Chapter 05 - FreeQuality

Supply Base Reduction Jordan Crespo Marriott School of Management

What will be covered 1. What is supply base reduction? 2. Nuts and bolts 3. Brainstorming activity: Supplier recognition and reduction 4. How supply base reduction works 5. Real world example 6. An exercise 7. Summary 8. Reading list

What is supply base reduction? • Supply base reduction is the systematic approach to reducing the number of suppliers a company utilizes for a product or service

Nuts and bolts • Supply base reduction enables strategic alliances through condensing supplier variety to a select few who can meet customer requirements – Permits lower pricing – Greater customer support

Nuts and bolts • The alliances created can help create a hybrid system of centralization and decentralization • Pressure from competitors who are earlyadopters of decentralization will be reduced due to cost-savings available from supply base reduction

Brainstorming activity • Identify a common, frequently purchased input that is managed through multiple suppliers – Raw materials – Specialized input products

How supply base reduction works

Recognize multiple, similar items

Variety of suppliers utilized to purchase item

Setup guidelines to filter most effective suppliers

Establish strong relationships with those suppliers

Utilize only those suppliers to purchase specific items, reducing costs

Real world example: Unilever • Background: – Unilever was started in 1890 and today has over 400 brands that address health and wellbeing – They developed an extremely decentralized structure – Purchased 30 types of vanilla for ice cream (Fawcett, 2007) • Other similar issues with different products – “Like herding cats”

Real world example: Unilever • Unilever began the “Path to Growth” program in 1999 • It then began a new program called “One Unilever” in 2004

An exercise • Complete 7 step supplier selection process 1. Form a sourcing team 2. Develop sourcing strategy 3. Generate supplier portfolio 4. RFP process development

Exercise continued 5. Negotiate/select competitive supplier(s) 6. Operational integration 7. Benchmarking and improvement

Summary • Supply base reduction is a company-wide process that requires research and supplier input • It generates cost savings when done efficiently and correctly • It strengthens relationships with strong suppliers • Continuous measurements are necessary postreduction process to ensure precise actions were taken and goals are being realized

Summary • “without a competent supplier network, a firm's ability to compete effectively in the market can be hampered significantly.” – Hahn, Watts, and Kim, 1990

Reading list •

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Ogden, Jeffrey, and Phillip Carter. "The supply base reduction process: an empirical investigation." The International Journal of Logistics Management 19.1 (2008): 5-28. Emerald. Web. 1 Nov. 2011. Ogden, Jeff. "Practix." www.scm-blog.com. Caps Research, n.d. Web. 1 Nov. 2011.