How many suppliers does your business need?

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How many suppliers does your business need?

• Charles Yung, Stephen Nolan, Kacie Satsuma, Lars
  Johansen, Mark Klein

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Overall chain options

• Strategic Supplier Have one or few inputs
• Can reduce costs
• Transaction costs
• Long term contracts
• Building relationships

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Overall chain options cont.

• Several key Suppliers
• The component is somewhat important to the
  companys core competencies.
• It is value adding to customer.

4
Overall chain options cont.

• Many suppliers / Auction
• Lots of options
• Decisions made on cost/s

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Criteria for choosing suppliers cont.

• Core competency / strategic
• Criticality
• Aligns with mission
• Standard or customized
• Impact on revenue
• Transaction costs

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Criteria for choosing suppliers cont.

• Volume / Value
• Number of Suppliers

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So How Many Suppliers Do You Choose?

• Single Sourcing an input.
• Advantages
• Cost
• Quality
• Information ? Building relationships
• Cooperative, and coordinated
• Loyalty ? Rolling Contracts
• Improved efficiency greater product consistency

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Single Sourcing cont.

• Disadvantages
• Resilience
• Ex. Honda heating and air conditioners
• Globalization of Supply Chain
• Greater risk from remote suppliers
• Note
• Both Fraser and Tarantino claim that a general
  rule of thumb to follow is to avoid
  single-sourcing for any critical path part.

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SC Understanding

• Mapping Tools
• Pinch points
• -Bottlenecks
• -Limited Capacity
• -No Alternatives
• ?SRM Software
• -Analytics Replenishment

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Suggestions

• Lead Supplier w/ alternatives
• Examples
• Experience from Steven and Lars
• Multiple Sites
• Single Source each location

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Supplier Comparison
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Most Powerful Agility

• Velocity
• Shorter Pipelines
• Visibility
• Decreased and Demand Driven Supply Chain
• Decreases Risk through shared info.
• Enabled by Culture of risk mitigation
• supply chain executive

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The Alternative Multiple Sourcing

• Advantage
• Plays one supplier against another
• Increased Competition
• Disadvantage
• Likely requires longer negotiation times
• May delay / disturb production schedules
• Decrease Communication Flow

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The Decision Tree ApproachThe Goal is to
determine the optimal value of n

• nS ? n suppliers, n1, 2
• P(D) ? probability of down
• Pn(D) ? probability that all suppliers are down
• L ? financial loss caused by disasters
  of all suppliers down
• C(n) ? operating cost of n suppliers

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The Brain Teaser Making the decision
Mathematically
Non-Linear operating cost

• If you want this explained come see me, for the
  rest of you lets make good use of our time.
• Linear operating cost

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Conclusions

• Should I single source or multi-source?
• Single source (Strategic Supplier)
• Commodity
• Not critical
• Standard cheap and easy
• High volume
• Many suppliers to choose from

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Conclusions

• Multi source (But few)
• Critical components
• Multi source (Many)
• Products where availability cannot be assured by
  supplier

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References

• Anderson, Alex. "The balanced supply base.." MSI
  21(2003) 41.
• Berger, Paul. "How many suppliers are best? A
  decision-analysis approach." Omega 32(2004)
  9-15.
• ---. "Single versus multiple sourcing in the
  presence of risks." Journal of the Operationsl
  Research Society 57(2006) 250-261.
• Christopher, Martin. "Creating Resilient Supply
  Chains." (2004). 14 May 2006 lthttp//www.som.cranf
  ield.ac.uk/som/scr/downloads/ExelAdvantage.pdf.gt.
• Cooke, James. "A case for sole sourcing."
  Logistics Management 43(2004) 32-35.
• Morgan, Mick. "Single-Sourcing Keeps It Simple."
  Caterer Hotelkeeper 193(2004) 73.

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Questions?