Consolidating all Supplier Spend: Still a Good Idea for OEMs?

It's a tried and true tactic in the world of supply-chain management, particularly when a new leader takes over.

"We're going to consolidate our spend with a limited group of strategic suppliers!"

"We'll be able to increase our buying power and leverage!"

"Less suppliers to manage, more efficiency!"

Yes, it's all sunshine, rainbows, and off-the-charts KPIs.

Until something happens to that one supplier. Like a shut down due to a global pandemic.

But the pandemic is global, right? It affects everyone!

But what if that one strategic supplier is in a state or country with more restrictions? Maybe they have your inventory, but the transportation routes are shut down between them and you?

Even 1.5 years since the start of the pandemic, travel restrictions, logistics routes, labor availability, and many other supply-related inputs are highly dynamic, and problems are highly localized.

Certainly any supply-chain professional with even a bit of experience can see the risks of consolidating spend, particularly after witnessing the impact of the pandemic.... at least enough to give it some additional consideration.

What are you optimizing for?

Certainly there are many justifiable reasons for consolidating spend across a supply-base, even with the potential downside risks: increased buying power, developing closer supplier relationships, and others.

But before blindly deciding to pursue such strategy, consider if those are the real reasons for doing so.

Or, to put it bluntly, are you just being lazy? Are you consolidating suppliers mainly because your company's own supplier management practices are old, inefficient, and slow?

If so, or if its a mix of both, perhaps there are other things you can do to fix the real problems -- your company's own inefficiencies of managing a diverse, distributed supply-base.

If such problems do exist, they are fundamental things that should not go unfixed, no matter what other strategies you may employ.

The new normal

There is a lot of talk about the "new normal" post-pandemic.

In the world of supply-chain, that new normal almost certainly involves multi-sourcing more of your inputs, diversifying your supply-base, and being able to respond to disruptions extremely fast.

So ask yourself and your team -- no matter what else you may be doing to build a better supply-chain, do you have the fundamentals in place to do these things?

Can you evaluate and onboard new suppliers quickly? Do you have tools to help you find alternate sources on short notice? Do you have a modern supply-chain technology stack built for rapid change?

Make sure you have a internal supply-chain foundation first -- repeatable systems, clear & efficient processes, modern technologies, and talented people -- then build your supply-base on that.

The next big disruption may not come in the form of a global pandemic, but it is most certainly coming.

Start preparing now.