Supplier Rationalization — Revisited

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Rationalizing a supply base is typically defined as picking the right suppliers and the right number of them, but in common practice, it has too often come to mean shrinking or consolidating a supply base in the name of securing more strategic relationships.

We tend to forget that supplier rationalization can also mean increasing the number of suppliers used, routinely changing your mix of suppliers or expanding and then reducing the number and types of suppliers you select in support of changing organizational objectives, tests, hunches and the desire to accelerate the transfer of innovation.

While tail spend management is now getting a second look across industry (they say there’s still as much as 10% more meat on that bone), new kinds of rationalization strategies targeting unconventional categories of spend are also finding their way into practice. Concerning the former, finding ways to uncover and automate lower-level buys (e.g., the use of agent-based technologies) while representing a great way to increase the automation ante are now, in fact, being recognized as a dispassionate way to interrogate and rationalize new markets.

In short, sourcing professionals who intentionally limit their picks to large suppliers with cross-category capabilities may be inadvertently setting a table that will ultimately limit their cost controls, reduce their visibility into technology developments and insulate them from market information. Enabling competitive markets requires careful consideration of what’s most important: a moving target. So we must remind ourselves that supplier rationalization is a continuous process, that it’s not about quantity anymore, that it’s all about getting ahead of evolving ideas of quality.

Now more than ever, learning to collaborate in meaningful ways with a changing mix of suppliers is an essential skill, not an attention deficit disorder. Policies and processes that keep the fresh blood out invariably hinder natural selection.

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First Voice

  1. Alan Holland:

    Excellent points; there is also the longer-term damage to competitive tension that ensues from buyers over-consolidating the supply base. It’s important to have a blend of suppliers to offer healthy competition as it drives innovation and supports supply chain robustness also.

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