Suppliers are Like Girlfriends, Too Many is Not a Good Thing
As you may know, FinancialForce.com has recently added supply chain management (SCM) to our suite of cloud ERP apps, so I thought we’d kick off with a quick lesson on the hazards of too many suppliers (and how to pick them).
They say variety is the spice of life, but sometimes it is the constant and dependable that make life better. When the supply chain moved from national to multinational, companies were exposed to new suppliers and lower cost. Sourcing multiple suppliers for the lowest cost became a regular activity and the days of free love were abundant. As consumers and regulators became more informed of the source of their supplies, the rules changed. Companies’ supply chains are now reviewed for supplier compliance to fair trade acts, green initiatives, as well as the regular risk management exposing the true costs of all of these relationships.
Today companies have to be much more cautious about supply chain risks and seek out compliant suppliers, while still reducing cost. By reducing the number of suppliers in a procurement organization’s little black book, they are actually building better relationships and have a better ability to leverage that relationship. It takes time to find the suppliers that can fill your supply chain needs and have all the additional qualities that your company requires (ISO 4000, diversification, geographically desirable, etc.), but once accomplished all concerned are much happier.
Organizations can now streamline the procurement process, utilize volume discounts and reduce the amount of financial transactions processed. You now have the time to rate supplier performance, judge and value the relationship on an aggregate level to reduce risk. And if things are not working out, you will know much earlier in the relationship and can upgrade.
Ultimately building a smaller number of supplier relationships will help you reduce risk, manage spend and strengthen your ability to serve your customer and of course they are judging the relationship with you as well.