Small is beautiful (maybe)

I had an interesting conversation yesterday with a fellow who heads up construction for a property developer. The discussion worked its way to the process by which they put projects out for bid, and more specifically the trade-off between increasing coverage (and presumably competition) and the effort involved with evaluating more bids and bidders. My friend said he generally prefers inviting a small group of proven suppliers, rather than exposing their projects more broadly. He felt the cost of evaluating more bids and bidders, and the risk of contracting with a unknown vendor, would wipe out any savings that might result from a more competitive bidding process. He is, however, worried about keeping his suppliers competitive, and not just in terms of price. He's also concerned about innovation.

I can appreciate both sides of this argument. It's not unlike the tradeoff faced by product manufacturers. There's a point at which the cost of reaching the next level of quality is not economically feasible. The trick is to find the balance between quality (of a product or process) and the incremental cost that comes with each layer of effort.

So where do you stand on this? Do you cast a wide net, or "partner" with a small group or proven suppliers? If you feel, as my friend does, that small is beautiful, what strategies do you use to make sure you're keeping your suppliers competitive?