Vendor Consolidation in Manufacturing
If you think your business is spending too much time pushing paper and dealing with administrative tasks, it’s time to ask how you can streamline things.
One strategy to pursue is vendor consolidation.
Sometimes as your business grows, your stable of vendors grows too. More vendors usually means more deliveries, more orders, more invoices, more checks cut, more documents traveling through accounts payable. It might be time to step back and evaluate whether each of those vendors is offering a unique value proposition which can’t be replaced, or whether you can actually narrow the pool of vendors you work with, saving time, money and aggravation.
You’ve doubtless confronted the same dilemma in your personal life. You can save a few cents on nuts and cheese at Trader Joe’s, you prefer the prepared dishes at Whole Foods, and the co-op has the best produce — but is it really worth it to travel all over town for your weekly groceries?
By reviewing vendors periodically with an eye to consolidation, your company will benefit from economies of scale in terms of pricing, time and administration.
Review Vendors for Performance
As you consolidate your vendors, you’ll want to balance attributes such as quality, cost, terms, product line and availability, responsiveness, communication and more. Create a report of your roster of vendors and what they each supply, and figure out which ones feel irreplaceable, either because of their products or because of some aspect of the relationship. Talk to their sales reps: can they provide some thing(s) currently being provided by other vendors?
Benefits of Vendor Consolidation
Lower Expenses: By buying more from a single vendor, you increase your purchasing power. They’ll reward you for your high volume with better price points.
Improved Shipping: Fewer vendors means consolidated shipments. That means fewer orders to track, fewer invoices to pay, faster shipping, and streamlined unloading and warehousing. And of course, lower freight costs.
Better Relationships: Do more business with a company, and the relationship improves. Partly because you value each other that much more, but also because you able to understand and respond to each others’ needs better. You’ll also be able to negotiate stronger contractual agreements, enabling you to reduce your carrying costs of inventory by reducing the costs of financing, damage, obsolescence and theft.
Better Quality: First, consider the quality of the products you buy. You’ve already screened your favored supplier for quality, and with your greater scale, they’ll be that much more motivated to keep you happy, so quality should stay consistent. Also, ordering multiple parts from the same vendor increases the likelihood that parts will be compatible with one another.
Also, think beyond the strictly material, and focus on quality of service. You already screened for such attributes as credit management, market knowledge, customer service, support, and product innovation. Once again, your increased buying power ensures they want to keep you satisfied in these arenas.
Save Time: Administration costs will go down as you deal with fewer vendors. Buying, bookkeeping and warehouse functions will particularly benefit.
Environmental Impact: Consolidated shipping means less fuel burned and a smaller carbon footprint. You may be able to influence packaging choices, resulting in lower waste fees for trash or recycling.
Improved Vendor Acquisition Strategies: Once you’ve gone through this process, you’ll be better prepared when it’s time to source new parts or onboard new vendors. You’ll have a better sense of pricing, freight, service and quality. You will also be better at defining the types of supply agreements that work best for your supply chain.