate customer, individual consumer and, increasingly, investor queries and demands
The role of segmentation
All of this means that collecting information from suppliers in order to report on this area has become a ‘must-do’ exercise. The onus has fallen on Procurement to facilitate this data collection process, which raises the question, for procurement professionals, of how to engage suppliers in order to obtain the information that is required.
The role of collaboration and partnership with suppliers is absolutely key.
As the EPA also advises, key criteria for success in obtaining the necessary information from suppliers will be keeping the questions as simple as possible and, most importantly, not asking questions that they themselves would have difficulty in answering.
However, the suppliers’ perspective is crucial here and shows why segmentation is so important. The ability to answer certain questions, for example, will vary according to the size of the supplier being asked. The EPA advice continues, “Smaller suppliers generally need more assistance than larger suppliers, as they have fewer resources and less in-house expertise.”
In the same way, therefore, that marketers tailor their messaging and content for different audiences, it is also abundantly clear here that questionnaires on GHG emissions cannot all be the same – and the approach cannot always be the same.
Unfortunately, the most common approach is simply to send the same questionnaire to all suppliers to meet the internal data request, but this will have a significant impact on the response rate due to differences between suppliers. Without segmentation, it is also difficult to plan: for example, how many suppliers will need either this extra time or extra support to fulfill the request?
At its simplest, a better approach is to have one tailored questionnaire for small size suppliers and one for large size suppliers. Each questionnaire can be more closely aligned to the abilities of the supplier to respond. Follow-up for each of the groups can be customized in order to offer a different level of support, or propose different timelines for the collection of responses, based on the level of resource on the supplier side.
Other reporting based use cases
There are numerous other initiatives that require input from suppliers to provide the information necessary for reporting purposes, and for which segmentation should play a role in a similar way.
Unlike the greenhouse gas emissions example, supplier company size may not always be the most efficient filter to apply, or in some cases a couple of filters may be required to build relevant segments.
For instance, a cyber-security questionnaire will also be tailored based on the category of the supplier. A commodity supplier such as a cloud service provider is different from an indirect supplier of office materials in this regard. Those that connect to, or have access to, your data or IT network will also require a different type of questionnaire.
Many other such areas exist, and new reporting areas are frequently being added, including those in fields such as human rights and labor practices, health and safety, carbon footprint, forest protection, depletion of resources, water wastage, pollution, use of chemical substances, mineral compliance, energy conservation, use of recycled parts, plastics, anti-corruption, fraud and intellectual property, among many others.
Use Case 2: Scaling for data requests
There are two challenges that are driving the need for scaling how data requests are handled. First, the already extensive list of areas, as given above, will continue to have further items added to it. Second, the level of supplier engagement within each area is also under pressure to be improved.
Often, many of the suppliers who either need to be included for the first time, or who have had only limited participation in a specific initiative in the past, are medium or smaller suppliers. These are much larger in number, which dramatically increases the complexity of the data gathering task.
Some of the additional complexity is due to how data collection programs are carried out. Both the running of the programs and the collection of the data usually involve using a mix of various dedicated platforms, Excel sheets and other survey tools, in combination with email communications. This makes automation difficult and leads to lots of manual intervention and workarounds.
One model shows that if current ways of working are not changed, then the workload within the enterprise could easily increase by fifteen to twenty times in terms of FTE in the area of sustainability alone. Frequently, these tasks are simply the added to the workload on the enterprise side, so one can imagine the impact that this will also have on suppliers.
Alternatively, of course, enterprises can use segmentation in order to assign specific, more targeted journeys to suppliers and set up compliance checkpoints on a given topic, which can also then be automated and monitored by the system.
Each supplier in each segment (or sub-segment) would be assigned a personalized journey, usually determined by a couple of factors. This might be, for example, a direct versus indirect split in combination with supplier company size, which is illustrated in the chart below, showing how this could be planned out according to an annual timeline of activities:
In this case, it is not just about who qualifies for a specific survey and who does not. Instead, and similar to techniques used by marketers, we are using segmentation to be more targeted in our approach towards achieving desired outcomes, as we can now both plan the supplier journey holistically and additionally do the following:
- Focus on those from whom we really need the data. In this example, 100% coverage of a certain group (in this case, large size direct suppliers) would be considered a higher priority than achieving higher coverage in the other groups, so this can be focused on first and reported on separately.
- Remove noise. We can split the initiatives into distinct workstreams, one for those who have to do all of them more regularly, versus those who do not, for instance. Now that the group that does not have to do all initiatives all of the time (or even work out for themselves those that are mandatory initiatives versus those that are not), the conversation rate would be expected to increase on those information requests that are sent, as the touchpoints would be less frequent and more focused.
- Tailor messaging. The next step is to review how the messaging of the initiative or delivery could be adjusted according to the needs of the segment in order to get a better response.
Wider benefits to come from automation & improved supplier experience
When journeys are planned in this manner, with dates set in advance for execution, efficiencies can be gained through automation. Instead of having to dedicate organizational resources to manually send and then subsequently administer the data collection process, surveys and emails can be pre-programmed to be delivered to the correct recipients as required, exactly as happens in the case of marketing automation.
