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Supplier consolidation is a great way to reduce costs and improve supply chain effectiveness, but it doesn’t come without risks. Disasters around the world often expose the global supply chain to risks and threats.
In this context, you need to determine when the benefits of supplier consolidation are offset by the costs of unforeseen incidents and find ways to mitigate risk.
Many businesses have opted to limit the number of suppliers they deal with. At first glance, the benefits seem obvious:
But regardless of the amount of money it saves, supplier consolidation can be a risky move. When there are too few suppliers, any failure or important change on their part can severely impact operations and cause damages that go significantly beyond the initial cost savings.
These are some of the most common causes of supply chain disruptioni:
The cost of a supply chain interruption can be significant. In some cases, it can permanently affect the organization’s reputation.
While a certain level of supplier consolidation makes sense, being dependent on a handful of strategic suppliers increases the risk of disruption.
Every business is different. That’s why you need to conduct a thorough business impact analysis to determine the best business continuity arrangements.
In the meantime, you can start looking closely at your list of critical suppliers and identify the ones that would severely disrupt operations should they fail. Do you have a plan B in place?
Finding alternate suppliers takes time, so it is best not to delay the process—even for suppliers that serve you well.
ii Riglietti, G, Aguada, L Business Continuity Institute, BCI Supply Chain Resilience Report 2018, viewed June 17, 2019 https://www.thebci.org/uploads/assets/uploaded/c50072bf-df5c-4c98-a5e1876aafb15bd0.pdf
ii World Meteorological Organization March 28, 2019, State of Climate in 2018 shows accelerating climate change impacts, viewed June 17, 2019 https://public.wmo.int/en/media/press-release/state-of-climate-2018-shows-accelerating-climate-change-impacts