Education — Myth Busting

More Suppliers Do Not Mean Lower Prices

Adding suppliers looks like competition on paper — but each one adds 1–8% in hidden coordination costs. The data is clear: optimal supplier counts are two or three, not fourteen. Like hiring ten real estate agents to sell your house, more does not mean better — it means chaos.

1–8%

Hidden coordination cost per additional supplier contract

Like paying a toll booth fee every time you add another lane — the savings never catch up

10–20%

Cost reduction from supplier consolidation (McKinsey)

That's $10K–$20K saved on every $100K you spend — just by having fewer, deeper relationships

30–40%

Savings lost to supplier fragmentation (Acquis)

Nearly a third of your negotiated savings evaporate — like water leaking from a bucket with too many holes

The Two Supply Bases — Which One Do You Have?

The Fragmented Base

14 suppliers for the same fastener grade

When you spread $2.3M across 14 suppliers, each gets just $164K on average. Nobody considers you a priority. Zero incentive to invest in quality, innovation, or cost reduction. Transaction costs from RFQs, quality checks, invoicing, and relationship management eat up any unit-price savings from competitive bidding.

🔴 Like ordering pizza from 14 different restaurants — none of them care if you come back, and you spend more time placing orders than eating.

The Consolidated Base

2–3 qualified, competing suppliers

Consolidating spend creates account priority. Suppliers invest in quality improvement, joint cost reduction, and responsiveness because the relationship matters. Dual sourcing maintains competitive tension — two suppliers benchmarking each other on price and performance — without the overhead of managing many interfaces.

🟢 Like having two trusted mechanics who know your car — they compete for your business, but both know your engine well enough to catch problems early.

What to Do About It — Three Practical Moves

Run a supplier duplication audit. Pull spend by category and count how many suppliers provide the same thing. If 40% or more are duplicates, fragmentation is leaking your margin — it's not competition, it's disorganization.

Segment by category, set supplier-count targets. Strategic categories need one close partner. Bottleneck and leverage items need two to three. Routine commodities need one preferred supplier. No blanket policy — each category gets its own number.

Price the relationship, not just the unit. When evaluating a new supplier, include RFQ costs, quality onboarding, contracting, and administration. The quoted unit price is a fraction of the total cost of adding one more supplier relationship.

Jargon Decoder

Dual Sourcing Keeping exactly two qualified suppliers for a critical item — enough competition for fair pricing, enough simplicity to manage well. Your supply chain's spare tire.

Coordination Cost The invisible work behind every supplier: RFQs, quality checks, delivery tracking, invoice reconciliation. It's like the restaurant bill's service charge — it grows with every extra guest at the table.

Non-Contractible Value Improvements a supplier voluntarily makes — innovation, quality upgrades, faster response — because they trust you'll share the gains. No contract can force this; only a strong relationship earns it.

Fragmentation When your spend is spread across too many suppliers so nobody gets enough volume to matter. Like having $100 split across 10 bank accounts — you're not important to any of them.

Supplier-Base Hygiene Regularly pruning duplicate suppliers and consolidating where it makes sense. Same idea as cleaning out your closet — keep what fits, remove what doesn't, stop buying duplicates.

Competitive Tension When suppliers stay sharp on pricing and service because they know you have real alternatives. Two competitors is tension; fourteen is noise.

Sources: Bakos & Brynjolfsson (MIT, 1993), McKinsey (Kothari, Noor & Scholz, 2011), Acquis Consulting, Deprotech (Balaeva et al., 2020), Keystone Procurement, KodiakHub, Rzzro Intelligence

Rzzro

Procurement, quantified.