Preferable Approach to Building a Supply Chain
The development of a reliable and robust supply chain is a critical task for any organization, largely defining the overall success of its activities. The recent attempts to increase the efficiency of resource use, enhance the level of outsourcing, and limit the volume of stored materials often stretch the logistical structures to their limits. Besides, today’s world is prone to various kinds of disruptions caused by either internal issues or larger-scale events. These factors make the decision on the number of suppliers a complicated and significant one. The review of benefits and setbacks of different options will enable to selection of the most suitable approach based on the circumstances faced by a company.
An approach with a single supplier is often the easiest way to obtain the necessary resources. In many cases, it constitutes a viable option, especially for a small business. First, it is useful for purchasing make-to-order products, for which specific tooling and setup may be required (Reid & Sanders, 2019). Second, it also allows reducing the administrative expenses due to the lower amounts of invoices and various contractual documents. The scheduling of deliveries becomes an easier task, and less storage space is required. Finally, suppliers may offer significant discounts based on the number of ordered products. On the other hand, this approach creates substantial risks related to the dependency on a single source. The supply chain is not protected against any issues arising within such a company. Besides, this can lead to reduced competitiveness of the product due to the lack of motivation for its continued improvement. Therefore, a single supplier approach may be applied in some instances, but its disadvantages require thorough analysis and full understanding.
The problems mentioned above can be mitigated by applying a multiple-source approach. It is viewed as the most reliable way of mitigating possible disruptions, especially under the conditions of their increasing unpredictability and frequency (Namdar et al., 2017). In addition, it is also a useful method to increase the overall quality of products by introducing competition between suppliers. Such a factor is especially true when a purchaser occupies a significant market share, therefore, becoming capable of imposing its conditions on others. Besides, in some cases, government regulations may stipulate the need for using multiple sources (Reid & Sanders, 2019). Still, this approach also has some inherent limitations and setbacks. Certain orders may be too small for splitting between different suppliers, or contractual provisions may prohibit such division. The smaller amounts of purchased products weaken the negotiation positions and reduce the possibilities of discounts. Finally, the increased administrative expenses can outweigh all the gains of higher competitiveness. Thus, the involvement of multiple suppliers can only be feasible upon its delicate consideration.
The review provided above shows that it is impossible to identify a single approach suitable for any company under all circumstances. In general, a multiple supplier options is viewed as a preferable one in today’s volatile business environment. The latest crisis disrupting supply chains throughout the world and making companies face unprecedented challenges in their operation has demonstrated the threats of depending on a single source. Including multiple businesses into a supply chain, concluding backup contracts, and using other risk mitigation strategies have proven necessary for sustainable development. However, this should not be treated as a universal solution and obscure the possible benefits of other approaches. Only profound research on market conditions and evaluation of all available options can lead to the right decision on whether to involve a single supplier or multiple ones in a specific case.
Namdar, J., Li, X., Sawhney, R., & Pradhan, N. (2017). International Journal of Production Research, 56(6), 2339–2360. Web.
Reid, R. D., & Sanders, N. R. (2019). Operations management: An integrated approach. John Wiley & Sons.
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