Supplier rationalisation

Also it can be argued, perhaps paradoxically, that a focus on complexity reduction could increase supply chain risk. For example, an over-ambitious programme of supplier rationalisation could leave the company vulnerable to disruption if, for whatever reason, a critical supply source were to fail. 

Despite the benefits of supplier rationalisation and focused factories, risk management does imply there is real rationale for lining up alternative suppliers in different locations and for manufacturers to develop a thorough understanding of their suppliers capabilities and vulnerabilities. Companies are responding in two ways consider alternative and back-up sources and proactively audit the supply base for financial and operational sustainability in these tough times. Hewlett-Packard, for example, has secondary suppliers for all critical components as part of its continuity plan. 

Supply base rationalisation seeks to reduce the suppliers with which an organisation deals directly to a smaller number of strategic suppliers. Rationalisation involves re-tiering the supply chain so that other suppliers are placed under a lead supplier, or tier 1 supplier. 

Even market leaders such as Clariant, Ciba Specialty Chemicals and Akzo Nobel have felt the need to cut costs, and in some cases jobs, in the early years of the present decade. A few companies have retreated from chemistry or plastics related markets altogether and tnmed to the life science and health sectors. Polymer suppliers have reduced the number of polymer grades they offer. The compounding industry too has been forced to rationalise, with several plant closures. 

Usually applied in the case of low-value, low-risk purchases, these cards constitute a credit card system with authorised users. Improving efficiency and smoothing the supply chain, the immediacy of this method reduces transaction costs, and furthermore, tends to support the rationalisation of suppliers. 

It should also be noted that rationalisation of the polymer industry has produced a continuing trend towards fewer and larger suppliers on a global scale who supply polymers as a commodity. As a result there is a shift in technical responsibility... 

In industrial markets, too, the same pressures on purchasing source loyalty seem to be at work. It is perhaps not surprising that as more and more companies adopt just-in-time strategies, with minimal inventories, they require even higher levels of response from suppliers. The demand is for ever shorter delivery lead times and reliable delivery. The pressure on suppliers is further increased as these same customers seek to rationalise their supplier base and to do business with fewer suppliers. Becoming a preferred supplier in any industry today inevitably means that a high priority must be placed on delivering superior customer service. 

Range, customer and supplier complexity can be identified through Pareto analysis. In other words what proportion of total revenue, spend or inventory is accounted for by what proportion of customers, suppliers or SKUs By focusing on the long tail previously discussed, it should be possible to identify opportunities for rationalisation. Again, it should be stressed that such rationalisation needs to be addressed cautiously with regard to the wider business strategy and financial consequences. 

Supply base rationalisation dealing with a smaller number of suppliers to enable high-intensity relationships to develop. 

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