Question

How does the number of suppliers influence the company's sourcing decision? I.E. what will be a company's sourcing decision if the company has many potential suppliers; what will be a company's sourcing decision if the company only have a few suppliers.

Answer 1

Number of supplies have great influence on company making decision for sourcing. Sourcing decision means taking the decision to procure raw materials from supplies for manufacturing process but when there are many potential suppliers then Company would have high bargaining power over suppliers because they can choose any supplier which meet their demands in terms of cost and quality.

for example- A fast food restaurant company has 6 suppliers in the market so company can take decision to choose the supplier which offer good quality raw material at low cost.

high number of suppliers in the market also helps the company to Have access to raw materials on time to meet the customer demand because if one supplier does not have raw material then others out of five in the example would have the raw materials.

if company has few suppliers like 2 or 3 then company would have limited choice and bargaining power of supplier increased because now company has to decide to purchase supplies on the prices set by supplier otherwise manufacturing will not start and loss will occur for the company.