What are the Disadvantages of Having Multiple Suppliers?
Companies today have to be more cautious when it comes to supply chain risks and seeking compliant suppliers, as opposed to the past when supply chain had just moved from national to multinational companies. As consumers and regulators became more and more informed about the sourcing process, procurement practices too saw a significant change. Supply chains today are reviewed for supplier compliance in terms of risk-management, fair-trade acts, green initiatives etc. which now brings us to the topic at hand – the disadvantages of having multiple vendors.
Vendor management is essential to a supply chain, as keeping a limited supply base helps in cultivating better vendor relationships and also facilitates better leveraging of them. Supplier consolidation, though maybe a time-consuming process, however, it has overarching impacts on almost all of your procurement aspects, ranging from cost reductions on raw materials and freight costs, to better vendor service and supplier performance.
There are aspects of sourcing which become significantly more challenging, when it comes to multiple supplier contracts, especially when it comes to forging long-term strategic relationships which also assist in economies of scale.
Even if supplier partnerships are not a high priority factor, the drawbacks of having a high number of suppliers include:
- Information sharing becoming a problematic area that can present risks
- Lower order volumes mean lesser bargaining power and even competitions between suppliers may be insufficient when it comes to generating cost-savings as compared to higher volume leveraging
- With lackluster supplier relationships, the lower a supplier’s vested interest in the organization, the lesser will be their responsiveness especially in times of crisis/emergency
- It is more time and money consuming to deal with multiple suppliers in terms of contract negotiation, management as well as process execution etc.
Businesses today, can streamline their procurement processes, utilize volume discounts and even reduce the total amount of financial transactions being processed. Hence, reducing your number of suppliers, by keeping supplier performance as the base criterion, will ultimately help you in reducing risks, managing your spend and also strengthening your ability to serve customers better. What do you think about the cons of having a wide vendor base? Do tell us in the comments section below.