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
