Vendor Consolidation and its Benefits

Consolidating vendors doesn't only provide cost savings, it allows companies to reap many additional benefits.

It has become recognized that one of the best procurement practices is to consolidate your supply vendors. It started as a practice to save money and has become a widespread approach that companies now take to make their procurement easier. An analysis by Cornell shows that companies started saving more than 30 million dollars annually in 2015 since they started consolidating their vendors and standardizing the supplies. It has allowed companies to reap multiple benefits beyond just cost savings. Here are a few reasons why companies should adopt vendor consolidation:

Reduced Costs
One of the main reasons to start consolidating your suppliers would be the increased cost savings, not just through direct costs, but also the unnoticed soft costs. This happens because instead of making low-sum purchases from multiple vendors, you gain the power to work with an enhanced partner that is probably capable of carrying out the necessary services.
The more known savings could be associated with bulk shipping, taxes, fees (sometimes include exchange rates) and streamlined shipments. But, as Hackett Group reported, the indirect savings are in most cases found to be higher through reduced cash flows and consumed time, and increased satisfaction on both ends of the transaction.

Time Savings
In companies, time is much more valuable than money. It is sensible to save employee time when compared to some cash. Vendor consolidation makes it easier to manage vendors, thus the procurement team saves more time. This saved time and energy can instead be put into strengthening the existing relationship with the selected suppliers.

Reduced Administrative and Training Requirements
With reduced suppliers, your staff would have to deal with lesser administration work, which would reduce associated problems. It not only decreases their work, but also helps to strengthen the structure within the company, and develop more organized files and entries.
Consolidation also helps with training reduction. The employees would need to be trained on less supplier-specific information, and it becomes easier for them to remember and manage processes.

Increased ROI
It is important to strategize while managing and consolidating your vendors. A thorough analysis on ROI is necessary, as their flexibility in pricing could vary. Once you confirm which partnerships would be more profitable, your ROI could increase with scaled up and voluminous purchases. It is always better to buy in bulk from a monetary point on view.

Consolidated Support and Service Desk
Vendor consolidation shrinks the list of your points of contact, and is especially effective when you are working with multiple vendors from different sectors. Your team becomes more familiar with this support desk and problem solving becomes a faster process.

Remember Risk
Risk plays both sides in vendor consolidation. It proves less risky if the suppliers that you narrowed down to have good relationship with you and you have been working with them for some time.
But it is also reasonable to be concerned if you depend on only one supplier for all of your supply needs, as any situation could creep up. It is therefore important to work out the contracts and due diligence before consolidating. But all in all, these risks are still outweighed by the benefits, and hence it is advantageous to consider consolidation.

HPN Select is a group purchasing organization that specializes in assisting multi-family housing developer and operators.

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