Of course, on the supplier side too, use of segmentation to create customized journeys also reduces their workload. The number of touchpoints to request data are reduced and the surveys that are being sent are more suitable for the respondents who receive them.
It means that the overall supplier experience is also much improved, which in turn improves trust and collaboration and provides the foundations towards becoming customer-of-choice.
Use Case 3: Supplier adoption of an online tool or service
In an ideal world, 100% of your suppliers would adopt 100% of the tools that are necessary for them to conduct business with you.
However, this, of course, is rarely the case. Suppliers have varying levels of access to Internet services and varying levels of resource to accomplish online tasks. So how do we enable all eligible suppliers in a new digital service and achieve the adoption levels required?
Supplier marketing examples
Before thinking about segmentation, we may first identify different techniques that could be deployed to encourage the adoption of a tool. Again, we can borrow some established ideas from marketing practices. For example, you may consider:
- Repeat invitation emails. An email campaign which outlines the benefits of the system or the value to the supplier and prompts them to join.
- Provoked engagement, potentially tied to another activity. For example, an email campaign with a prompt to say ‘Are these details still correct?’
- A direct campaign in which direct contact is made to explain or take a supplier through registration or a process in the portal. This could take the form of an outbound telemarketing campaign.
- Market high-value offers to the supplier. For instance, an email campaign in which a feature within the tool or system is highlighted as an ‘offer’ or benefit to the supplier. Possibilities may include selling the concept of 24/7 access to invoice or payment status information, or access to forecast information.
- Market ‘nice-to-have’ offers to the supplier. For example, ‘Register now to gain access to your performance review,’ or ‘Register now for access to the latest product information.’
- Supplier reward scheme. Suppliers will receive rewards or points when they carry out actions in exchange for benefits, such as an invitation to a face-to-face meeting with buyers. This could be offered in exchange for completing a series of desired activities.
However, the effort involved and the potential upside will differ greatly among these options. These campaign styles cannot work for all suppliers in the same way and the effort may not warrant it. Therefore segmentation is key to being able to plan resources and adapt messages or offers for various groups or types of supplier.
In terms of resource allocation, it could be that only strategic suppliers are in scope for a direct campaign, whereas indirect suppliers under a specific spend will only be included in the most basic email campaigns. It is a case of prioritizing the most relevant suppliers for the adoption campaign, using segmentation based on appropriate criteria.
In terms of adapting the offers or messages, there are some messages or offers that are important to all, such as payment or invoice visibility, while access to forecasts would not be a motivating factor for certain other types of supplier in given categories. On the other hand, segmentation allows you to look at that group and consider, ‘how do I appeal to my non-strategic suppliers to take part and what’s the message for them?’
Also, by segmenting and prioritizing select groups over others, there is the chance to test these listed approaches as part of a much smaller pilot, to learn and iterate, before rolling out an initiative to a larger group.
Further use cases for segmentation
Other emerging use cases include:
- Content Management. The content requirements for strategic suppliers will be different from tail spend suppliers. Using segmentation, content can be adapted to best speak to the needs of these different groups. For example, an enterprise news update about innovation for tail spend suppliers might focus on payment process improvements, but for strategic suppliers it might concern new product introductions.
- Crisis Management and Resilience. When an emergency arises, it can impact suppliers in many different, often unpredictable ways. As we saw with the pandemic, there are local, regional and global implications, with industry sectors each facing their own unique issues. Being able to segment suppliers for the purposes of accurate and tailored information gathering and data collection is critical for ensuring visibility into fast moving situations. Some crises need faster responses from some suppliers (such as cloud service providers) over others, which was highlighted by the “Log4j” cybersecurity incident.
- Portal Usability. Not all suppliers need access to every system or tool, nor do they always require all features in every tool. The complexity of the relationship dictates the level of access required to the technological landscape. For some, it will involve extensive access to multiple tools and features, which they will expect; for others this will be a distraction that leaves them confused when they interact with the technology landscape. By adapting the processes, the technology and the interfaces to suit different needs, it can help suppliers navigate the technology landscape more effectively, helping them to better serve you.
The procurement function of tomorrow is built on supplier segmentation
Segmentation can be as simple as filtering a list of suppliers to target specific communications, through to launching different processes, orchestrating different processes or adapting the configuration of portals and interfaces for various groups of supplier. The underlying factor in all cases is simplification for suppliers – and, with that, the simplification of processing information and data for the enterprise.
Manikandan PY, Procurement Digital Leader, Global Supply Chain at Schneider Electric points out, “For me, simplification is key. Simplification and efficiency is key for the end users in both of the organizations. With the advancement in terms of the technology on one side, and the evolution of Procurement as a function and the challenges that we face on the other, we don’t have a choice. There’s no other way to be successful than to be more simplified in our approach and to be more efficient in the future.”
Technological solutions, combined with segmentation, should be the vehicle for simplification, to ultimately increase supplier adoption of tools, to improve engagement, and to extract better information more often. In this way, Procurement can work much more efficiently and will be better placed to undertake the future, strategic challenges and be able to focus on more value-add activities.
Segmentation, as shown through these use cases, makes it easier to communicate with the right suppliers at the right time. It reduces friction and creates transparency, which allows for insight into areas for improvement, while paving the way for targeted change.