Supplier reduction programmes – Do they work?

Leverage is a powerful procurement tool and using that appropriately may well mean fewer suppliers as buyers look to concentrate volume and get a cost reduction in return.  But other justifications for cutting supplier numbers are often somewhat spurious; the real administrative savings (as opposed to the claimed) from simple reduction in numbers is limited, and the ‘management focus’ argument is weak; does I really matter if you have 10,000 or 6,000 or 2,000, unless you have a very large procurement department you’ll never really ‘manage’ more than a couple of dozen suppliers really well.

And the negatives? Forcing suppliers into moving down the supply chain to work through a Prime Contractor relationship which actually adds cost (the Prime’s margin for a start) just to be able to claim a ‘supplier reduction’. It reduces competition and increasing reliance on a small number of suppliers. And it kicks out potentially valuable, innovative suppliers.

So how many suppliers do you need? OK, that is probably fewer than you have now. But that may not be the case for all categories. 

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