Purchasing Planning, Supplier Registration and Evaluation

30/10/2026 •0•0

How purchasing fits into a company's plans, how to use the Kraljic matrix and register suppliers, and how to measure performance with OTIF, PPM and a weighted score.

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Introduction

Think of any business and ask yourself:

What are its goals?
How does it operate?
What resources does it need?
How are those resources managed?
What could make it succeed or fail?

Answering those questions is the first step in corporate planning. Senior management must consider them over the long term and decide how the company will obtain and use its financial, technical and human resources. The result is a corporate plan, which typically covers:

goals: survival, profitability and social responsibility;
products and markets;
finances;
materials;
human resources;
technical facilities;
management and administration.

Purchasing is part of managing materials. In the previous lesson, we looked at what purchasing does day to day. This lesson covers how the department plans, builds a supplier database and evaluates existing suppliers.

Why Plan Purchasing

Corporate planning is a systematic approach to strategic decisions: envisioning the future and setting out how the organization will achieve its goals. Companies develop scenarios for the environments in which they may operate to assess whether today's decisions will pay off later. The world changes quickly, but a decision made now—a new factory or a ten-year supply contract—can have effects for more than a decade.

Products, manufacturing processes, communications, data processing, and supply and sales markets all change. Companies that fail to study those changes and prepare for them fall behind. The corporate plan sets goals for the company as a whole and guides specialized departments, including marketing, production and purchasing, so they work toward the same ends.

Many companies, and many purchasing professionals, were slow to recognize that purchasing needs a strategic outlook, not just solutions to the day's problems. That role is now widely recognized. Several factors helped bring about the change:

rising prices and the need to control inflation;
the need to better control money tied up in inventory;
the effect of purchasing costs on profitability, especially where materials account for most costs (the leverage effect discussed in the previous lesson);
shortages, sometimes worsening, of key materials.

Planning Horizons

Many companies use two planning horizons, operational and strategic; others use three:

Horizon	Typical time frame	Purchasing example
Operational	up to 1 year, day to day	place orders, track deliveries, stay within the annual budget
Tactical	1 to 2 years	renegotiate annual contracts, develop a second supplier
Strategic	3 to 10 years or more	decide whether to make or buy, enter long-term contracts, switch raw materials

The annual budget may be short-term, but a long-term outlook provides the framework for today's decisions and keeps immediate savings from putting future supplies at risk.

What to Study Before Planning

Before drawing up a plan, a company needs to understand both its environment and its own capabilities. Typical areas of study include:

general economic conditions and international factors (exchange rates, import tariffs);
product and process development;
production facilities and transport infrastructure;
major suppliers and competitors, mergers and market changes;
legislation;
organizational structure, staffing and labor relations;
financial resources.

The aim is to build a clear picture of markets, emerging opportunities and threats, while carefully assessing the resources the company has today.

Purchasing in the Corporate Plan

The plan's contents depend on the company—a manufacturer and a distributor will plan for different things—but each department has its part. The purchasing and supply section includes:

make-or-buy strategies (see the lesson on supplier selection and make-or-buy decisions);
research and development of new materials and suppliers;
cost and price analysis;
inventory requirements;
supply strategies (sourcing): single, dual or multiple sources, locally or globally;
supply chain management.

The plan must be coherent across departments yet flexible enough to account for the impossibility of predicting the future precisely. Risks should be assessed and, where necessary, contingency plans prepared: what happens if the main supplier stops supplying?

The Strategic Purchasing Plan

Planning means deciding what to do, how and when to do it, and who will do it. No corporate plan can succeed without the right materials at the right time and at the right price. A strategic purchasing plan therefore starts with simple questions that many companies cannot answer:

How much do we spend in total each year?
How many suppliers do we have?
Who are our 10 largest suppliers by spending?
Which 10 items do we spend the most on?
Which items cost little but are critical (meaning production stops if they run out)?
What should we make, and what should we buy?

Answering these questions is spend analysis: essentially ABC classification applied to purchases (see the lesson on ABC and XYZ classification).

