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How many suppliers does your business need?

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.

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How many suppliers does your business need?

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  1. How many suppliers does your business need? Charles Yung, Stephen Nolan, Kacie Satsuma, Lars Johansen, Mark Klein

  2. Overall chain options • Strategic Supplier – Have one or few inputs • Can reduce costs • Transaction costs • Long term contracts • Building relationships

  3. Overall chain options cont. • Several key Suppliers • The component is somewhat important to the company’s core competencies. • It is value adding to customer.

  4. Overall chain options cont. • Many suppliers / Auction • Lots of options • Decisions made on cost/s

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

  6. Criteria for choosing suppliers cont. • Volume / Value • Number of Suppliers

  7. 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

  8. 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.”

  9. SC Understanding • Mapping Tools • Pinch points -Bottlenecks -Limited Capacity -No Alternatives SRM Software -Analytics & Replenishment

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

  11. Supplier Comparison

  12. 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

  13. 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

  14. 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

  15. If you want this explained come see me, for the rest of you… lets make good use of our time. Linear operating cost: The Brain Teaser: Making the decision Mathematically Non-Linear operating cost:

  16. 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

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

  18. 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.

  19. ¿Questions?

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