It has long been thought that streamlining your suppliers is an effective method of cutting costs and increasing efficiency. A reduction in suppliers inevitably means a reduction in time spent overseeing a multitude of lower-tier suppliers, as well as providing the opportunity to strengthen the relationships with first-tier suppliers.
However, a recent article in the Harvard Business Review (written by Thomas Choi and Tom Linton) argued exactly the opposite. After studying the practices of leading multinational corporations, they concluded a heavy reliance on first-tier suppliers is dangerous for OEMs. They claim it "weakens their control over costs, reduces their ability to stay on top of technology developments and shifts in demand, and makes it difficult to ensure that their suppliers are operating in a socially and environmentally sustainable fashion".
In brief, their discussion rests on four key risks of giving suppliers too much responsibility:
- Less control over cost
- Less visibility into technology departments
- Less access to market information
- Less control over sustainability
So what is the right answer? Is streamlining your suppliers a smart business move, or a risky one?
We're keen to hear your experiences of supplier management.