By Jon Hansen | January 15, 2026
In 2007, I published “The Continuing Dangers of Vendor Rationalization,” warning that dogmatic supplier consolidation was planting seeds organizations would harvest as failures. The industry didn’t listen. Eighteen years later, the evidence is overwhelming — and the pattern keeps repeating.
I call it the “cloud repatriation effect”: you dismantle for efficiency, then spend more rebuilding when disruption hits. COVID-19 proved this catastrophically across global supply chains. But here’s what the industry still hasn’t grasped — vendor rationalization isn’t a strategy that fails. It’s a recurring cycle the profession keeps repeating because it has no institutional memory.
The Evidence: Six Key Findings from COVID’s Supply Chain Collapse
1. Companies Had to Frantically Expand Supplier Bases
According to research published in INFORMS’ Manufacturing & Service Operations Management, “U.S. importing firms increased their total number of suppliers, driven primarily by the addition of new suppliers rather than retaining those from the preceding five years.”
The very consolidation they pursued pre-COVID forced them to scramble for new suppliers during the crisis — at premium prices, under desperate conditions, with no leverage.
2. Lean/Consolidated Strategies “Dramatically Backfired”
SAP’s post-pandemic analysis was blunt: “Too few organizations gave a second thought to the single-minded pursuit of cost containment in supply chains until the strategy suddenly and dramatically backfired.”
MIT’s David Simchi-Levi, Director of the MIT Data Science Lab, put it even more directly: “Before the pandemic, companies had been very successful at cutting costs dramatically from the supply chain with practices like lean manufacturing, outsourcing, and consolidation… All these strategies allowed them to reduce cost but dramatically increased their exposure to risk.”
3. Only 2% Had Visibility Beyond Tier One
McKinsey & Company’s research revealed a stunning blind spot: “Just under half of the companies in our survey say they understand the location of their tier-one suppliers and the key risks those suppliers face. But only 2 percent can make the same claim about suppliers in the third tier and beyond.”
Rationalization didn’t just reduce suppliers — it eliminated visibility. Organizations optimized what they could see while remaining blind to the dependencies that would ultimately break them.
4. Billions Spent Rebuilding What Was Dismantled
The rebuild costs dwarf any “savings” from consolidation:
- Intel is “spending more than a billion dollars to rebuild its operations in Costa Rica” (Harvard Business School) — operations they had downsized in 2014 when they relocated to Asia for lower costs.
- According to the World Economic Forum, “Retailers short on storage space are buying warehouses, shippers that can’t find containers are making their own, and companies unable to book with ocean carriers are chartering vessels.”
The infrastructure dismantled for “efficiency” had to be rebuilt at crisis prices.
5. Suppliers Closed Permanently — Sourcing Options Vanished
Research published in PubMed Central documented the permanent damage: “Some supply chain partners may close their operations permanently if they cannot absorb the loss from temporary shutdowns… firms may need to procure materials at higher prices due to decreased sourcing options.”
When you rationalize suppliers out of your network, you don’t just lose a vendor — you lose optionality. And when disruption hits, that optionality is precisely what you need.
6. 66% Had to Diversify AFTER the Damage
Jabil’s industry survey found that “66% of decision-makers said they diversified their supply base during the pandemic or have plans to do so.”
Read that again: 66% were NOT diversified before COVID hit. Two-thirds of the industry had followed the rationalization playbook — and two-thirds paid the boomerang tax.
The Cloud Repatriation Parallel
This pattern isn’t unique to supply chains. It’s the same cycle playing out across enterprise technology:
The “savings” were an illusion. They only existed in a stable world that doesn’t exist. The moment disruption hit, companies discovered they had optimized themselves into fragility — and the cost to rebuild exceeded whatever they “saved.”
The Cycle Revealed: 1995-2025
Here’s what the industry refuses to acknowledge: this keeps happening. Vendor rationalization isn’t a one-time mistake — it’s a recurring cycle driven by short institutional memory and misaligned incentives.
The pattern repeats roughly every 7-10 years. Compression during stable periods. Forced expansion during disruption. Gradual return to compression as memory fades.
