An analysis of the efficiency of supply base optimization and rationalization

Naturally, larger the supply base, more difficult and expensive it is to maintain it. Suppliers that fail to meet these criteria during the pre-defined time period are then dropped from the supplier base. It is, therefore, imperative to bring the supplier base to a manageable level in order for procurement organization to do an effective job of managing supplier performance.

Conclusion The key to long-term sustainable supply performance success is to thoroughly review your spending every quarter and at a minimum, each year.

Ensuring that supply bases are comprised of capable supply partners and persist at manageable sizes is essential for supply chain operations to effectively manage supplier performance.

Decentralized procurement organizations, internal company politics, and disparate organizations can also further complicate the cross-functional team coalescence needed to swiftly rationalize a supply base.

Supplier rationalisation has become much more about in-depth analysis and segmentation and less about blanket changes and rules. How has supplier rationalisation changed? Specific thresholds for acceptable quality level and on time delivery are established and communicated to the suppliers.

The big change is that early supplier rationalisation was about solving a cost problem, where maverick spend was high across departments with their own supplier relationships in place. Additionally, a sole source is often associated with inherent risks of price escalation and supply line disruption if their single location plant is damaged due to a catastrophic event.

Then, define success quantitatively; i. Furthermore, a poorly managed supply base presents many supply line risks. At the same time, effective management of supplier base requires substantial resources proportional to the size of supply base. What is Supply Base Optimization?

This is leading a second wave of supplier rationalisation, more focused on bringing order and logic to all aspects of the supply environment through many different and niche decisions.

The one constant in business is that your company, specifically your supply base, is either getting better or worse when compared to your competition. Interestingly, some suppliers do not receive a single purchase order for months or years, yet they continue to remain on the vendor base.

Documenting desired future states will help visualize and realize success. Conduct a spend analysis by pulling a list of the following for each supplier: Do we need to focus on the buying process here? By first rationalizing, then optimizing your supply base, you can have a dramatic positive effect on your supply performance.

Build a bank of parts and approve shipment from the new supply partner to mitigate disruption. In truth the commonly held view that rationalisation simply means cutting suppliers is not the case. For others, it is the convergence of business cost control, risk reduction and sustainability measures leading to a desire to bring suppliers closer to the business, in terms of their strength of relationship and increasingly, their location.

Communicate program KPIs to A- and B-level supply partners, and include that you view them as valuable long-term partners in your business. Companies have used some or all of the following approaches to rationalize their supply bases: Nowadays many organisations have gone through this process already and are looking at more dynamic ways of increasing supply efficiency and effectiveness.

One obvious disadvantage of this approach is that some really competent suppliers get eliminated merely because they were getting a smaller share of the business dollars. Supplier Development Jan 23, Introduction As businesses expand their supply base size, the resources required to support supplier visits, RFQs, and development tends to expand proportionally.

How to Create a Manageable Supply Base for Supplier Optimization

Thus, optimizing your supply base is a necessary means of ongoing continuous improvement for realizing a lean supply chain. They often have poorly defined supplier reduction criteria and perform this task in a haphazard manner much like a shot gun approach to the problem.

That being said, procurement organizations should always try to develop one or more back up sources in efforts to limit or eliminate reliance on the sole or single sources.

With the former, the decision is driven by pricing and risk, while the latter is impacted by the relative cost to the business of dealing with that supplier. Develop a robust supply transition plan consisting of budget, timeline, and cross-functional sign off by spend category.

Lean supply chain requires closer relationships with Tier Is, and in a growing number of industries, Tier II and IIIs, to drive out waste in the supply chain.

Now that you know how other companies are managing this process, tell us about your approach to supply base rationalization and how it is working for your company.

It is imperative to identify and delete such suppliers from the database or replace them with good reliable suppliers. Consolidate spend to leverage buy and expedite lean supply chain execution. Only those suppliers that are fully committed to continuous improvement usually succeed in staying on while marginal performers get eliminated.

In these situations the focus was often on reducing the number of suppliers in the pool, sourcing suppliers that can support the whole organisation as a prelude to bringing spend under control.The Who, What, Why and How of Supplier Rationalisation.

Peter Smith - December 18, PM | The immediate implication is that this process is about cutting or reducing your supply base. In modern terms it’s become far more sophisticated than this and could, amongst other things, lead to increasing supplier numbers.

This analysis. Sep 19,  · The Topic Of Supplier Rationalization Business Essay. Print Reference this.

The Who, What, Why and How of Supplier Rationalisation

Disclaimer: a procedure called supplier rationalisation or supplier optimization or supply base restructuring. (Soroush, ). Doing a supply base rationalization is always cost-related. Newman and Krehbiel () described that suppliers are grouped by cost.

Supply Base Rationalization - Decison Sciences Approach. Published on July 30, Supply Base Rationalization - Key Determinants: This framework overlay what is supplier efficiency (Y-Axis.

Supplier Rationalization: A Sourcing Model. Download. Supplier Rationalization: A Sourcing Model our methods are anchored in cross efficiency analysis in DEA that allows for evaluating the efficiency of a supplier with respect to the optimal weights (strengths) of its peers.

A note on “A methodology for supply base optimization. Supply Base Optimization: 4 Steps to Ensure Success. Supplier Development Segment suppliers by relationship utilizing ABC Analysis: A – strategic partnership/sole source, B – business, and C – commodity.

outlining a detailed supply base rationalization and optimization plan in the beginning will furnish you and your team with the. Supply Base Rationalization: Not 1, But 5 Options Rationalizing the supply base means utilizing both the right number of suppliers and the right suppliers.

This requires you to categorize your spend and identify current and potential suppliers for each category. and suppliers, you have five options for the supply base in each category.

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An analysis of the efficiency of supply base optimization and rationalization
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