Whether you’re the average consumer or a procurement executive for a Fortune 500 company, there is a probability that you might be lured in by the attractiveness of the “one-stop-shop” – a store or supplier where you can buy multiple categories of goods. The question is: how much supplier consolidation is too much?
It is not uncommon to hear of procurement professionals asking for one supplier to provide “it all.” Some even go so far as to suggest that if the prospective supplier doesn’t supply a product or service that they outsource it and serve as the point of contact.
It certainly is true that supplier consolidation has its advantages. Fewer people to deal with and the leverage to drive down prices are two of the biggies.
But there are disadvantages that too few procurement professionals consider.
Let’s consider an outsourcing relationship. Just because one outsourced service provider has an adequate call center to handle customer service calls does not mean that their IT outsourcing services will be adequate. In fact, because of the vast difference in skill sets required, their IT outsourcing services may be quite horrendous.
But they may still get selected based on the desire to consolidate the supply base. The goal of supplier reduction trumps quality. But should it? Is the company really becoming more profitable by having one fewer supplier?
Jump to the consumer side. Walmart sells a large number of goods categories. Furniture is one of them. But you can’t tell me that a formal dining room set from Walmart can match the quality of a formal dining room set from a fine furniture store.
So is it worth the sacrifice for the convenience of buying your dining room set from the same place as you buy your milk and socks?
A consumer who is quality conscious would say “no.” Yet, procurement professionals make parallel choices every single day.
And what about requiring a supplier to outsource the portion of the offering that they don’t provide in house? Why is it worth sacrificing control over one’s organization’s own destiny for the sake of dealing with one fewer supplier? Just because a supplier will manage that other relationship doesn’t mean that they will manage it well.
Yet, in many cases, convenience matters more. The cost reduction of using that one fewer supplier is hard to prove. If a cost reduction is hard to prove, guess what…it may not be real!
But, in some cases, absolutely.
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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