Can You Really Afford to Ignore 20% of Your Supply Base

A recent article over on the CPO Agenda on how Procurement Success is a Two-Way Street noted that a recent Efficio grassroots survey found that almost two-thirds of respondents never met with 20% of their suppliers. Now, there are some suppliers, like office supplies vendors, that you never have to meet with because the organization is only using them to source readily available commodities where supply outstrips demand and where another vendor is waiting for the business down the street, but do these types of suppliers really constitute 20% of the supply base? Not likely. I have to agree with the author in that this is a recipe for potential disaster. Considering that, thanks to the recent downturn, small suppliers can often go from financially viable to bankrupt in a matter of weeks, or days (as all it takes is one of their key customers to go belly up), failure is always just around the corner.

In addition, a lack of regular communication keeps the supplier in the dark about your needs, and if the supplier is not aware of projected future demand spikes sufficiently in advance, the supplier may not be able to plan its production schedules accordingly, and you might be left with egg on your face as the company’s hottest selling SKU goes out of stock.

This isn’t to say that you need to meet with each supplier regularly. If the supplier is not critical, or demand predictable and easily communicated in advance, you can simply meet on a quarterly basis and establish a methodology where you push information out to the supplier on a regular basis. But if the supplier is critical, at the very least a status update call should be occuring on a bi-weekly basis just to make sure there are no gremlins in the gears. And make sure communication is agile and happens quickly when something changes, for better or for worse.

For some tips on agile communication, see how Procurement Success is a Two-Way Street.