And now, in 2026, we’re watching the cycle begin again. The consultancies are back with new frameworks for “supplier optimization.” The analysts are publishing methodologies for “tail spend reduction.” The 4E Frameworks and their equivalents are proliferating — all without readiness gates, all assuming the stable world that doesn’t exist.
Why the Cycle Repeats
Three structural factors ensure the profession keeps making the same mistake:
1. No Institutional Memory
Each generation of procurement leaders inherits the “efficiency” mandate without the scar tissue from the last collapse. The people who lived through 2008’s supplier bankruptcies have retired or moved on. The people who scrambled through COVID’s supply chain collapse are already being pressured to “optimize” again.
The industry has no mechanism for preserving hard-won lessons. Case studies fade. War stories become anecdotes. And the cycle repeats.
2. Misaligned Incentives
Procurement leaders are measured on cost savings, not resilience. Consultancies are paid for framework implementation, not long-term outcomes. Analysts are rewarded for confident recommendations, not accurate predictions.
When rationalization “works” (during stable periods), the leaders who implemented it get promoted. When it fails (during disruption), they’ve already moved on — and the failure is attributed to “execution issues” or “unprecedented circumstances,” never to the strategy itself.
3. No Readiness Assessment
Frameworks like the 4E (Evaluate, Eliminate, Evolve, Engage) tell organizations what to do without asking whether they should. There’s no diagnostic step. No Phase 0. No “Will this work here, and how do we know?”
Organizations implement consolidation strategies without assessing:
- Which commodity characteristics suit rationalization (Historic Flat Line) vs. expansion (Dynamic Flux)
- Whether they have the visibility to manage a compressed supplier base
- What their resilience requirements actually are
- How they’ll respond when — not if — disruption hits
Breaking the Cycle: The DND Counter-Example
Not every organization follows the cycle. Between 1998 and 2007, I led a project with Canada’s Department of National Defence that took the opposite approach.
Before our intervention, DND was operating under a rationalized supply base model for Indirect MRO procurement. The result: mark-ups averaging up to 157% above market prices for IT spare parts.
Instead of further compression, we went deep into the supply base. We assessed readiness before implementing technology. We aligned strategy to commodity characteristics.
The results:
- 23% annual cost savings for seven consecutive years
- Staff reduced from 23 to 3 while improving delivery performance
- 97.3% delivery accuracy
- $12 million company sale based on proven methodology
The DND didn’t follow the industry cycle. They assessed readiness first. And while the rest of the profession bounced between compression and crisis, they maintained stable, documented success.
The Question No One Is Asking
When Rajib Gupta and his co-authors publish frameworks for supplier consolidation, when the industry promotes “eliminating maverick spend” as a universal good, when consultancies sell rationalization as the path to savings — no one asks the foundational question:
“Will this work here, and how do we know?”
That’s not a framework problem. That’s a Phase 0 problem.
Until the industry builds readiness assessment into its methodology — until it stops treating every organization as identical regardless of commodity characteristics, visibility, and resilience requirements — the cycle will continue.
Compression. Crisis. Rebuild. Forget. Compress again.
The boomerang keeps returning. And the profession keeps acting surprised.
The Bottom Line
I documented the dangers of vendor rationalization in 2007. The industry didn’t listen. COVID proved the thesis catastrophically. And now, in 2026, I’m watching the same frameworks, the same assumptions, and the same blind spots emerge again.
The “savings” from rationalization are an illusion. They exist only in a stable world — and we don’t live in a stable world. We live in a world of pandemics, geopolitical disruption, semiconductor shortages, climate events, and black swans we haven’t yet imagined.
The question isn’t whether to consolidate or expand your supplier base. The question is whether you’ve assessed your readiness to execute any strategy at all — and whether you understand which approach fits your specific commodity characteristics and resilience requirements.
That’s the question the frameworks don’t ask.
That’s the question Phase 0 answers.
And until the industry learns to ask it, the cycle will continue — and organizations will keep paying the boomerang tax every 7-10 years.
