One Big Supplier
Copyright Jack Mixner. 714 449 1040. www.mixnerstrategy.com
Way back when I worked for a manufacturer of radiopharmaceuticals. We had our raw materials shipped in from a Northern Californian reactor facility. We got timely deliveries of very high quality isotopes. However, that facility had a problem. It was situated on an earthquake fault. Not near an earthquake fault. On an earthquake fault. The regulatory folks heard about that and immediately closed the facility down.
We had a problem. Now where were we going to get our basic raw ingredient? After a delay, we got it from a mid-western facility that made good product. We had to put up with weather effects on the delivery schedule but the price was OK and the quality was there. That worked for a while, until our direct competitor bought the reactor. Now we had a real problem. You can figure it out. Things didn't really go so well after that. Finally, they closed our facility and moved manufacturing back east.
We knew we had a problem all along. The division was a small one in a very large company. We made our products mainly to extend the size of the catalogue for selling everything from vitamins to penicillin into hospitals. Our prices were probably high, and, although quality was top notch, ours probably never became a hugely profitable product line.
You've heard the message. If you are going to manufacture a product, make sure you have multiple suppliers. If your ultimate exit strategy is to sell your company, having a single supplier will reduce its value, as well.