77% vote to cut supplier numbers

February 26th, 2008 at 02:09am Sean Delaney - Iasta UK

In a recent poll for supply management 77% of the respondents were planning to make cuts to their vendor list.

In soccer terms this is the equivalent of a route one i.e., kick the ball as far up the field in the hope that somebody inadvertently nudges it in the right direction and scores a goal. There is not much technique involved but it’s still a goal. However when you try a second time the likelihood of scoring is far less. Sourcing in my opinion is the same, let me explain…..

Global risk factors are no greater than ever before, raw material prices are rising, availability is falling and product life cycles are growing ever shorter.

Procurement should be wary of these factors and in my opinion decisions to reduce the number of suppliers should not be made by simply (as a respondent to this survey suggests) looking at the aggregate spend against the number of suppliers and then picking a number.

I strongly believe — more than ever before — now is the time for a much more measured approach to identifying the optimum number of suppliers. Other factors should be considered:

• Required lead times – do all items need to be delivered at the same time, or are suppliers dictating terms?
• Supplier Sourcing – it’s no longer enough to have two suppliers; we now need to understand the shape of their supply chain, i.e. from where are our suppliers sourcing? Do they have the same source? If so, supply risks are not reduced.
• KPI’s (key performance indicators) – should be constantly measured and automatically collated. These measures should be regularly factored into forward orders and commitment i.e. signs of low OTIF percentages should be tackled immediately and plans executed to reduce risk and maintain continuity.
• Goals of the business (i.e. product life cycles) – How long is a product due to run and what are the forecasts? What is likely to replace existing revenue? What is currently being trialed?
• Customer profiles and spend patterns – For example if customer expenditure patterns are likely to be more price sensitive, then there could be a shift in demand patterns. Therefore reducing commitments on high-value buys will reduce exposure and risks.

I’m sure there are plenty more factors which should be considered but these are the first ones that come to mind.

Basically I think this is no longer just a simple decision and the total cost of ownership is now key. However I can’t see how this can be done without up to date management information and therefore decent spend analysis software which tracks all these factors.

In summary route one i.e. reducing supplier numbers is too risky and is now less likely to reap the rewards of past rationalisation. To mitigate the risks and still deliver benefits buyers need to adopt a more measured approach in much the same way as the most successful Premiership Managers. Real time Spend Management information is the imperative.

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Entry Filed under: Analysts/Research, General, Sourcing News, Supply Management Best Practices, Technology / SaaS, e-Sourcing Marketplace