Supply base rationalisation: myth or reality?

Abstract Companies throughout the UK have been claiming for some time that in order to become more competitive and flexible, and to reduce costs, they must reduce the size of their supplier bases. In recent years, extensive supply base reduction strategies have been witnessed in a wide range of firms in differing sectors. This article seeks to explore whether these strategies are truly being followed, how they have been implemented, and how successful they have been. The author finds that whilst companies have significantly reduced the number of their suppliers, such strategies have not led to the rewards that were first envisaged. It appears that this is mainly due to a haphazard approach to rationalisation, a focus on transaction cost information, and poor management of highly dependent relationships. In addition, there is now evidence that some firms are actually increasing the size of their supply bases once more, to mitigate these problems. The research found that whilst companies claimed that they had reduced their supply bases, the reality was that they still had the same numbers of suppliers — they had delegated control to `first-tier’ suppliers as opposed to reducing the supply base. This article concludes that supply base delegation may be a useful strategy; it allows firms to focus on fewer suppliers, build high-dependency relationships, share technological advantages and spend time and effort on improving fewer relationships, thus leading to more efficient resource utilisation and consequent cost reduction. However, this process needs to be conducted within a strategic framework.