Supply Base Optimization: 4 Steps to Ensure Success

Introduction

As businesses expand their supply base size, the resources required to support supplier visits, RFQs, and development tends to expand proportionally. Because most businesses spend 80 percent of their COGS with 20 percent of their suppliers it is critical to free up time to foster deep relationships with top supply partners. Further, each supplier interaction has an associated transaction cost, and supply disruption challenges at most companies are tied to suppliers performing in the bottom 10%. Thus, optimizing your supply base is a necessary means of ongoing continuous improvement for realizing a lean supply chain.

Challenges

The ongoing state of change that most businesses undergo complicates the seemingly simple task of maintaining an appropriate number of suppliers. In addition, seismic shifts, company acquisitions and mergers, and new product launches obscure ongoing supply rationalization efforts, undermining supply performance.

What is Supply Base Optimization?

Sustainable supply base optimization starts with rationalization, a strategic initiative, and supporting processes to initially reduce static or limited-use suppliers; moving beyond simply reducing the number of suppliers and spending more time with fewer suppliers to reduce costs. It then requires critical lean supply chain methods and tools to systematically optimize the supply base size, which is dependent upon supplier performance.

Solutions

Step 1) Analyze Supplier Spend, Capabilities, & Performance

Supply Chain for Tomorrow’s Technology. Ann Arbor, MI.