Exit strategy

Hi all,
I am in a business that deals with multiple suppliers. Lately we have detected few non compliance from one of the supplier. Despite numerous meetings and dialogues they are still not meeting the required compliance demand. 6 months down the road we are now pondering our exit strategy from this supplier. Our team is now torn between 2 strategy:

1. Documents all the non compliance, meetings and minutes, letter of demand etc. After rounds of failed negotiations, exit with written confirmation of ceased business relationship. Risk - bad taste of both parties which may lead to foul mouthing in market place, risk damaging the carefully crafted corporate branding.

2. Continue to work with them on getting compliance corporation while planning a market exit strategy by stopping procurement, distribution and promotions of this supplier goods. Within 6 months, allow the sales to drop till its natural death. No confrontational meetings, unpleasant correspondence, documentation of business failing out and risk of soured deals. Exit cordially like any bad business decision that didn't perform.

Which approach would you use and why? Appreciate all inputs!