Steps in the Plan

Gather information about suppliers and the external environment: new materials, shifts in supply and demand, and price trends.
Collect data on internal demand for materials and equipment.
Develop the long-term plan, including goals and strategies, along with short-term tactics and targets.
Design the organization, procedures and policies needed to carry out the plan.
Develop a staffing plan so qualified people are available to carry it out.
Monitor the department's and team's performance, and adjust course when results diverge from the plan.

These steps involve the classic management functions: planning, organizing, staffing and controlling. Planning gives direction to the rest.

SWOT and Gap Analysis

SWOT analysis (Strengths, Weaknesses, Opportunities, Threats; known in Portuguese as FOFA) helps identify problems and opportunities in the supply chain. Strengths and weaknesses are internal (an experienced purchasing team; a sole supplier for a critical item). Opportunities and threats come from outside (a new supplier in the region; a rise in the exchange rate).

Gap analysis (gap analysis) compares what a company wants to achieve with what it is likely to achieve if it keeps its current strategy. The difference is the gap. Purchasing can often do a great deal to close it by reviewing supply sources, making sound make-or-buy decisions, and applying value engineering and analysis.

A Strategy for Each Type of Item

Not every item calls for the same level of effort. One widely used tool for choosing an item-by-item strategy is the Kraljic matrix, proposed by Peter Kraljic in a 1983 article in the Harvard Business Review. It plots items along two axes: their impact on financial results (spending) and the risk or difficulty of buying them.

Kraljic matrix: four types of item, four purchasing strategies

Noncritical (low spending, low risk): spend as little time as possible; standardize, buy from a catalog and automate orders.
Leverage (high spending, low risk): with many suppliers available, use purchasing volume to negotiate and seek quotes frequently.
Bottleneck (low spending, high risk): the item is inexpensive, but running out brings everything to a halt; secure supplies with safety stock and seek alternative sources.
Strategic (high spending, high risk): with few suppliers and substantial spending at stake, build a long-term partnership and plan together.

A food manufacturer buys an additive that accounts for 0,5% of its spending, but only one supplier in the world produces it, and production stops without it. Which quadrant of the Kraljic matrix does it belong in, and what is the right strategy?

Answer: Bottleneck: secure supplies with safety stock and look for an alternative source—the spending is low, but the risk is extremely high (a sole source and a production stoppage). Seeking quotes from several suppliers is impossible because there is only one, while treating the item as noncritical ignores the very risk that matters.

Supplier Database

Why maintain a supplier database when industry directories, manufacturers' catalogs and the internet are available? And why do so many people think purchasing is easy, just because everyone buys something every week?

Because purchasing for a company is complex. It requires understanding what is being bought—its specifications, technical standards, and inspection and acceptance criteria—and finding sources that can deliver the right product at the right time and in the right quantity. The internet and catalogs provide an initial list of possibilities; the company's own database shows which suppliers it knows, has tested and trusts. When signing a contract, the aim is to find a partner, not buy a problem.

Globalization has greatly expanded the range of sources: a single product might contain a component from Malaysia, an input from the United States and packaging from Brazil, with assembly in Taiwan. Identifying manufacturers and suppliers and understanding their capabilities is a core purchasing responsibility. Apart from low-value purchases, a supplier database is vital for services as well as materials.

What the Database Records

First, the person responsible for the database gathers information on potential sources in domestic and international markets. They then select the strongest candidates, checking requirements such as:

accountability and integrity;
stability (including financial stability);
commercial and negotiating capabilities;
experience supplying the goods or services needed;
track record in the market.

Suppliers are also classified according to company-defined criteria: the products they make or sell, production or service capacity, ease of communication, geographic location and the condition of their facilities.

Today, the database sits in a system—an ERP purchasing module or a supplier portal—but the principle remains the same: a two-way lookup. Given an item, which suppliers can provide it? Given a supplier, which items can it provide?

In the public sector, a supplier register is required by law. At the federal level, it is called SICAF, which we will cover in the lessons on public procurement.

Current and Prospective Suppliers

The database contains two groups:

Current: suppliers already providing goods or services to the company;
Prospective: alternative sources that have been identified, and sometimes visited, and could become suppliers.

