Supplier Preferencing Model

What is Supplier Preferencing?

The Supplier Preferencing Model is the mirror image of the Kraljic Matrix. While Kraljic helps buyers categorize suppliers, Supplier Preferencing helps suppliers categorize their customers.

Developed by researchers Steele and Court, the model reveals an uncomfortable truth: suppliers don't treat all customers equally. They prioritize accounts based on two dimensions: Account Attractiveness (how appealing is this customer relationship?) and Relative Value of Business (how much revenue do they represent?).

The Four Customer Quadrants

Understanding Each Quadrant

1. Core Accounts (High Attractiveness, High Value)

Characteristics: Large revenue contribution, strategic fit, respectful relationship, growth potential, pays on time, collaborative, values partnership

Supplier Behavior: Top priority for delivery, access to senior leadership, innovation co-development, flexible terms, proactive problem-solving, advance notice of capacity constraints

Example: A major automotive manufacturer working with a tier-1 components supplier on multi-year contracts with fair terms and innovation funding

2. Development Accounts (High Attractiveness, Low Value)

Characteristics: Small spend today but high growth potential, attractive industry, strategic fit, good cultural alignment, professional procurement team

Supplier Behavior: Investment to grow the relationship — discounted pricing, dedicated resources, senior attention, long-term commitment despite low current revenue

Example: A fast-growing tech startup buying from an enterprise software vendor at preferential rates because the vendor sees future potential

3. Exploitable Accounts (Low Attractiveness, High Value)

Characteristics: Large spend but difficult relationship — constant price pressure, unrealistic demands, slow payment, treats suppliers as commodities, no loyalty

Supplier Behavior: Maximize short-term profit. Minimal investment in relationship. Standard service only. No flexibility during crises. Supplier tolerates them for revenue but exits when better options emerge.

Example: Large enterprise procurement teams that commoditize suppliers, demand aggressive discounts, and churn vendors annually

4. Nuisance Accounts (Low Attractiveness, Low Value)

Characteristics: Small spend, high-maintenance, unrealistic expectations, slow payment, misaligned values, complaints without volume to justify effort

Supplier Behavior: Minimal attention, standardized service, no customization, price increases to drive exit, eventual relationship termination

Example: Small buyers who constantly demand custom terms, threaten to switch suppliers over minor issues, and consume disproportionate support resources

What Makes an Account "Attractive"?

Account attractiveness isn't just about being nice. Suppliers evaluate multiple factors:

• Growth potential: Will this account become strategically important?
• Payment reliability: Do they pay on time without disputes?
• Demand stability: Predictable orders reduce supplier risk
• Strategic alignment: Does serving this customer align with our goals?
• Profitability: Fair pricing or constant margin squeeze?
• Collaboration: Partnership mindset or transactional extraction?
• Reputation: Is this a reference customer or a liability?
• Ease of doing business: Efficient processes or bureaucratic nightmares?

How Buyers Use This Model

Smart procurement professionals understand Supplier Preferencing and use it strategically. Here's how:

1. Self-assessment: "How does our supplier likely categorize us?" Honest evaluation prevents surprises during supply chain crises.
2. Relationship positioning: For strategic suppliers, buyers actively work to stay in Core quadrant through fair terms, predictability, and collaboration.
3. Leverage awareness: If you're Exploitable or Nuisance, expect poor service — plan accordingly with backup suppliers or contract protections.
4. Negotiation strategy: Development accounts can push for investment and long-term commitments. Exploitable accounts get standardized terms only.
5. Switching decisions: If supplier behavior signals Nuisance classification, proactively switch before service deteriorates further.

Why This Matters for Sellers

When you send a quote, you're not just selling a product — you're signaling what kind of customer you think they are.

A buyer knows their own position. If they're clearly a Core account (large, strategic, collaborative), but your quote treats them like Exploitable (rigid terms, no flexibility, commodity positioning), they'll see the disconnect — and question whether you're the right partner.

Conversely, if they know they're a small, early-stage buyer (Development quadrant), leading with "strategic partnership" language rings hollow. They're looking for fair pricing and room to grow, not empty buzzwords.

The Flip Side: How to Avoid Being Exploitable or Nuisance

If you're a buyer reading this:

• Pay on time: Late payment immediately reduces attractiveness
• Be realistic: Unreasonable demands signal Nuisance behavior
• Communicate demand: Forecast accuracy reduces supplier risk
• Fair pricing: Squeezing suppliers to breakeven drives Exploitable classification
• Partnership mindset: Treat suppliers as collaborators, not adversaries
• Consolidate spend: Increase your Value of Business through volume
• Strategic alignment: Choose suppliers where you're a good fit

If you're Core to your key suppliers, you'll get priority treatment when it matters — during shortages, crises, and constrained capacity periods.

Strategic Implications

For Suppliers

• Segment actively: Not all revenue is equal. Prioritize Core and Development accounts over Exploitable.
• Exit Nuisance: Small, difficult customers destroy profitability. Raise prices or exit.
• Move Exploitable to Core: High-value difficult customers can sometimes be reformed through relationship investment — or priced appropriately for the trouble.
• Invest in Development: Today's small strategic customer is tomorrow's Core account.

For Buyers

• Understand your position: Don't assume you're Core just because you spend a lot.
• Build attractiveness: Volume alone doesn't guarantee partnership. Be a customer suppliers want to serve.
• Diversify strategically: If you're Exploitable or Nuisance, develop backup suppliers before service degrades.
• Leverage Core status: If you're Core, expect and demand partnership treatment.

Why You Should Care

Supplier Preferencing isn't theoretical — it drives real behavior during crises:

• When capacity is constrained, Core accounts get allocated inventory first
• During price increases, Development accounts get advance notice and phased implementation
• When quality issues arise, Core accounts get expedited replacements
• Exploitable accounts get standard treatment and no exceptions
• Nuisance accounts get dropped entirely

The COVID-19 supply chain crisis revealed this brutally. Suppliers with capacity constraints prioritized Core accounts. Exploitable and Nuisance customers faced stockouts, delays, and cancelled orders.

If you don't know where you sit in your supplier's preferencing matrix, you're flying blind.

Related Frameworks

Supplier Preferencing shows how suppliers view you. Combine it with buyer-side frameworks for complete analysis:

• Kraljic Matrix: See how procurement categorizes your product by supply risk and profit impact
• Porter's Five Forces: Understand competitive dynamics and supplier market structure