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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

How many suppliers does your business need?

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

overall chain options
Overall chain options
  • Strategic Supplier – Have one or few inputs
    • Can reduce costs
      • Transaction costs
    • Long term contracts
    • Building relationships
overall chain options cont
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 cont4
Overall chain options cont.
  • Many suppliers / Auction
    • Lots of options
    • Decisions made on cost/s
criteria for choosing suppliers cont
Criteria for choosing suppliers cont.
  • Core competency / strategic
  • Criticality
  • Aligns with mission
  • Standard or customized
  • Impact on revenue
  • Transaction costs
criteria for choosing suppliers cont6
Criteria for choosing suppliers cont.
  • Volume / Value
  • Number of Suppliers
so how many suppliers do you choose
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
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
SC Understanding
  • Mapping Tools
    • Pinch points

-Bottlenecks

-Limited Capacity

-No Alternatives

SRM Software

-Analytics & Replenishment

suggestions
Suggestions:
  • Lead Supplier w/ alternatives
    • Examples
      • Experience from Steven and Lars
  • Multiple Sites
    • Single Source each location
most powerful agility
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
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 approach the goal is to determine the optimal value of n
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:

The Brain Teaser: Making the decision Mathematically

Non-Linear operating cost:

conclusions
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
conclusions17
Conclusions:
  • Multi source (But few)
    • Critical components
  • Multi source (Many)
    • Products where availability cannot be assured by supplier
references
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.