Should companies prioritize cost savings over supplier diversity in their procurement strategies?
I don’t think companies should prioritize cost savings over supplier diversity in their procurement strategies. Supplier diversity is important to increase competition between competing suppliers, which in turn leads to greater innovation and the development of even better products. In addition, having more than one supplier reduces the risk of delays due to missing materials while developing products. For example, if unexpected events occur with the selected supplier (e.g. weather conditions, fire, etc.), then a company has other options to turn to without causing too many delays. Of course, having more than one supplier may be more expensive, but reduces the risk of project delays that may be even more costly. Has anyone had any experiences where their company prioritized cost savings over supplier diversity? Were there any issues with the supplier? If so, how did the project turn out?
I think the company should put supplier diversity before cost saving. Although the verification is working well, having a backup plan is necessary. Everything is possible, even if the problem doesn't arise inside the company. This might be similar to the simulation that the professor gave us. We have a good project ready for final approval. But another Company B using our product might have a different result. If Company B has prepared several potential suppliers for the project, they can minimize the cost loss and save a lot of time. And it's also can save time for us. We need to estimate if we need to change the design or not to fix the problem. Having backup suppliers can give us other options to modify the process.
I see how it may be tempting for companies to implement cost saving policies in favor of creating a diverse vendor base. However important they may deem the bottom line, in the long run, more supplier diversity can save the company when it is in a bind. I know from personal experience at my job; having a multitude of vendors for critical items has saved my behind many times. Supplier diversity is not only important in terms of lead times and material availability. Having more professional relationships with other companies in industry is like free advertising.
Supplier diversity can bring benefits such as access to new ideas, perspectives, and business opportunities. Having backup supplies can be helpful in case of unexpected problems with the primary supplier. However, it's important to balance diversity with cost savings to ensure profitability and competitiveness. Nevertheless, there are drawbacks to sourcing from a variety of a suppliers as each supplier may not offer the exact quality nor quantity desired. Apple does a phenomenal job with their supply chain management, even during COVID. For example, they source displays for their iPhones multiple vendors, including LG Display, Samsung, and Sharp. Since Apple is a substantial customer, those three vendors have to be competitive with each other for innovation and cost-competitiveness. Apple on the other hand has to do quality control to make sure that each of the vendors can provide the quality paid for. If there is a difference in quality either between vendors or with Apple, then there could be a plethora of backtracking and possibly even cancellation of multi-million dollar contracts. Therefore, the decision on whether to prioritize supplier diversity or cost savings will depend on various factors unique to each company and is not as simple as deciding between cost-savings and vendor diversity.
While there is no one-size-fits-all answer to whether companies should prioritize cost savings over supplier diversity in their procurement strategies, Ultimately, the decision will depend on the company's goals, values, and priorities.
Choosing to prioritize cost savings can be an effective way for companies to maximize profits and remain competitive in the market. By selecting suppliers based primarily on cost, companies can negotiate lower prices and potentially save significant amounts of money on their procurement spending.
On the other hand, prioritizing supplier diversity can also bring several benefits to a company. Diverse suppliers can offer unique perspectives, expertise, and solutions that may not be available from traditional suppliers.
I don't think that cost saving should be the defining factor in procurement strategies. Supplier diversity would open more opportunities for the company to branch out if its current supplier is unavailable. This situation is somewhat reminiscent of the latest simulation we have to complete. While the cost of relying on an expensive supplier might not be beneficial at first, in the long run, they wouldn't have to worry bout the cheaper supplier providing subpar products to the company.