Have you ever felt that it’s increasingly difficult to manage your vendor relationships? Rest assured, it’s not just you. It’s a common problem, as supplier bases tend to inflate naturally over time. Having to manage numerous vendors is not only time-consuming, but too many can reduce your department’s effectiveness and ability to nurture key relationships.
To avoid this, it’s important to continually analyze your vendors and prune when necessary. Most businesses spend 80% of their cost of goods sold with only 20% of their suppliers, so it’s vital to consolidate your vendor base to forge better relationships with your organization’s most important suppliers.
If you think about it, every interaction you have with a supplier has an associated cost. So, time is money and you may be spending too much of it on the suppliers that hold the least value to your organization. By reducing your supplier base, you’ll not only save and reallocate manhours to operate more strategically, but you’ll increase buyer power too. By reducing the number of vendors, it’ll free up money that you can place towards higher-volume orders with remaining suppliers, increasing economies of scale and lowering your price. Additionally, it allows you to put your business in the hands of vendors that you trust the most, which will reduce inventory and supply chain costs.
Supplier consolidation involves reducing inactive or limited-use suppliers, spending more time building relationships with key suppliers and continually evaluating those relationships to ensure they’re comprised of capable vendors. The secret to successfully shrinking your supplier base is to not get hung up solely on the price paid for the product or service. You must assess quality, performance, lead time, risk, access to innovation and more across your whole vendor base to identify opportunities for efficiencies.
Because this transition may include partnering with larger suppliers, you must consider their ability to provide responsive customer service, do jobs in-house to minimize third-party costs and not lock you into being unable to use another vendor without incurring switching costs. This will help you achieve a manageable supplier base, strengthen relationships and reduce costs for your organization.
For more on supplier consolidation, read "How to Consolidate Suppliers and Reduce Costs?"