Even when a company prefers to buy from established suppliers, it makes strategic sense to keep prospective suppliers ready so a problem with an incumbent does not leave it without an item. As we saw in the previous lesson, having a good alternative also strengthens the company's negotiating position.

Supplier Evaluation

The goal of supplier selection and registration is to find suppliers that:

can deliver the required material or service in the desired quantity, quality and time frame;
can become a regular source of supply;
offer competitive prices and terms.

Paperwork alone is not enough. Buyers need to visit suppliers' facilities and speak with their executives to understand their capabilities, flexibility and challenges.

One contract is not enough to evaluate a supplier: an assessment becomes reliable after a series of deliveries. Nor should purchasing handle it alone. Quality, warehouse, production and finance teams each see different aspects of the same delivery.

Measuring Performance

Evaluation processes measure, among other things, delivery consistency, product or service quality, the quality assurance system, production planning, factory capacity and prices relative to competitors. Three measures appear in almost every company:

OTIF (on time, in full): the percentage of deliveries that arrive on time and in the full quantity ordered.
PPM (parts per million): rejected parts per million parts received. Formula: PPM = (rejected parts / parts received) × 1.000.000.
Lot quality rate: the percentage of lots that pass incoming inspection.

For example, over one year a supplier made 50 deliveries. 46 arrived on time, 47 contained the full quantity, and 44 were both on time and complete. The supplier delivered 400.000 parts, of which 1.200 were rejected.

OTIF = 44 / 50 = 88%.
PPM = 1.200 / 400.000 × 1.000.000 = 3.000 PPM (0,3% rejected).

Note that OTIF is counted delivery by delivery. Multiplying the on-time rate by the complete-delivery rate (92% × 94% = 86,5%) gives the wrong answer because delays and shortages do not occur independently.

The supplier performance index

To compare suppliers and decide which ones to keep, many companies combine their performance measures into a single weighted index. Here is an example with three criteria, each scored from 0 to 100:

Supplier	Quality (weight 40%)	OTIF delivery (weight 35%)	Service (weight 25%)	Index
A	98	92	80	91,4
B	99	78	90	89,4
C	93	85	70	84,45

The calculation for supplier A is 0,40 × 98 + 0,35 × 92 + 0,25 × 80 = 39,2 + 32,2 + 20,0 = 91,4.

The company then sets performance bands: for example, 90 or above means preferred supplier; 75 to 90 means approved with an action plan; below 75 means under review or removed from the approved supplier list. Supplier B has the highest quality score but loses points on delivery, so its action plan should focus on meeting deadlines. That is what the index is for: showing where each supplier needs to improve, not just assigning a score.

Over one year, a supplier made 80 deliveries: 72 on time, 76 in full, and 70 both on time and in full. Of the 250.000 parts received, 500 were rejected. What are the OTIF rate and PPM?

Answer: OTIF 87,5% and PPM 2.000 — OTIF counts deliveries that were both on time and in full: 70 / 80 = 87,5%. PPM = 500 / 250.000 × 1.000.000 = 2.000. The 85,5% option comes from multiplying 90% × 95%, a common mistake; 0,2 is the rejection rate as a percentage (0,2%), not the PPM.

Using the table’s weights (quality 40%, delivery 35%, service 25%), a supplier scores 90, 80 and 100. What is its index, and which band does it fall into (90 or above preferred; 75 to 90 approved with an action plan)?

Answer: 89,0 — approved with an action plan — 0,40 × 90 + 0,35 × 80 + 0,25 × 100 = 36 + 28 + 25 = 89, below 90. The trap is taking the simple average, (90 + 80 + 100) / 3 = 90, which ignores the weights and puts the supplier in the preferred band. The higher weights are on quality and delivery, where the supplier scored lower.

Supplier relationships and quality standards

An ongoing relationship between buyer and supplier can be valuable, provided it rests on an objective assessment of the facts rather than personal connections. For both sides to benefit, it requires:

open communication between buyer and seller about quality, quantity, lead times and price;
mutual trust in the information shared and each side’s intentions;
an understanding of each side’s problems and circumstances;
a willingness to find joint solutions to shared problems;
personal relationships grounded in ethics and mutual respect;
continuous process improvement from one contract to the next;
an active effort to fulfill every term of the contract;
regular meetings to review contract performance.

