A Buyer’s Headache – Managing the AVL and Getting Results.
Managing your AVL with the 80 / 20 rule
Your supplier base, AVL (Approved Vendors List) is one of the most important assets in your supply chain and should be reviewed frequently, if not daily, especially before you add new suppliers.
It does not matter whether you have 10 or 100 suppliers in your approved vendors list (AVL), OEMs want to make sure their AVLs do not grow beyond their control and maximize their supply chain.
Buyers at OEMs must clearly understand each vendor and how they can improve cooperation with vendors listed on their AVL. In addition, leverage certain sole source suppliers that provide high value outside of the AVLs.
Through top-line segmentation, you can create and manage a better AVL to help balance your suppliers. Typically, your suppliers will fall into four categories:
- Original manufacturers selling main stream products and services in the market which meet your, primary needs, and those of your customers.
- Single source, or most competitive, distributors for the original manufacturer in category
- Such distributors typically focus on a limited number of manufacturers’ brands and do not re-sell other brands from their list.
- Distributors selling a wide range of products / services which cover your primary, or minor, requirements. Such distributors are willing to help you source and pass along whichever products / services you need.
- Regional niche suppliers selling products that meet very specific, or sometimes minor, needs. You purchase from them for a few projects, usually randomly, with low volume requirements.
Keeping the above categories in mind, you are likely to observe that 80% of your spending goes to 20% of your suppliers.
Categories 1, 2 and 3 are most likely to be in the 20% volume range, but use up 80% of your spending capability. Meanwhile, category 4 suppliers represent 80% of the volume, but consume only 20% of your spending.