Related Reading from the Procurement Insights Archives:
- The Continuing Dangers of Vendor Rationalization (2007)
- Dangerous Supply Chain Myths Revisited (Part 7): Enabling Technology – The Emergence of the Metaprise (2007/2011)
- 3 Supply Chain Concepts That Should Finally (And Mercifully) Be Abandoned (2013)
- The History of Change Management and Why It Is One of the Most Destructive Procurement Myths (2025)
EDITOR’S NOTE: To be clear: rationalization itself is not the enemy. Applying it blindly, universally, and without readiness assessment is
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Procurement Insights
The Rationalization Boomerang: 30 Years of Consolidate, Collapse, Rebuild (1995-2025)
Posted on January 15, 2026
0
By Jon Hansen | January 15, 2026
In 2007, I published “The Continuing Dangers of Vendor Rationalization,” warning that dogmatic supplier consolidation was planting seeds organizations would harvest as failures. The industry didn’t listen. Eighteen years later, the evidence is overwhelming — and the pattern keeps repeating.
I call it the “cloud repatriation effect”: you dismantle for efficiency, then spend more rebuilding when disruption hits. COVID-19 proved this catastrophically across global supply chains. But here’s what the industry still hasn’t grasped — vendor rationalization isn’t a strategy that fails. It’s a recurring cycle the profession keeps repeating because it has no institutional memory.
The Evidence: Six Key Findings from COVID’s Supply Chain Collapse
1. Companies Had to Frantically Expand Supplier Bases
According to research published in INFORMS’ Manufacturing & Service Operations Management, “U.S. importing firms increased their total number of suppliers, driven primarily by the addition of new suppliers rather than retaining those from the preceding five years.”
The very consolidation they pursued pre-COVID forced them to scramble for new suppliers during the crisis — at premium prices, under desperate conditions, with no leverage.
2. Lean/Consolidated Strategies “Dramatically Backfired”
SAP’s post-pandemic analysis was blunt: “Too few organizations gave a second thought to the single-minded pursuit of cost containment in supply chains until the strategy suddenly and dramatically backfired.”
MIT’s David Simchi-Levi, Director of the MIT Data Science Lab, put it even more directly: “Before the pandemic, companies had been very successful at cutting costs dramatically from the supply chain with practices like lean manufacturing, outsourcing, and consolidation… All these strategies allowed them to reduce cost but dramatically increased their exposure to risk.”
3. Only 2% Had Visibility Beyond Tier One
McKinsey & Company’s research revealed a stunning blind spot: “Just under half of the companies in our survey say they understand the location of their tier-one suppliers and the key risks those suppliers face. But only 2 percent can make the same claim about suppliers in the third tier and beyond.”
Rationalization didn’t just reduce suppliers — it eliminated visibility. Organizations optimized what they could see while remaining blind to the dependencies that would ultimately break them.
4. Billions Spent Rebuilding What Was Dismantled
The rebuild costs dwarf any “savings” from consolidation:
The infrastructure dismantled for “efficiency” had to be rebuilt at crisis prices.
5. Suppliers Closed Permanently — Sourcing Options Vanished
Research published in PubMed Central documented the permanent damage: “Some supply chain partners may close their operations permanently if they cannot absorb the loss from temporary shutdowns… firms may need to procure materials at higher prices due to decreased sourcing options.”
When you rationalize suppliers out of your network, you don’t just lose a vendor — you lose optionality. And when disruption hits, that optionality is precisely what you need.
6. 66% Had to Diversify AFTER the Damage
Jabil’s industry survey found that “66% of decision-makers said they diversified their supply base during the pandemic or have plans to do so.”
Read that again: 66% were NOT diversified before COVID hit. Two-thirds of the industry had followed the rationalization playbook — and two-thirds paid the boomerang tax.
The Cloud Repatriation Parallel
This pattern isn’t unique to supply chains. It’s the same cycle playing out across enterprise technology:
The “savings” were an illusion. They only existed in a stable world that doesn’t exist. The moment disruption hit, companies discovered they had optimized themselves into fragility — and the cost to rebuild exceeded whatever they “saved.”
