The current scenario of recession has renewed the focus on supplier risk management. Organizations are focusing great deal to understand different parameters which are helpful in determining the health of the supplier base. The best strategy to ensure smooth functioning of supply chain is to have an eye on the current supplier base while be proactive to have an additional supplier ready in case of any disruption due to failure of any key supplier base.
However increasing your supplier base and distributing the share of business between them does effect the spend management of the organization. Instead of focusing on few supplier and consolidating your spend between them is suppose to be the best way forward until few months back.
So many supply chain professionals are facing this dilemma of having to choose from two different scenarios:
1 Consolidating your spend between key supplier base and work with these key suppliers to achieve better productivity, more knowledge as well as expertise inputs and achieving cost savings targets.
2 Make a broad supplier network and distribute the spend between the supplier such that in case of failure of any supplier the impact on supply chain is minimal.
The answer to the problem is not simple. There are numerous factors involved in the decision making like amount of total spend, economic health of supplier base, the supplier base location, the technological resources available at supplier, suppliers willingness to be the major supplier, suppliers spare capacity.
The final solution could be much closer to Point 1 i.e consolidating spend but the current economic scenario has introduced a very dynamic picture into the idea of supplier and spend consolidation. The drive in the first decade of 21st century is for a push towards best cost from any location possible. The idea was great till everybody was making money and there were no disruptions but now the idea of best cost from any location has changed to best cost from best location.
Consolidation will remain the key focus for everybody but supplier selection and its continuous monitoring and its continuous management will be the focus now. The mad rush for lowest cost will abate and more factors like supplier capabilities and suppliers economic health will add a new dimension to Global Purchasing and Supply Chain.
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the irony of the situation is not lost on anyone. as a purchase personnel while we are expected to compress or optimise the supplier base, we still need to keep the options open to ensure that the supply is not interrupted at any point of time.
ReplyDeleteOnce again, it depends on the category of spend. Are you buying generic or highly customized goods or services? Are you in the leverage quadrant of high spend and lots of potential suppliers, or the critical quadrant where your choice of suppliers are limited? Are you a core account to the suppliers, or are you considered a nuisance or exploitable account by the supply base? Is there a potential for the supply base to help position your business into a competitive advantage for top line growth, or is this a basic cost reduction activity? Are these static long term situations, or are they going to change along with changes in the business? Until you do the analysis by category, geographic region and by business unit or corporate function, there are no right answers. The secret is to do the analysis, then select the appropriate strategy.
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