Successful purchasing relies on effective suppliers. With ongoing evaluation of your supply base and replacing average vendors with better ones, you’ll improve the process and benefit from increased efficiencies. To do this, it’s important to create an evaluation method, performance indicators and a vendor classification system based on how critical they are to operations.
By consolidating spend and contracting with a limited supply base to serve needs across the company, you’ll likely receive more favorable terms and reduce time spent on negotiating and renewing numerous contracts. Over time, a supply base tends to grow naturally, so activities like creating a quality-and-delivery threshold and purging dormant or inactive suppliers will ensure a highly capable supplier base at manageable levels.
Here are six steps to get you started on the path towards a smaller, more efficient supply chain.
- Identify your goals for this project and what you’re aiming to achieve. Are you looking to gain leverage, reduce costs, increase efficiencies, etc.? Creating a vision will help propel you forward and realize success.
- Categorize vendors for easier analysis. Two strategies to consider: supplier segmentation, which helps you understand the company’s spending trends and volumes; and combined buying groups based on the dollar value of a product over a specific period of time that paints a picture of the importance of each supplier.
- Analyze how much you’re spending with suppliers. Compile a spend analysis on each vendor, evaluating items like total spend, lead time, current inventory, monthly usage and a performance rating, to help you identify opportunities for efficiencies.
- Strategize using the information you’ve uncovered. Where are the opportunities for reducing inactive or limited-use suppliers? Which vendors are most important to the company? Are there economies of scale to be had with your most trusted suppliers?
- Plan your transition. Part of doing this is understanding and mitigating risks involved with switching vendors. For example, you’d hate to consolidate your business with a larger supplier only to realize the money you thought you were saving through increased buying power will be spent on third-party costs because the supplier doesn’t do all jobs in-house.
- Execute your plan. Get buy-in from stakeholders and hold regular meetings throughout the process so everyone is on the same page in terms of goals and challenges as the consolidation unfolds.
When it comes to your supplier base, it’s either getting better or it’s getting worse. Therefore, it’s vital to know your vendors well, continually evaluate them and replace suppliers with better ones when necessary. Some occasional trimming will result in a more cost-effective and streamlined supply chain.
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