In supply chain and logistics there are many activities that must be completed flawlessly to ensure consistency of supply, but how do we reduce the risk of supply interruption? The answer can seem obvious, have many suppliers. In supply chain and logistics, it is not that simple.

Several activities in supply chain and logistics must be completed flawlessly to ensure consistent supply. Knowing how to reduce the risk of supply interruption is a complex one.

The issue with having many suppliers for the same item is straight forward; it costs more money to have many suppliers.  For example, if you were purchasing a bolt and you had many suppliers and the bolt failed, how would you know which supplier provided the faulty bolt?  The bolts would have to be identified with a supplier’s stamp.  The stamp costs more.  Also if the business is split between multiple suppliers, you lose some of your negotiating power which costs you even more.

My guess is this is starting to sound a bit confusing.  In summary, we want to have: secondary sources, traceability of where the parts came from and keep total costs down.  How does a supply chain professional manage this?  The key is risk management.

In order to minimize risk, we must choose our suppliers carefully.  Any potential supplier must meet a stringent set of criteria.  The criterion includes many elements.  Some of the elements are the signing of a non-disclosure agreement, facility and process audits, sample approvals, financial checks, confirmation of disaster recovery plans, negotiations and total cost analysis.

The approved suppliers are added to a preferred supplier list.  At this point, it may make sense to award 100% of the business to one supplier.

Now we have gone full circle, we have selected a few qualified suppliers but we have chosen to do business with only one of them to keep costs down, then why are secondary sources so important?  Stay tuned for part 4.

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