Supply base segmentation and management at a medical equipment manufacturer

Abstract

This thesis proposes an approach to supply base management that relies on differentiation between categories of suppliers. The objective of this thesis is to illustrate, through a real company's example, how profitability analysis can be combined with more typical supply base management approaches to improve a company's bottom line. The central innovation in the proposed approach is the use of an indication of suppliers' impact on company profits to segment the supply base. Previous work on supplier segmentation uses factors such as amount spent at the supplier and the importance of the purchased products to distinguish between suppliers. This thesis builds upon those approaches by adding an analysis of the profit contribution from the supplier and the cost of managing the supplier. Suppliers that cost a lot to manage and contribute little profit require improvement or become targets for supply base reduction. Suppliers that work to reduce the customer's cost of managing them and contribute positively to the customer's bottom line deserve reinforcement and stand as examples for the rest of the supply base. The approach proposed in this thesis provides managers with a tool to evaluate and improve the profitability and performance of their supply base.