What effect does lower order volume in multi-sourcing have on the buyer?

What effect does lower order volume in multi-sourcing have on the buyer?

• A. Increased bargaining power
• B. Reduced bargaining power
• C. Improved supplier competition
• D. Enhanced economies of scale

Answer: (B)

Lower order volume in multi-sourcing leads to reduced bargaining power for the buyer. When a buyer places smaller orders across multiple suppliers, each supplier perceives themselves as less critical to the buyer's overall success and demand. This diminishes the buyer's leverage in negotiations, as suppliers are less motivated to offer significant discounts or favorable terms when their share of the business is minimal. Moreover, if a buyer were to consolidate orders with fewer suppliers, they could likely negotiate better pricing and terms due to the increased significance of their business. In multi-sourcing scenarios where order volumes are low, suppliers are less incentivized to compete aggressively, making it harder for the buyer to negotiate advantageous deals. This dynamic illustrates how order volume directly impacts the bargaining power of the buyer in supply chain management.

Lower order volume in multi-sourcing leads to reduced bargaining power for the buyer. When a buyer places smaller orders across multiple suppliers, each supplier perceives themselves as less critical to the buyer's overall success and demand. This diminishes the buyer's leverage in negotiations, as suppliers are less motivated to offer significant discounts or favorable terms when their share of the business is minimal.

Moreover, if a buyer were to consolidate orders with fewer suppliers, they could likely negotiate better pricing and terms due to the increased significance of their business. In multi-sourcing scenarios where order volumes are low, suppliers are less incentivized to compete aggressively, making it harder for the buyer to negotiate advantageous deals. This dynamic illustrates how order volume directly impacts the bargaining power of the buyer in supply chain management.