Choosing a supplier strategy is very important. Each strategy has its pros and cons. Optiply has listed some of the pros and cons of supplier strategies.
It is a fact that smaller companies have less flexibility than large companies when it comes to choosing suppliers, especially for raw materials and direct deliveries this is the case. Simply put: the smaller the company's scale, the less influence there is on suppliers.
But is that so bad? If you look at the trend at large companies, you see more and more often that they make agreements with the supplier and even base their entire business strategy on one supplier.
Of course, there is no answer that applies to every SME, but to help you evaluate your supplier strategy and avoid costly mistakes, we recommend that you consider the following pros and cons of multi-vendor versus single-vendor procurement strategies.
- Building and maintaining a relationship with one supplier is easier than with two or more;
- Administration and other costs are reduced when you place orders with only one supplier;
- You can make the most of the volume to achieve attractive prices;
- It's easier to streamline and integrate systems with a single supplier;
- You may be able to negotiate to receive small, frequent deliveries to improve inventory management;
- The possibility that potential customers are worried about the risk for their deliveries (if they notice that you are single sourcing);
- It may be more difficult to ensure that your business remains competitive if it is tied to a single supplier for multiple material/product categories;
- A general shortage of a material or product with a single source may be a greater problem than if you are dealing with two or more suppliers;
- There is a risk that over time the dependency balance will become skewed;
- If one of your suppliers is purchased by a competitor or is in financial or business difficulty, you should be able to rely on at least one supplier.
- While you may not have as much influence over every supplier, there are opportunities to take advantage of competition between suppliers, although this depends to some extent on the importance of your business to those suppliers.
- Demand fluctuations can be more manageable if you have a choice of suppliers with whom you can adjust order volumes.
- Having two or more suppliers will increase your company's ability to bypass supply disruptions.
- Sharing information is less easy and can involve risks.
- Lower order volumes mean less bargaining power, and competition between suppliers may not be enough to generate the same cost savings as volume increases.
- The lower the importance of your suppliers in your business, the less they will respond in times of need.
- There is more overhead involved in contract negotiation, management and process execution when dealing with multiple suppliers.