How many suppliers is the right number?

22 November 2010
On Twitter, Jamie Napper, RSA’s global SRM excellence manager, has posed the question “just how many suppliers is too many?” in response to the news Carillion wants to cut 20,000 vendors from its supply base. This is not a particularly new trend, but it seems to have picked up steam in recent months. Over the next three years, Premier Foods want to get to below 5,000 suppliers from its current 7,000, and getting rid of 20 per cent of Siemens’ 113,000 vendors is one of the key targets for CPO Barbara Kux. There is a paradox inherent in Jamie’s question. If a supplier is not actively working for you, are they even your supplier? Many companies have databases with thousands of vendors they do not currently use, and in fact never intend to contract with in the future. Are these vendors suppliers to the organisation? How long does it take since a supplier did work for you to stop being your supplier? Two years? Five years? Indefinitely? You could argue that the “right” number of vendors is the number you need to perform work for you – all the rest are just “potential suppliers”. But if a potential vendor is there to provide competition for the incumbent, it could be (indirectly) helping your organisation get a better deal, and they do have value to your organisation. Many businesses could reduce their “supply base” dramatically just by getting rid of those potential suppliers. But the real impact on the company would be minimal, making any reduction target pretty ineffectual. This also raises a further question: where is the inefficiency in having too many vendors? If it is taking you hours to search through the database, or inviting 200 to tender with accompanying PQQs, then fine - but I don’t believe that happens. I believe when a buyer goes out to tender they’ve probably got an idea of the four or five firms they expect to bid already, with the expectation they might end up with a couple of surprise entrants. The right number of suppliers is the number you need for a competitive process – the rest aren’t your suppliers.
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