The Cycle Revealed: 1995-2025
Here’s what the industry refuses to acknowledge: this keeps happening. Vendor rationalization isn’t a one-time mistake — it’s a recurring cycle driven by short institutional memory and misaligned incentives.
The pattern repeats roughly every 7-10 years. Compression during stable periods. Forced expansion during disruption. Gradual return to compression as memory fades.
And now, in 2026, we’re watching the cycle begin again. The consultancies are back with new frameworks for “supplier optimization.” The analysts are publishing methodologies for “tail spend reduction.” The 4E Frameworks and their equivalents are proliferating — all without readiness gates, all assuming the stable world that doesn’t exist.
Why the Cycle Repeats
Three structural factors ensure the profession keeps making the same mistake:
1. No Institutional Memory
Each generation of procurement leaders inherits the “efficiency” mandate without the scar tissue from the last collapse. The people who lived through 2008’s supplier bankruptcies have retired or moved on. The people who scrambled through COVID’s supply chain collapse are already being pressured to “optimize” again.
The industry has no mechanism for preserving hard-won lessons. Case studies fade. War stories become anecdotes. And the cycle repeats.
2. Misaligned Incentives
Procurement leaders are measured on cost savings, not resilience. Consultancies are paid for framework implementation, not long-term outcomes. Analysts are rewarded for confident recommendations, not accurate predictions.
When rationalization “works” (during stable periods), the leaders who implemented it get promoted. When it fails (during disruption), they’ve already moved on — and the failure is attributed to “execution issues” or “unprecedented circumstances,” never to the strategy itself.
3. No Readiness Assessment
Frameworks like the 4E (Evaluate, Eliminate, Evolve, Engage) tell organizations what to do without asking whether they should. There’s no diagnostic step. No Phase 0. No “Will this work here, and how do we know?”
Organizations implement consolidation strategies without assessing:
Breaking the Cycle: The DND Counter-Example
Not every organization follows the cycle. Between 1998 and 2007, I led a project with Canada’s Department of National Defence that took the opposite approach.
Before our intervention, DND was operating under a rationalized supply base model for Indirect MRO procurement. The result: mark-ups averaging up to 157% above market prices for IT spare parts.
Instead of further compression, we went deep into the supply base. We assessed readiness before implementing technology. We aligned strategy to commodity characteristics.
The results:
The DND didn’t follow the industry cycle. They assessed readiness first. And while the rest of the profession bounced between compression and crisis, they maintained stable, documented success.
The Question No One Is Asking
When Rajib Gupta and his co-authors publish frameworks for supplier consolidation, when the industry promotes “eliminating maverick spend” as a universal good, when consultancies sell rationalization as the path to savings — no one asks the foundational question:
“Will this work here, and how do we know?”
That’s not a framework problem. That’s a Phase 0 problem.
Until the industry builds readiness assessment into its methodology — until it stops treating every organization as identical regardless of commodity characteristics, visibility, and resilience requirements — the cycle will continue.
Compression. Crisis. Rebuild. Forget. Compress again.
The boomerang keeps returning. And the profession keeps acting surprised.
The Bottom Line
I documented the dangers of vendor rationalization in 2007. The industry didn’t listen. COVID proved the thesis catastrophically. And now, in 2026, I’m watching the same frameworks, the same assumptions, and the same blind spots emerge again.
The “savings” from rationalization are an illusion. They exist only in a stable world — and we don’t live in a stable world. We live in a world of pandemics, geopolitical disruption, semiconductor shortages, climate events, and black swans we haven’t yet imagined.
The question isn’t whether to consolidate or expand your supplier base. The question is whether you’ve assessed your readiness to execute any strategy at all — and whether you understand which approach fits your specific commodity characteristics and resilience requirements.
That’s the question the frameworks don’t ask.
That’s the question Phase 0 answers.
And until the industry learns to ask it, the cycle will continue — and organizations will keep paying the boomerang tax every 7-10 years.
Related Reading from the Procurement Insights Archives:
EDITOR’S NOTE: To be clear: rationalization itself is not the enemy. Applying it blindly, universally, and without readiness assessment is
-30-
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