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How Many Suppliers Do You Need?

How Many Suppliers Do You Need?. Blake Holmes    Mike Telmar     Jason Harman   Kaptaan Hickey   Ryan Beugli    . Customer Expectations. Drives overall business strategy What is most important to the customer Cost Time Innovation. Organizational Strategy.

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How Many Suppliers Do You Need?

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  1. How Many Suppliers Do You Need? Blake Holmes    Mike Telmar     Jason Harman   Kaptaan Hickey   Ryan Beugli    

  2. Customer Expectations • Drives overall business strategy • What is most important to the customer • Cost • Time • Innovation

  3. Organizational Strategy • Basis of all business decisions including how many suppliers you should use • When innovation is a core strategy for your business fewer suppliers are optimal • When price is a core strategy for your business many suppliers are optimal

  4. Supplier Criteria • Product Capacity • Quality • Brand Name • Warranty/Product support • Price (not always the most important)

  5. Increased competition may promote better quality and reduced cost Low likelihood organization will be left without production inputs Suppliers gain considerable amount of bargaining power. Less resource to potentially exploit. High risk of suppliers defaulting on delivery. Aspects of Many vs. Few Suppliers Many Suppliers Few Suppliers

  6. Suppliers will experience decreased demand, driving sales down and costs up. Logistics and operations become complex and difficult to manage. Increased demand makes it easier for suppliers to experience economies of scale. Streamlined logistics and operations are easy to manage. Aspects of Many vs. Few Suppliers Many Suppliers Few Suppliers

  7. Utilizing many suppliers can undermine trusting relationship and display a lack of commitment to long term business. Difficult to collaborate with suppliers, allowing inputs to be developed in parallel with organizations products. Shows commitment to long term relationships which can promote trust. Often easier to collaborate with suppliers to develop products in parallel with organizations products. Aspects of Many vs. Few Suppliers Many Suppliers Few Suppliers

  8. Systematic Methods for Managing Supplier Selection • Categorical Methods • Data Envelopment Analysis • Case-Based Reasoning • Linear Weight Models • Artificial Intelligence Model

  9. (QFD) Quality Function Deployment Process • QFD (aka “House of Quality”) was first implemented by Yoji Akao at Mitsubishi Industries Kobe Shipyard to integrate the “voice of the customer” into the design and delivery of oil tankers”. The concept can be applied to supplier selection by integrating the voice of the customer into selection criteria.

  10. QFD & Choosing Suppliers • Draft a list of supplier requirements that contribute to the fulfillment of customers needs. • Formulate evaluation criteria for suppliers. • Determine the importance (weight) of the criteria. • Rank your suppliers, and make appropriate selection that will accommodate customer needs.

  11. Supplier Priority Matrix (Considers Tangible & Intangible Criteria)

  12. Few Suppliers • Producing Commodity or Specialty Product • Importance of Suppliers Brand name • Importance of time constraints • Technical competency among candidates • Production volume requirements • Need for collaboration Many Suppliers

  13. Conclusion • Customer expectations govern organizational strategy, which will define supplier selection criteria. • Systematic methods can be used to rank suppliers. • Both positive and negative aspects are associated with few/many suppliers. • Choosing the optimal number of suppliers is not an exact science. • You can use tools and techniques to guide decision making process.

  14. Sources • “A Decision Support For Supplier Selection Process”. International Journal of Information Technology & Decision Making. Vol. 3, 2004, Page 453-470. • “Supplier Evaluation Using Data Envelope Analysis”. Rajashekar Govindarajan. • http://ccs.mit.edu/papers/CCSWP135.html • http://www.allbusiness.com/periodicals/article/283319-1.html • http://www.cfo.com/article.cfm/3238486?f=related • http://www.purchasing.com/article/CA243210.html • http://www.purchasing.com/article/CA475308.html?text=agere • http://www.purchasing.com/article/CA6324660.html • http://www.sdcexec.com/article_arch.asp?article_id=7487 • Kennedy, Sheila. Plant Services. "Gain benefits from electricity deregulation." http://www.plantservices.com/articles/2005/262.html • Opensecrets.org. "Electricity Deregulation." http://www.opensecrets.org/news/electricity.htm

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