Supplier rationalization, also known as supply base reduction (SBR) is the process of shrinking the supply base by reducing the number of active suppliers. The primary agenda of supplier rationalization is to streamline the organization's spend to fewer suppliers and drive better value from those relationships.
Too many small suppliers can lead to unnecessary delays, increasing costs. When a company works with a limited number of suppliers, it becomes easier to order multiple materials and larger quantities from the same source. The supplier’s financial strength also grows, and they can make their supply chains more reliable. Fewer suppliers getting bulk orders will also be able to offer more significant discounts and cost benefits to the company that a smaller supplier could never offer.
However, for supplier rationalization to be effective, it is essential to pick the right supplier. Constant evaluations and market surveys need to be conducted to find suppliers that have the capability to handle larger orders and multiple product categories. The long-term cost benefits of choosing such suppliers also must be considered.
When companies grow, their number of suppliers also tends to keep growing, so supplier rationalization needs to be conducted at regular intervals to ensure that the supply chain does not become unsustainable and unmanageable. A good supply chain and good vendor relationship management are essentials of a successful business operation, and both of these can be achieved through regular supplier rationalization.