The ISO 9000 family of standards is widely used to assess a supplier’s quality management system. Its certifiable standard is ISO 9001 (published in Brazil by ABNT as NBR ISO 9001). It treats supply as a chain running from the raw-material sub-supplier to the end customer, and its use of product includes materials, equipment, information and services. The 2015 version remained in force for almost a decade; ISO published the revised ISO 9001:2026 in September 2026, and certificates issued under the 2015 version remain valid during a transition period of about three years. Certification does not guarantee that every delivery will meet expectations, but it indicates that the supplier has documented, audited processes, reducing the work needed to assess it.

Ultimately, procurement’s responsibility is not just to choose sources of supply. It is to build a pool of qualified suppliers that become regular, reliable sources. The next lesson covers how to choose among new candidates.

Exercises

Easy

1) Why is a supplier database important when catalogs and the internet are available?

2) What threats do companies face in the supplier market? How do contingency plans and prospective suppliers help?

3) A supplier delivered 600.000 parts during the year, of which 450 were rejected at inspection. What is its PPM?

4) Over one year, a supplier made 120 deliveries, and 114 arrived on time and in full. What is its OTIF rate?

5) Classify each of the following as a strength, weakness, opportunity or threat for a furniture manufacturer’s procurement department:
a) the procurement team has buyers experienced in certified timber;
b) a new MDF panel factory is opening 50 km from the company;
c) the adhesive used in assembly has only one supplier;
d) the government has announced an increase in import tariffs on the hardware the company buys from China.

6) Which planning horizon—operational, tactical or strategic—does each decision belong to?
a) issuing this week’s purchase orders;
b) deciding whether the company will make or buy the motor for its product over the next ten years;
c) developing a second packaging supplier over the next year.

Hard

7) What does supplier evaluation cover, and what is its purpose? Calculate a supplier’s OTIF and PPM using figures you make up.

8) What does strategic supply planning cover? Place three items from a company you know in the Kraljic matrix.

9) A company assesses three suppliers using the lesson’s weights (quality 40%, OTIF delivery 35%, service 25%) and performance bands: 90 or above, preferred; 75 to 90, approved with an action plan; below 75, under review. The quality score is calculated as 100 − PPM ÷ 200, and the delivery score is the OTIF percentage. Annual figures:

Supplier	Deliveries	On time and in full	PPM	Service score
X	60	54	1.000	85
Y	40	38	3.000	90
Z	50	41	400	70

Calculate each supplier’s index, identify its band and say what the action plan should focus on for each supplier outside the preferred band.

10) Over one year, a supplier made 200 deliveries: 180 on time, 184 in full, and 170 both on time and in full.
a) Calculate the OTIF rate.
b) Calculate the figure obtained by multiplying the on-time rate by the in-full rate, and explain why it is wrong.
c) How many deliveries were both late and incomplete?

11) A factory’s spend analysis showed its annual spending with six suppliers:

Supplier	What it supplies	Annual spend
F1	cardboard packaging (many suppliers on the market)	R$ 1.200.000
F2	custom-designed electric motor (two capable manufacturers in the country)	R$ 450.000
F3	standardized steel sheets (several distributors)	R$ 180.000
F4	building maintenance services	R$ 90.000
F5	single-source chemical catalyst; without it, the production line stops	R$ 50.000
F6	office supplies	R$ 30.000

a) Classify the suppliers by spend using the ABC rule: class A up to 80% of cumulative spend, class B up to 95%, and class C the remainder (see the lesson on ABC and XYZ classification).
b) Identify the Kraljic matrix quadrant for F1, F2, F5 and F6, and give a purchasing strategy for each.
c) Why does F5, a class C supplier, deserve more attention than its spend suggests?

Answer key

1) Catalogs and the internet provide names; the supplier database shows which of those suppliers the company knows, has tested and trusts. It records integrity, financial stability, capacity, experience and past performance. It also supports searches in both directions (given an item, who supplies it; given a supplier, what it supplies) and keeps prospective suppliers ready to replace current ones.

