So you are running a business and you have six prime suppliers of the same base material you use in your product – a sort of green stuff. Two are relatively close to your manufacturing facility but they are costlier – you get less for what you spend on their material. The next two are hard to transport materials from but they are a bargain compared to the suppliers close to your manufacturing facility. And last you have two suppliers that are very competitive and they can provide you with twice as much materials for around the same cost but they are difficult to deal with due to location and transportation issues.

You have three issues to weigh, material costs, transportation issues, and have to deal with the fact that quality of the various suppliers material varies over time and you end up buying materials based on small test samples. As a result you end purchasing from all the suppliers at one time or another but some obviously some more than others but not for any clear reasons.

Note all of your competitors are located close to you and basically have the same transportation costs and transportation issues. And some of your competitors are better capitalized and can financially survive bad decisions or market fluctuations that none of you have control of. And some are not as well capitalized as your company so their decision will vary like your’s but probably to a greater degree

So to insure that your company stays competitive you end up buying from all of them at one time or another to spread you business in an attempt to keep the supply market competitive.

The competition to your company come from others that are willing to risk timely delivery and pay more for transportation but they purchase the resource material at half the price.

One of your competitor just follows what you do.

One competitor strictly buys from the closest supplier no matter what based on availability and consistent pricing and return on their material. Pays more for what they get in return but they believe consistency is important

Another competitor buys smaller amounts from each supplier and averages out the cost for material and transportation but does so using data collected over a period of time that they believes gives them statistical evidence as to which supplier to use. This data includes their SRR and the distribution of their throws to the seven – specifically individual box numbers to sevens ratios.

Now how are you going to manage your company and gain market share over your competition in the thob market?? Or go broke from making bad decisions as compared to your competition.

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