Supplier segmentation using fuzzy logic

Abstract

Supplier segmentation means that the suppliers of a specific firm are categorized on the basis of their similarities. This supply-side business-to-business (B2B) segmentation is of special importance to companies with many suppliers. Supplier segmentation yields a manageable number of segments, each of which requires a separate strategy. Standard supplier segmentation methods have serious shortcomings, for instance because they fail to make a proper connection between supplier segmentation and other supplier-related activities such as supplier selection and development. Moreover, these standard methods typically use a limited number of segmentation criteria and different sets of criteria are suggested for each method. It is unclear for practitioners how to choose a particular method. The purpose of this paper is to form a practical tool for supplier segmentation taking into account all suggested segmentation criteria. The principal result of this paper is the design of a rule-based method to segment the suppliers of a firm based on two overarching dimensions: supplier capabilities and supplier willingness. The method is applied to a real-world situation to show how the results can be used in practice. A general sensitivity analysis procedure for fuzzy rule-based systems is proposed and then implemented, to identify the most important supplier capabilities and willingness criteria and to formulate better supplier development strategies. A major conclusion of the paper is that the fuzzy logic approach to supplier segmentation is simple to apply in practice, yet considers all available segmentation criteria and their inherent fuzziness in a way that is easily adaptable to a specific industrial context.