Monday Morning Monologue: What is the value in right sizing your supply base?
Whether you’re a large OEM or a brand new startup, there’s high value in right sizing your commodity spend. The definition of right sizing is a bit of a moving target, but here’s an attempt to define it:
A right sized commodity is having 2-4 suppliers where your spend represents between 10-30% of their sales.
This provides good buying power, competitive balance, and very good service since you represent a healthy portion of their sales. A meaningful relationship can also be formed with your supply base at that point as well where they will share valuable information about the company and industry in general.
On the flipside, if you have, let’s say, 10 suppliers where you represent less than 5% of their sales you have very little buying power and service is also likely compromised. Competition is there certainly, but not much else.
If you have questions around your supply base please reach out to Smart Sourcing Solutions. We’ll provide a no cost evaluation of your supply base and make recommendations if necessary.
Have a great week!