Even the supply chain is an area where applications of Pareto’s Principle (the 80-20 rule) are recommended, and success reported. There is abundant literature on such applications, and lots of available advice on how to do so. Consolidating the supplier base is a good example.
One such supplier-related article, www.industryweek.com/planning-amp-forecasting/pruning-supply-chain, begins with this:
“Kevin Mixer, research director at AMR Research, is spreading the word about “sustainable supplier structure”. …Kevin discusses recent actions taken by the automotive market to change supply chains by consolidating vendors. The recent announcement by Ford to cut its production supply base by as much as 70% to hit a target of 700 suppliers down from 2,500 is a recent example of this new strategy”.
The article cites several other examples of great improvement from consolidating the supply base. We presume some 80-20 type analysis was used to do this, but the article does not indicate how target numbers were derived.
In that Proficient Sourcing seeks to establish new relationships between our network of excellent manufacturing job shops and the OEM buying population, strategies to cut the supplier base give us pause. But perhaps there might be good news for all in such a strategy. As with most “rules” a lot depends upon the application.
In several past newsletters we have referenced various articles recommending supplier evaluations, and in most cases key metrics for such evaluations have been identified. Creating some record of supplier performance can provide a basis for supplier consolidation.
Every supplier was chosen for some reason, and usually because that supplier provided the best answer to a problem at the time. If the supplier is no longer providing the best answer to you, then there may be justification for replacement or elimination.
However, eliminating some supplier means another one needs to pick up whatever the eliminated one was doing. Even though the pruned supplier is not performing well, it could be that another existing supplier does not have the wherewithal to be effective in this new role. Your supplier base may not have a suitable replacement, despite claims to the contrary. And even if the capability exists, does that replacement have the capacity you need?
There are many twists and turns to the subject of consolidating suppliers. If you are doing so, either currently or in the future, we hope you will remember that Proficient Sourcing has a large network of excellent performers, and perhaps our companies can help. Just give us a call (513) 489-5252.