To Build A More Agile Supply Chain, Balance Supplier Consolidation and Supplier Diversification
Establishing an agile supply chain anchored in the United States is of utmost importance in today’s world. Many manufacturers are striving to decrease their dependence on China due to the exposure of the fragility of their supply chain networks. This phenomenon initially arose due to tariffs, but the COVID-19 pandemic in 2020 further highlighted the problem.
Furthermore, factory lockdowns, political unrest, and natural disasters are prompting procurement professionals to re-evaluate their supply chain strategy and establish alliances closer to home.
Even if your entire supply chain is within the US, optimizing your supplier base can still aid in mitigating risk. In this article, we will explain the benefits of balancing supplier consolidation and diversification and provide suggestions for implementing these strategies to create a more agile supply chain.
Before delving into how to balance the two strategies, we will explore the advantages of each.
Balancing Consolidation and Diversification Strategies to Build an Agile Supply Chain
Advantages of Supplier Consolidation:
Better Processes, Pricing, and Speed Time-to-Market
The Pareto Principle, or 80/20 rule, asserts that 80% of outcomes arise from 20% of the action. In many instances, manufacturers who consolidate their expenses into fewer suppliers have greater flexibility to leverage buying power.
Streamline Process and Procedures
Supplier consolidation can enhance the agility of your internal team in two ways. First, by reducing the number of contacts they work with. And second, by reducing the number of procedures they need to adhere to when requesting quotes.
Though often considered a “soft” cost, tasking purchasing and engineering to quote projects can be expensive.
This process frequently involves categorizing parts by type, such as fasteners, MRO/consumables, and then plastics, metals. It could also entail organizing them according to manufacturing process type, such as injection molding, CNC machining, or rapid prototyping.
Consider an upcoming project that necessitates three competitive quotes as an example:
Company A requires quotes be submitted through a portal system.
Company B may require 2D drawings via email.
Company C requires CAD files and 2D drawings but only through their website’s generic sales email box.
In this instance, it is easy to perceive how consolidating your supplier base lowers the number of contacts and streamlines processes to make your organization more effective.
Reduce “Soft” Admin Costs
Companies often neglect administrative costs when setting their cost-saving targets. Common tactics include requesting suppliers to reduce prices based on quantities or rebate programs that align with annual spending.
Fewer suppliers can lead to “soft” cost savings across departments.
For example, processing fewer purchase orders can save time and money, such as less data entry, emails, and time spent clarifying orders.
Speed Time-to-Market
Supplier consolidation can help hasten time-to-market, particularly for firms that depend on their supply chain for full-service quality control of their parts.
Selecting a few dependable vendors can help manage the process, thereby decreasing rejected parts, failures in the field, and customer complaints.
Fast 5 Action Items: Supplier Consolidation for a More Agile Supply Chain
To begin, identify particular objectives that you want to achieve. Then evaluate your supplier base against these expectations to assist you in selecting the right fit.
Here are five action items to assist you in navigating the consolidation process:
Consider all costs
Piece price is crucial as long as you don’t lose significantly in other areas. That is why it is critical to consider all costs associated with adding or subtracting vendors from your supplier base.
Logistics: Is the vendor located near your company? Will the difference in freight cost exceed the perceived cost savings?
Process agility: Is production handled entirely in-house, or do they outsource secondary processes? How many touchpoints are required to complete the manufacturing process?
Speed-to-market
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