Manufacturers must have multiple sources of raw materials to avoid unanticipated stockouts
Single source suppliers could create issues for your manufacturing or processing business.
December 15, 2014 - Author: Paul James Werner, Michigan State University Extension
Remember that favorite food item of yours that no longer is available? Do you know what happened to it? It could be the victim of a single source supplier that went out of business. To avoid this issue, savvy manufacturers and food processors have multiple, redundant suppliers.
As a Michigan State University Product Center counselor, I work with small businesses that process food items that want to wholesale their products into the grocery channel. Most of these small business entrepreneurs have a single source of raw materials. For example, jam processors will source berries from a single berry farmer. But, what would happen if the berry farmer became incapacitated and could no longer grow the berries?
Grocery buyers want to stock a product that will sell well, but the product also must be available when the grocer demands. Grocers dislike stock outs, and if your product is not available when demanded, you will lose that store’s business. So before a grocery buyer will take a product into their store, they may demand to know the sources of raw materials. If a manufacturer only has a single source, the grocer may be hesitant to stock the product.
From a strategic business perspective, small business should be loath to have a single supplier. Take a restaurant, for example. The restaurant has fresh, local fish on the menu that the restaurant sources from a single fisherman. And then suddenly, the fisherman files for bankruptcy, or the fisherman’s boat sinks, or he stays on the water for an extended period of time. Now, the restaurant does not have a source of fresh, local fish. Sourcing from multiple fishermen could have easily resolved this issue. The same is true for food processors of shelf stable food items.
Michigan State University Extension and the MSU Product Center provide business counseling for food processors. Their counselors could assist you in identifying suppliers that could be your redundant suppliers of raw materials.
Paul J. Werner is a Michigan State University Extension educator from L’Anse, Michigan. You can obtain free business counseling by registering with the MSU Product Center. Werner has many years of experience in small business ownership and entrepreneurship; he and his wife currently own two small businesses in the Upper Peninsula of Michigan.