Supplier Base Management: A New Competitive Edge

This is an excerpt of the original article. It was written for the July-August, 2010 edition of Supply Chain Management Review. The full article is available to current subscribers.

July-August, 2010

I’ve always liked that old saying that good fortune favors the prepared mind (though I’ve faltered in my adherence to the principle as often as not). Reading the feature articles in this July/August issue only affirms the validity of that wisdom, this time in a supply chain context. From several instructive perspectives we learn about the value of carefully thinking about what you want to accomplish, how you want to accomplish it, and why you need to be flexible enough to respond if things don’t go exactly to plan. As our cover illustration suggests, it’s really about executing a supply chain game plan.

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It can be said that the 1980s and the early part of the 1990s were the period of quality. The late 1990s and the early part of the first decade of the 21st century may be considered the era of lean. Now, as we enter into the second decade of the 21st century, we may fully be in the age of the supply chain. Supply chain management expands the reach of the firm beyond its immediate grasp to those places where competitive advantage is derived—in particular, the supplier base. Essentially, it is no longer firm competing against firm—Boeing against Airbus, Target against Walmart; rather, it is supply chain vs. supply chain.

As we shift the competitive focus from the firm to the supply chain, we must recognize that, like physical chains, no supply chain is stronger than its weakest link. However, when the weakest link resides beyond the boundary of the supply chain organizer (firm), significant problems can and do occur. This is particularly true with regard to the supplier base. In fact, one recent study found that 28 percent of the firms surveyed identified supplier failure and continuity of supply as their primary supply chain risk factor.

This raises an interesting issue: How does a firm ensure that it has the “right” set of suppliers in its supply chain?  Addressing this cannot be left to chance. It is far too important—as any company that has suffered a supplier-related disruption can attest. The supplier base must be carefully and continuously managed. The supplier base must be managed strategically, not tactically; it must be managed with the perspective that the supplier base, like the business environment in which it operates, is dynamic and ever changing. That is, existing suppliers often leave (as a result of bankruptcy, acquisition, or changes in the buying company’s strategic direction) and new, attractive suppliers enter. Finally, the firm should recognize that managing a supplier base does not always mean supplier reductions. There may be strategic reasons why the base may need to be larger, rather than smaller…

A new approach is emerging called supplier base management (SBM) that effectively deals with these challenges. Supplier base management is a systematic, holistic, strategic approach to planning, developing, and managing the supplier base. This article introduces this concept and explores its implications within a supply chain context. In doing so, we draw an interesting analogy between SBM and professional baseball.

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