2) Threats include a supplier’s bankruptcy or shutdown, raw-material shortages, rising prices and exchange rates, logistical or political problems in other countries, and declining quality. A contingency plan sets out in advance what to do if the primary supplier stops operating. Prospective suppliers that have already been identified, and sometimes visited, make it possible to switch sources quickly. Having alternatives also strengthens the company’s negotiating position.

3) PPM = 450 ÷ 600.000 × 1.000.000 = 750 PPM (0,075% rejection rate).

4) OTIF = 114 ÷ 120 = 95%.

5) a) strength (internal, positive); b) opportunity (external, positive: a new nearby source); c) weakness (internal: dependence on a single source); d) threat (external, negative).

6) a) operational; b) strategic (make-or-buy decision, ten-year horizon); c) tactical (one to two years).

7) Supplier evaluation measures the performance of existing suppliers over a series of deliveries: consistency and timeliness, quality, the quality management system, capacity, and price compared with competitors. Its purpose is to decide which suppliers to keep, show each one where it needs to improve, and inform future choices. For example: 40 deliveries, 36 on time and in full, 250.000 parts received, 500 rejected: OTIF = 36 ÷ 40 = 90%; PPM = 500 ÷ 250.000 × 1.000.000 = 2.000.

8) It is long-term planning for material resources: how much is spent and with whom, what to make and what to buy, which sourcing strategy to use for each type of item, what risks exist, and what contingency plans to prepare. For example, at a bakery: wheat flour (high spend, many mills: leverage); specialty yeast imported from a single manufacturer (low spend, high risk: bottleneck); paper bags (low spend and low risk: non-critical).

9) X: quality = 100 − 1.000 ÷ 200 = 95; OTIF = 54 ÷ 60 = 90%; index = 0,40 × 95 + 0,35 × 90 + 0,25 × 85 = 38 + 31,5 + 21,25 = 90,75, preferred.
Y: quality = 100 − 3.000 ÷ 200 = 85; OTIF = 38 ÷ 40 = 95%; index = 0,40 × 85 + 0,35 × 95 + 0,25 × 90 = 34 + 33,25 + 22,5 = 89,75, approved with an action plan. The focus should be quality (3.000 PPM, the worst of the three).
Z: quality = 100 − 400 ÷ 200 = 98; OTIF = 41 ÷ 50 = 82%; index = 0,40 × 98 + 0,35 × 82 + 0,25 × 70 = 39,2 + 28,7 + 17,5 = 85,4, approved with an action plan. The focus should be delivery (82% OTIF) and service (score 70).

10) a) OTIF = 170 ÷ 200 = 85%.
b) On-time rate = 180 ÷ 200 = 90%; in-full rate = 184 ÷ 200 = 92%; product = 0,90 × 0,92 = 82,8%. This is wrong because it assumes lateness and incomplete deliveries occur independently; OTIF must be counted delivery by delivery.
c) Late deliveries = 200 − 180 = 20; incomplete deliveries = 200 − 184 = 16; deliveries with either problem = 200 − 170 = 30. Deliveries with both problems were counted twice: 20 + 16 − 30 = 6 deliveries.

11) a) Total = R$ 2.000.000. Percentages and cumulative shares: F1 60,0% (60,0%), F2 22,5% (82,5%), F3 9,0% (91,5%), F4 4,5% (96,0%), F5 2,5% (98,5%), F6 1,5% (100%). Class A: F1; class B: F2 and F3; class C: F4, F5 and F6.
b) F1: leverage (high spend, many suppliers): use purchasing volume and seek quotes frequently. F2: strategic (high spend, few manufacturers): build a long-term partnership. F5: bottleneck (low spend, single source, production line stops without it): protect supply with safety stock and seek an alternative source. F6: non-critical: standardize, buy from a catalog and spend little time on it.
c) ABC measures spending alone. F5 is class C by value, but a shortage would stop the entire production line: it is a low-cost, critical item (Z in XYZ). Spend analysis therefore needs to be combined with risk, as it is in the Kraljic matrix.

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