Impact of vendor consolidation on supply chain management

Vendor consolidation has been popular for several decades. It is a supply chain management strategy, where company reduces the Vendors by designing the goal for procurement process, cost reduction, improving the standards of business procedure.

Importance of Vendor Consolidation

Increased business growth leads to increased demand as well. This results in interacting with more vendors. This results in more vendor acquisitions, which can lead to a wider number of suppliers. Whereas each supplier needs to be interacted individually, vendor consolidation resolves this issue by reducing the number of suppliers to a minimum reliable vendor. 

Benefits of vendor consolidation

• Reduce freight rates

  Instead of sourcing many products from different suppliers in various locations, you can source the same products from fewer suppliers and pay for a few frights charge travelling to fewer locations.

• Lower prices on large quantities

  Purchasing many goods from a small number of suppliers allows you to buy in bulk. This purchasing method results in discounts that reduce costs per unit.

• Strong relationships

  Managing too many vendors leads to more transactions. Business with a few reliable suppliers helps them understand your business which leads to profit.

• Time to focus on business

  Number of resources increases in managing various suppliers, whereas consolidation allows you to focus on productivity, cost, customer relationships.

Process to implement vendor consolidation

• Form a team

  Form a team who understand the organization’s strategy. The team consists of members from procurement, executive, legal, IT, human resources, and accounting departments. This team helps in setting up business targets and sorting out best qualified vendors.

• Decide your status

  Review your supply chain network to determine your current goal status. Here are some points to consider before setting the goal.

  • Location of Vendors
  • Vendors that we need to source now.
  • Vendors who are convenient to deal with.
  • Sourcing a vendor who can supply bulk products.
  • Sourcing a vendor who can supply only a few products.
  • Sourcing the same products from multiple vendors.
  • Listing vendors who have had a negative experience in the past.
• Establish goals

  After the goal has been established, determine the metrics by which it will be measured. For example, if a vendor is failing to meet the on-time delivery set an on-time delivery goal and begin measuring vendors against it.

• Analyze and categorize vendors

  Vendor analysis is a way to categorize providers. Create a spreadsheet that includes a comparison of vendors over Quality, delivery time and cost etc and rank the suppliers based on performance.

  This might help identify the vendor who seems easy to work with but fails to achieve the goal.

• Recognizing the most reliable vendors for supply chain

  These vendors can be consolidated based on analysis of their ability to help your business reach its targets.

Talk to one of Supply Chain Specialists to find out, how to optimize your supply chain and implement vendor consolidation.