Supply Chain Rationalization

Supply chain rationalization is the risk-based approach:

  • to select the right suppliers and
  • the right number of suppliers
  • for the type of product or service.
Rationalization could lead to:
  • Decrease in suppliers to be managed
  • Some places it might increase as well.
  • No change
Benefits (Why rationalize?)
  • Lower transaction, shipping and handling cost
  • Volume discounts
  • Standard parts
  • Reduced inventory
  •  Long term relationship and reduced Risk
Rationalization Approach:
  • Centralize supplier related data and an ongoing data analysis.
  • Look for inactive suppliers, or multiple suppliers in the list
  • In case of sole suppliers – add backups for critical supplies
  • Product standardization
  • Categorization – non-approved, approved, preferred, certified, partnership, and disqualified.
  • Evaluate performance and remove low performance suppliers
  • Pareto Principle: 20% supplier provide 80% value, and lower 80% suppliers provide 20% value
  •  Target lower 80% suppliers