Weaker Suppliers Are Being Replaced by Stronger Ones

Exactly how many suppliers are there in the global supply chain? According to a multi-year analysis of suppliers to Fortune 1000 suppliers conducted by CVM Solutions, there are approximately 4.9 million unique suppliers in use by Fortune 1000 companies, of which only 309,790 (6%) were used by two or more companies in 2009. This number has decreased 15% from 366,356 in 2008.

"The findings of our 2010 study show that the overall number of relevant and highly used suppliers is significantly smaller than many believed," says Mike Anguiano, chairman of CVM 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."

The study also shows that 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 noticed that new suppliers were being added as well, potentially resulting from the fact that customers were ceasing business with weaker suppliers and replacing them with stronger ones.

Other declines in the supplier base were also noted upon review of the study data. For example, the number of unique supplier families dropped to 62,976 in 2009 from 93,038 in the year before, while the number of small and diverse businesses dropped to 851,699 from 1.15 million during the same period. These figures were based on the total population of common suppliers.

Key Findings and Necessary Actions

Shrinking Supplier Base – The number of highly used suppliers has continued to decline since 2008. The remaining suppliers may struggle to support increasing customer demand over the coming years.

Increased Consolidation – Supplier consolidation continues to increase, as evidenced by the fact there are fewer unique supplier corporate families. The two primary reasons for this trend: smaller independent suppliers are discontinued or go out of business, and mergers reduce the number of parent companies as larger companies acquire smaller suppliers.

Continued Challenges for Small and Diverse Businesses – Fortune 1000 spending with small and diverse businesses is under pressure, as the number of these suppliers continues to decline. The study's findings support recent media reports that show how challenging the business environment continues to be for small and diverse suppliers.

Mitigating Supplier Issues – The worldwide economy continues to struggle, resulting in ongoing shrinkage in the overall number of suppliers. As this trend continues, Fortune 1000 companies must be diligent in managing their suppliers.

CVM offers the following recommendations to navigate the trends identified:

- 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.

Source: http://logisticstoday.com/