In: Operations Management
What types of items should you have multiple suppliers and the items for which you should go with a reduced number of suppliers?
The single vendor or fewer vendors are good for products with high complexity, and need for high level of uniformity and high level of customisation for the company, for which the vendors need to have specific expertise and competency. Being associated with the company for long time, these vendors know the requirements of the company and can come up with what is specifically needed. In cases, where the company needs to develop vendors for certain items, the fewer vendors are better, as the company needs to put in as many resources as vendors. The items are high precision, high technology instruments, rare and expensive commodities etc, where uniform high quality is a must
High number of vendors are better where the supplies are erratic and market availability is uncertain. High vendors are preferable for natural commodities where the company wants best quality items always. High number of vendors remight reduce the cost where the production faclities are spread across large geography and it is not economical to have fewer suppliers ( such as milk products and food processing industries). High number of suppliers are essential when risk of supply disruption is high and cost of a missed sales is very high ( in such cases, the supply can always be assured).