Many organizations find that as their business grows, they release more products that require a greater volume of component parts. In this scenario , especially where supplier selection processes are not closely managed, it’s not uncommon that businesses find their supplier base grows. The symptoms for a business with lots of suppliers can be easy to spot and includes:
• Commodity groups with many suppliers
• Many suppliers providing the same part
• A Multitude of prices and contract terms to manage
• Overly burdened bought ledger department
• Large numbers of purchase orders
• Significant numbers of “administrative” order raisers
But is a large supplier list really a problem – surely it promotes choice?
The thing is with suppliers is you should only need enough to meet the needs of your business. Supplier selection should be a carefully managed process (true strategic sourcing). Your supplier network should be rich with suppliers that add value to your operation.
The typical trigger for supplier rationalization is a supply chain that is perceived to be slow and expensive. Organizations then attempt to shed suppliers and appoint ‘champion’ suppliers with long term agreements or contracts. Whilst in many industries this is not a bad way to go how do you know if you have too many suppliers and could a supplier development process be a better way to deliver the same results?
Needlessly taking the axe to your suppliers can promote a significant risk – one in which without due consideration you remove suppliers that help your competitiveness or add value that can’t be simply replaced.
Many businesses flourish with strategic supplier relationships (not axing) where both organizations developing opportunities post contract (supplier development does not stop on contract award). Given this a simple slash and burn approach is unlikely to work.
The foundation for strategic management is an appropriate supplier development program one which will typically deploy performance measurements (usually along the Quality, Cost and Delivery route) that businesses can utilize to help shore up many of the issues resulting from poor supplier performance (over stocking, multiple providers for the same commodity etc).
Supplier rationalization will always be a common project that businesses will utilize to reduce cost and facilitate performance however – purchasers must be aware that there is more than one way to solve the problem.