A company that works with a large number of suppliers may encounter administrative, financial and even efficiency problems. As the founder of NewGen Sourcing, I share my experience with you.

The first negative impact concerns the administrative aspect of your organization. The more suppliers you have, the more your workload increases. As a result, your costs will also increase.

Indeed, establishing and maintaining a business relationship with a partner requires several steps. These include: selecting and negotiating with the supplier, drafting a contract, analyzing risks, verifying the supplier’s viability, managing orders and invoices, monitoring deliveries, etc. These examples are far from being exhaustive! All these tasks must be carried out for each business partner. In addition, each supplier has his own way of working and you will have to get used to it.

Suppliers management generates costs

The second consequence of a large number of suppliers on your company is financial: in addition to the inherent cost of personnel, you risk missing opportunities in terms of savings. Working with many business partners means that orders are placed in smaller quantities. As a result, the supplier will tend to increase prices. As a result, you will benefit from poor purchasing conditions.  You will be considered as a small customer. You will therefore be served with less attention, compared to a customer who would order large volumes and report a higher turnover to the supplier.

A loss of efficiency is perceived

Finally, concerns about inefficiencies can quickly become apparent if your company increases the number of business partners. You may encounter compatibility problems between the different products and services you order. For example, if you order computer equipment from multiple trading partners who don’t use the same technology, you may have machines that don’t work together.

This loss of efficiency can also result from greater difficulty in orchestrating all of your trading partners if they are interdependent. This slows down the execution of your projects. As a result, the multiplication of business partners leads to a loss of competitiveness vis-à-vis the competition, and therefore of potential market share and revenues.

 When does a company start having too many suppliers?

There is no Manichean answer. However, if you spend a lot of time and energy on managing business partners, if the problems mentioned above are part of your daily life, then it is time to ask yourself some questions. You may want to consider streamlining the number of suppliers you have. Consider those that represent a low risk to the continuity of your business. Take it one step at a time, until you find a balance between supplier diversity and operational efficiency.

However, if streamlining can benefit you, avoid relying on only one supplier for goods and services that are critical to your business. If this partner goes bankrupt, or if your business relationship is damaged, the smooth running of your business will be jeopardized.