The buyer-time allocation paradox
Objective: Understand why most organisations misallocate their buyers' time and how supplier segmentation solves the problem.
Most procurement departments suffer from the same paradox: buyers spend most of their time on the suppliers that create the least value.
The typical diagnosis
Take an average company with 500 active suppliers:
| Segment | Count | % of suppliers | % of spend | % of buyer time (observed) |
|---|---|---|---|---|
| Top 12 suppliers | 12 | 2.4% | 65% | Only 15% |
| Mid-tier suppliers | 168 | 33.6% | 33% | 45% |
| Small suppliers | 320 | 64% | 2% | 40% |
The cost of misallocation
- Wasted time: 40% of time on 2% of spend (handling the problems of 320 small suppliers: delays, quality, invoices)
- Missed opportunities: Only 15% of time for the 12 suppliers representing 65% of spend and the highest value-creation potential
- Under-invested relationships: Strategic suppliers do not get the attention needed to develop innovation, optimise costs and anticipate risks
- Operational fatigue: Buyers are swamped by transactional tasks instead of working on strategy
🏢 Calculating the financial impact
If a senior buyer costs EUR 80K/year fully loaded and devotes 40% of their time (EUR 32K) to managing 320 suppliers that represent 2% of spend (EUR 500K out of a EUR 25M total), the management cost per supplier is EUR 100/supplier/year. Yet many of these suppliers have an annual volume below EUR 5K. The cost of managing sometimes exceeds the value of the purchase.
The solution: supplier segmentation
Supplier segmentation makes it possible to:
- Classify each supplier into a segment with a defined service level
- Allocate buyer time in proportion to the value created
- Define processes suited to each segment (from full-touch to no-touch)
- Reduce the number of active suppliers by eliminating duplicates and under-performers
💡 Key takeaway: Inverted allocation is the symptom of missing supplier segmentation. Without segmentation, buyers become firefighters spending their time putting out fires at small suppliers instead of creating value with strategic ones. Segmentation realigns effort with value.