How many suppliers does your business need?

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

Overall chain options Strategic Supplier – Have one or few inputs

Can reduce costs Transaction costs

Long term contracts Building relationships

Overall chain options cont. Several key Suppliers

The component is somewhat important to the company’s core competencies.

It is value adding to customer.

Overall chain options cont. Many suppliers / Auction

Lots of options Decisions made on cost/s

Criteria for choosing suppliers cont. Core competency / strategic Criticality Aligns with mission Standard or customized Impact on revenue Transaction costs

Criteria for choosing suppliers cont. Volume / Value

Number of Suppliers

Value

Volume

Low / High High / High

Low / Low High / Low

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

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.”

SC Understanding Mapping Tools

Pinch points-Bottlenecks

-Limited Capacity

-No Alternatives

SRM Software

-Analytics & Replenishment

Suggestions: Lead Supplier w/ alternatives

Examples Experience from Steven and Lars

Multiple Sites Single Source each location

Supplier Comparison

Supplier Location Price Shipping

TimeShipping

Cost

Cyclone Portland $150.00 Next Day $2.04

SBS Seattle $143.99 Next Day $3.75

J&B Seattle $157.99 Next Day $3.75

BTINewMexico $133.95 5-7 Days $7.98

QBP Minnesota $112.20 5-7 Days $5.70

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

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

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

nS n suppliers, n=1, 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

The Brain Teaser: Making the decision Mathematically If you want this explained come see

me, for the rest of you… lets make good use of our time.

Linear operating cost: Non-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

Conclusions: Multi source (But few)

Critical components Multi source (Many)

Products where availability cannot be assured by supplier

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 <

http://www.som.cranfield.ac.uk/som/scr/downloads/ExelAdvantage.pdf.>. 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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