Supplier Consolidation, or Vendor Consolidation, is a supply chain management strategy that has increased in popularity over the last decade. Supplier consolidation is the process of reducing suppliers within a specific supply market and focusing on the most successful suppliers within the same supply market. Aimed to reduce supply chain costs and improve efficiency, consolidating suppliers is a strategy that can be implemented by any industry. In addition, supplier consolidation can be implemented on the production and indirect levels. However, manufacturing companies looking to reduce production costs may discover the greatest opportunity of cost savings with a consolidated supply chain.
SUPPLIER CONSOLIDATION IN MANUFACTURING
Purchasing professionals in today’s manufacturing industry are strained to find cost-saving initiatives. But as the cost of materials and labor continue to increase, the harder it is to get suppliers to reduce costs. This is where supplier consolidation comes in. A proven strategy for many manufacturers, supplier consolidation reduces purchase prices, reduces process costs, reduces risk and improves supplier relationships.
REDUCED PURCHASING COSTS
As a company reduces its supplier base, purchasing power increases. By allocating more resources to fewer suppliers, companies can receive better prices for a product. Overall freight, handling and other related shipping fees will reduce in cost as well.
REDUCED PROCESS COSTS
Companies that reduce their supplier base will have lower transactional costs. With fewer suppliers to handle, the costs involved in setting up a supplier in internal systems, completing transactions and managing the relationship significantly decrease. The additional time retained provides more opportunities to focus on other high-priority goals within the company.
Relying on fewer suppliers will significantly reduce risk as well. With fewer suppliers to manage, your company can better focus on securing all applicable risks throughout the supply chain. Your company can spend more time improving compliance and other legal policies.
IMPROVED SUPPLIER RELATIONSHIPS
When there are fewer suppliers to manage, the easier it is to focus on building relationships with core suppliers. By consolidating a supplier base, the core suppliers will get a larger piece of your market share. This larger market share for your core suppliers will equal lower prices for your company. Fewer suppliers also allows for more time focusing on improving the quality, efficiency, and overall performance of your core suppliers.
When it comes to supply chain management, less is proving to be more. The cost and complexity of allowing a supply chain to grow unconstrained by an undisciplined approach to vendor management are far outweighing the time it takes to consolidate a pool of qualified suppliers. When companies fragment their business volumes across too many suppliers, it can often result in a logistical, pricing and handling and freight cost nightmare. Hence, a consolidated supply chain is key for thriving businesses to succeed.