Supplier Rationalization

Recently I came across the concept of supplier Rationalization. A very important concept for the professionals working on the sourcing side; therefore I decided to write this blog entry for the beginners to get introduced to this vital concept.

Rationalizing the supply base basically means utilizing the right number of suppliers and high performing suppliers. This requires one to categorize spend and identify current and potential suppliers in each category. Options for supply base in each category:

·         Reduce:  When we already have enough number of qualified suppliers and we are sure that no other supplier can provide cost, quality or other advantages. Then we can consolidate spend with a subset of currently used suppliers.

·         Increase:  If a supplier is providing services/products in many categories; the question to be asked is if the supplier is providing best service/product in each category. If that is not the case than one may want to have more suppliers to gain more value.

·         Maintain it: In case we are happy with the current supply base; Retain and monitor it.

·         Keep the size, change the mix: Many times we have adequate number of suppliers but inadequate level of service/product offerings. In such a scenario we may want to replace poor performing suppliers with good ones.

·      Increase than reduce: Imagine a situation where you are given an objective of reducing the number of suppliers. In such a scenario you will not want to be dependent on less number of poor performing suppliers. Therefore one good approach could to be first increase the supplier base, identify the best suppliers and then reduce the total number of suppliers to attain the objectives. This two step approach enhances the chances of working with small number but high performing suppliers.