Supply Chain Intelligence Mission Portfolio: Vendor Consolidation and Unintended Consequences
A mid-sized electronics manufacturer approached Aurora GPS to understand the risks and benefits of its plans to consolidate its supply chain from 120 vendors to 25. The financial team estimated the savings at nearly 15 points of gross margin – a compelling case. The CEO was concerned that severing ties with nearly 100 suppliers could have unintended consequences.
Aurora GPS rigorously and objectively mapped the entire supply chain and confirmed that yes, many of the suppliers were either poorly positioned in their market or the result of one-time purchasing arrangements. However, the company missed a critical supply chain risk: Its largest component supplier was not only a single point of failure, but also in the process of being taken over by a state-owned company in Southeast Asia who happened to be a direct competitor.
Armed with this information, the company did make significant consolidations but also established relationships with three other suppliers of the components in question. The net impact was still a double-digit margin reduction but also a more stable supply chain in the face of industry consolidation.