When it comes to choosing vendors for your business it can be easy to settle into ordering from the same ones all the time because you have a great relationship with them, their pricing is good, and they are easily able to meet your required delivery dates. What happens when they can’t deliver due to unforeseen circumstances? How will you fill orders if a vital part of your production is missing or delayed? When it comes to sourcing your vendors a multi-source approach may be your best approach.
When you follow a single source supplier approach you are in essence putting all of your eggs in one basket which can be risky. If something should happen to your supplier, financially like bankruptcy, physically like a fire or weather issue, or there quality or availability issue, you may find yourself unable to keep your promises to your customers. This trickle-down effect can be disastrous.
Some other issues may be:
- The possibility that potential customers will be concerned about risk to their supplies (if they become aware that you are single sourcing).
- It can be more difficult to ensure your company remains competitive if tied to single suppliers for multiple material/product categories.
- Any general shortage in a single-sourced material or product might be a bigger issue than if you deal with two or more suppliers.
- Your supplier may grow and if you are a small account for them, it’s possible you may get diminished service or lose preferred pricing.
Working with multiple vendors isn’t without its flaws but many small-to-medium-sized businesses might be best to try to avoid going the single supplier route unless there is a huge advantage to doing so. There are benefits to working with multiple vendors that may not only save you money but also give you some peace of mind.
- If one of your suppliers is bought by a competitor, or has any issues, you have at least one supplier to fall back on.
- While you may not have leverage with each supplier due to lower volume, there are opportunities to take advantage of competition between them, though this will depend to some extent, on your company’s importance to each supplier.
- Demand fluctuations can be more manageable if you have a choice of suppliers with whom to adjust order volumes.
- Having two or more suppliers will increase your company’s ability to circumvent supply disruptions.
If you’re worried about having to manage additional vendors and relationships, you should consider using vendor score cards – which help you rate your vendors and share any issues you have with their performance. Many of the risks of having multiple suppliers can be mitigated by making sure you’re working with high-quality suppliers. Check out our Vendor Management 101 blog for more tips on choosing your vendors. At Litchfield Bancorp, we know how hard choosing the right suppliers can be, so we make banking easy. For more information on our business accounts and lending – give us a call or stop into any of our branches.
Margret K. Warner
Vice President, Commercial Lender
Director of Business Services