SHELTER

October 2003

Distribution Channels
    Inner Workings of the Millwork Industry

Single Supplier Sourcing
A Supply Chain Tool Whose Time Has Come

by Allen Dyer

It is second nature for us to work constantly within our companies to reduce our operating costs, improve products or enhance distribution services. But a yeoman’s effort that is limited to our own turf may not be good enough to maintain our market edge in the future. There may be additional opportunity for achieving another increment of efficiency by addressing how we interact with our supply chain partners—both our suppliers and customers. 

To move beyond the boundaries of our own company and find more ways to get value to the end user of our products, our thought process must transcend the concept of buy-and-resell. There is a good reason to evaluate our millwork supply chains in the context of the value proposition they deliver to the end user. Such a perspective begs our attention to the combined added value of all the functional participants in the supply chain. Being more aware of those functions performed by our supply chain partners on both sides presents an opportunity to reduce costs and deliver more value.

One practice that facilitates a joint supplier-buyer effort is a single supplier sourcing arrangement at one or more hand-off points in a given supply chain. In fact, a single-source understanding may be a prerequisite to value enhancement through supply chain collaboration. This philosophy is discussed easily, but more difficult to practice, requiring trust, respect, commitment and collaboration among our companies and our suppliers and customers. Experience has taught me that when we’re selling, single sourcing is an easy concept to embrace —we all believe our customers should buy 100 percent of a given product category from us.

Single-sourcing a product category, we correctly argue, is inherently more efficient for the buyer and seller than the sporadic volumes of come-and-go business. One result of this is that consistent demand gives the supplying party confidence to carry adequate inventory so he can serve the customer better. While better predictability of demand evens the flow of product through the entire supply chain, producing higher turn rates and reducing the costs of carrying excess inventory. 

Given that some studies estimate that non-product inventory carrying costs can be as much as 20 percent of total inventory value, this one benefit can make a one-supplier buying arrangement worthwhile.

There can be risks and disadvantages to single-source arrangements, however. More than one well-meaning effort has failed because of a bad choice of a supplier partner or when misunderstood expectations on one side or the other resulted in interrupted supply, limited product selections or inconsistent quality. 

Successful single-source arrangements usually don’t happen quickly or easily. They must be well-conceived initially and nurtured through a learning process with determination. Sometimes they require more than one attempt. 

Once burned, it is easy for a buyer to revert to the less efficient practice of using multiple suppliers. However, the odds of successful use of the single-source concept may increase as we move forward. As we deploy more technology to manage larger segments of the supply chain in a linked fashion, the risk associated with single sourcing begins to diminish. 

The advantages of single sourcing are real —especially at the supply chain hand-offs nearest the end user where the smaller transaction quantities present the greatest opportunity for consolidating the volumes on the sourcing side. In today’s competitive environment, we shouldn’t give up too soon. 

Allen Dyer Allen Dyer is president of ECMD Inc., a building products manufacturing and distribution com-pany headquartered in North Wilkesboro, N.C., with production operations that include EastCoast Mouldings, Crown Heritage Stairs and A&H Windows.

 


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