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Survival of the Fittest Supply Chains

In a weak economy, weak suppliers are being replaced by strong ones.

Probably nobody knows exactly how many suppliers make up the global supply chain, but according to one recent estimate, there are nearly 5 million unique suppliers in use by Fortune 1000 companies. Based on its multi-year analysis of suppliers to the Fortune 1000, CVM Solutions says that roughly 310,000 (6%) suppliers were used by two or more companies in 2009. And that number is down 15% from 366,000 in 2008.

"The overall number of relevant and highly used suppliers is significantly smaller than many believed," says Mike Anguiano, chairman of CVM Solutions, a provider of supplier management solutions. "We also noticed that, despite the disappearance of certain suppliers, a new crop of suppliers were being added. This trend leads us to believe that there is a Darwinian effect occurring in the supply chain as Fortune 1000 companies cut weaker suppliers and replace them with stronger ones."

What's more, the number of suppliers is decreasing at a faster pace in the first half of 2010 than previous years; however, the full scope of the decline will not be evident until the end of this year. Although the overall trend is downward, the study also reveals that new suppliers are being added, possibly as a result of some customers ceasing business with weaker suppliers and replacing them with stronger ones.

Other declines in the supplier base also were noted upon review of the study data. For example, the number of unique supplier families dropped to roughly 63,000 in 2009 from about 93,000 the year before, while the number of small and diverse businesses dropped to just over 850,000 from 1.15 million during the same period. These figures were based on the total population of common suppliers.

Based on its analysis of supplier management patterns, CVM offers the following recommendations to manufacturers:

  • Companies should increase diligence on collecting and managing supplier information across the entire supplier base. Even non-strategic suppliers can cause disruptions if not managed appropriately.
  • Companies should investigate the corporate family linkage of their suppliers on a quarterly basis to keep up with the rapid changes to supplier structures.
  • Companies should have continual access to an updated directory of businesses so they can discover new suppliers and potentially leverage innovative small and diverse companies in an effort to mitigate risk through diversification.
  • Companies should carefully monitor trends in their supplier base to enable rapid decision making in response to market changes.

See Also:
Portrait of Supplier Quality Management
No Slowdown For RFID

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