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Sup­pli­er con­sol­i­da­tion in the rub­ber and plas­tics sec­tor: advan­tages and disadvantages

08.12.2021   |   Swen Schubert

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A lean sup­pli­er net­work offers many advan­tages, some mon­e­tary, oth­ers process-relat­ed. It is no won­der that more and more com­pa­nies are con­sol­i­dat­ing their pro­cure­ment struc­tures and, in the rub­ber and plas­tics sec­tor, are switch­ing to sourc­ing mate­ri­als from as few sup­pli­ers as pos­si­ble. But this strat­e­gy also har­bors risks. Before deci­sion-mak­ers con­sol­i­date sup­pli­ers, they should there­fore ana­lyze exact­ly which pro­cure­ment strat­e­gy is opti­mal for them. 

Advan­tages of sup­pli­er consolidation

The pur­chas­ing depart­ment is being relieved

Every sup­pli­er incurs a cer­tain amount of sup­port effort, even if the com­pa­ny does not cur­rent­ly use their ser­vices. Pur­chas­ing must ensure that all sup­pli­ers in its net­work are capa­ble of deliv­er­ing and can con­tin­ue to pro­vide the required qual­i­ty. To do this, it must request cer­ti­fi­ca­tions, noti­fy busi­ness part­ners of legal and pro­ce­dur­al changes, and update mas­ter data in the data­base. In the fore­see­able future, it will also be nec­es­sary to ensure, as part of the Sup­ply Chain Act (LKG), that all sup­pli­ers com­ply with the eth­i­cal and eco­log­i­cal require­ments for­mu­lat­ed in the LKG. These tasks place a great bur­den on pur­chas­ing, espe­cial­ly in small orga­ni­za­tions, par­tic­u­lar­ly if they main­tain an exten­sive sup­pli­er network.

Sup­ply chain man­age­ment can be par­tial­ly outsourced

Con­sol­i­dat­ing pro­cure­ment struc­tures does not nec­es­sar­i­ly mean giv­ing up the ben­e­fits of an exten­sive net­work. Many rub­ber and plas­tics pro­duc­ers have con­tacts with sub-sup­pli­ers and can out­source tasks if nec­es­sary. In this case, the coor­di­na­tion effort lies with the pro­duc­tion part­ner. There are often also finan­cial advan­tages, as sup­pli­ers can achieve high­er economies of scale with sub-sup­pli­ers and have more lee­way in con­tract nego­ti­a­tions. In this way, it is pos­si­ble for cus­tomers to out­source part of their own sup­ply chain management. 

More effi­cient col­lab­o­ra­tion with suppliers

A con­sol­i­dat­ed sup­pli­er struc­ture makes it pos­si­ble to build clos­er rela­tion­ships with indi­vid­ual ser­vice providers. If pur­chas­ing no longer has to divide its atten­tion among a large num­ber of sup­pli­ers, col­lab­o­ra­tion becomes eas­i­er. Peo­ple know each oth­er, have worked togeth­er sev­er­al times in the past and know what is impor­tant to the oth­er side. Con­flicts are less like­ly to arise as a result. Net­work­ing of the IT sys­tems is also pos­si­ble in this sce­nario, so that a resource require­ment on the cus­tomer side auto­mat­i­cal­ly appears as a pur­chase order in the supplier’s sys­tem and, in return, invoic­es are auto­mat­i­cal­ly made avail­able to the customer’s account­ing system. 

Few­er redun­dan­cies in mold making

If a pro­duc­tion com­pa­ny decides to pur­chase non-stan­dard injec­tion mold­ed parts from sev­er­al sup­pli­ers in par­al­lel, mul­ti­ple molds are required, whose costs are reflect­ed in the pur­chase price of the com­po­nents. In this case, the advan­tages in terms of deliv­ery reli­a­bil­i­ty result­ing from redun­dan­cy are rel­a­tivized by the ris­ing costs. A con­sol­i­dat­ed pro­cure­ment strat­e­gy has finan­cial advan­tages in con­trast. This may be a spe­cial case that is only rel­e­vant for the rub­ber and plas­tics sec­tor. How­ev­er, deci­sion-mak­ers should not ignore it. 
CNC-Fräsmaschine zum Schneiden des Rohmaterials mit dem groben Schaftfräser /blog/supplier-consolidation-in-the-rubber-and-plastics-sector-advantages-and-disadvantages/
Man­u­fac­tur­ing of an injec­tion mold

Dis­ad­van­tages of sup­pli­er consolidation

Reduced flex­i­bil­i­ty

The con­se­quence of a con­sol­i­dat­ed sup­pli­er net­work is that the cus­tomer can no longer choose the sup­pli­er with the best con­di­tions for each order or switch to alter­na­tive sup­pli­ers in the event of deliv­ery prob­lems. On the one hand, this has finan­cial con­se­quences, because the cus­tomer has less lee­way in price nego­ti­a­tions. On the oth­er hand, how­ev­er, sup­ply secu­ri­ty can also be impaired, as the cus­tomer becomes depen­dent on a few sup­pli­ers. This dis­ad­van­tage can be par­tial­ly off­set by long-term frame­work agree­ments. How­ev­er, a cer­tain resid­ual risk remains.

Sin­gle point of failure

It can­not be denied that focus­ing on just a few sup­pli­ers always cre­ates poten­tial bot­tle­necks, in some cas­es even a sin­gle point of fail­ure. If a pre­ferred sup­pli­er has deliv­ery prob­lems at short notice, it is often dif­fi­cult for the cus­tomer to find a replace­ment in time. This risk can also be min­i­mized by choos­ing sup­ply part­ners who them­selves main­tain an exten­sive sup­pli­er net­work. How­ev­er, the orga­ni­za­tion of this net­work is not in the hands of the com­pa­ny, so there is always a cer­tain degree of uncer­tain­ty here as well. 

Cur­rent rel­e­vance (fall 2021) 

At present, the top­ic of sup­pli­er con­sol­i­da­tion is rather less rel­e­vant for most pro­duc­tion com­pa­nies, as they have dif­fi­cul­ty obtain­ing mate­ri­als at all. How­ev­er, this state of affairs will not last. Soon­er or lat­er, the glob­al avail­abil­i­ty of raw mate­ri­als will lev­el out again. 

Con­clu­sion

Whether the time and effort involved in sup­pli­er con­sol­i­da­tion is worth­while ulti­mate­ly depends on the com­pa­ny. Many deci­sion-mak­ers are reluc­tant to give up the enor­mous flex­i­bil­i­ty offered by an exten­sive sup­pli­er net­work. A valid point of view. How­ev­er, there is no deny­ing that this pro­cure­ment strat­e­gy gen­er­ates costs and places an addi­tion­al bur­den on pur­chas­ing. Every com­pa­ny must care­ful­ly weigh both sides. A good com­pro­mise is often to seek coop­er­a­tion with rub­ber and plas­tics sup­pli­ers who them­selves main­tain an exten­sive net­work of sub-sup­pli­ers. In this way, pro­duc­tion com­pa­nies ben­e­fit from the advan­tages of sup­pli­er con­sol­i­da­tion while mit­i­gat­ing its disadvantages. 
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Author: Swen Schubert

Swen Schu­bert has been the site man­ag­er of the Jäger branch in Chem­nitz since 2011. The trained whole­sale and for­eign trade mer­chant looks after all cus­tomers in the east­ern fed­er­al states in the field service. 

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