One supplier too many?

Mark Bartrick, MD at IT Negotiation Advisors Silver Bullet Associates says “end users approach the buying process in many different ways”. Some opt for a single supplier – the so-called “one throat to choke” strategy. Others buy from multiple suppliers to keep everyone honest. Most feel the multi-supplier approach is the way to go, but it’s a slippery slope. How many suppliers does it take before the pros outweigh the cons? Having too many suppliers on hand can dramatically increase cost of management and reduce overall efficiency. Negotiating a better price is always a balancing act. Suppliers often give deeper discounts to those who buy more of their stuff. So, while negotiation power can be improved with competition, actually buying from many suppliers can limit volumes and therefore discounts over time. Bids should be competitive, and exit strategies considered, but it makes sense from a pricing perspective to pool purchases with a smaller number of suppliers once the negotiations are done. No two environments are the same, but a good rule of thumb is to have no more than three different suppliers for any given product or service to keep costs under control and minimize complexity.

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