“We’ve made a habit over the years of saying things that some people disagree with, so I tried to find something for today,” quipped ShipServ CEO and Founder Paul Ostergaard as he opened the supplier session at the recent Smart Procurement event in Rotterdam.
It’s a typically measured comment from a man who has made a career of being a change agent but who also knows well the industry he set out to disrupt 15 years ago. Ostergaard’s sacred cow this year was the mantra of supplier consolidation.
“There are two fundamentals in life; death and taxes. In marine procurement the two fundamentals are death and the fact your boss thinks you are using too many suppliers,” he said. “Well, is she right? It depends,” he said.
It was a topic that had already come up during the day but his aim was to pose the question and judge if and when it might be right to reduce the number of suppliers.
And it’s a question that he can identify with, having previously been a department store devotee, consolidating much of his purchasing on a single source. Convenient, with low search costs and good quality service, the risks were minimal, he said and supplier certainty high.
But the reveal was that he stopped going there some years ago. Now he does what many of us do, buy from dozens of small suppliers scattered around Europe and UK through a trusted and well-known intermediary platform. A reliable level of product quality and delivery, low trading risk and search costs makes it something of a no brainer, even when potentially using millions of suppliers.
“So why am I not consolidating any more? I think you can take a dogmatic approach to this and we have to ask ourselves, are we doing it just because we used to do it or for specific reasons that have to do with a strategy to minimise supply and quality risk?” he noted.
There was a time when consolidation made sense – specifically when RFQs would include dozens of line items. “They would come in a brown envelope with a lot of handwriting and go straight in the fax because the cost of disaggregating the order would be huge.”
E-commerce has removed those obstacles and dramatically lowered transaction costs, as well as making it easier to find suppliers, get quotes and assess their quality, thereby managing the risks of trading with new ones.
“From now on when we say ‘thou must consolidate thy supplier base’ it’s not a yes/no answer, it’s when and in which categories and which situations,” he says. “Think very carefully; if unit cost, freight savings and quality outweigh the transaction risks and costs, then we might not need to after all.”