Five supplier consolidation benefits for supply chain
Strengthen and streamline your supply chain by minimizing your suppliers.Supply chains tend to grow rapidly. Before long, a single company has an unmanageable number of suppliers, all of which require time and resources from supply chain management team members. It’s a common, yet costly, mess that adds up in your total acquisition costs. So how do you get out of it?
Supplier consolidation is the process of reducing suppliers. It is a supply chain management strategy that can be implemented within any industry and aims to reduce the quantity of vendors. For your business, that can mean reducing suppliers down to a few partners (or one single partner), depending on your organizational needs. As an example, instead of sourcing 500 units of a part or product from 10 or 20 vendors, the same products or parts can be sourced from 1 to 3 suppliers.
Why are companies consolidating suppliers?
Initially, as you are starting out with a small- to medium-sized business, you may not see all the benefits of supplier consolidation or feel as though it’s a major priority for your business. This can be misleading because as your business grows, so will the demand for your products, likely leading to an increased number of vendors to deal with if you don’t have a strategy. Before you know it, the complexity and cost of your supply chain has increased dramatically, eating into your competitive advantage.
But, by working with a strategic supply chain management partner, you can consolidate your suppliers and protect your business. As the global economy grows increasingly interconnected, any major disruption can lead to risk and uncertainty for your business. An example of such a disruption is the COVID-19 pandemic, which emphasized the importance and benefits of supplier consolidation. Restrictions and regulations caused by such an event can negatively impact businesses that rely on multiple suppliers.
When an organization has too many suppliers, that translates to more routes, shipments, and so on. It can quicky become overwhelming to manage your supply chain efficiently. The price and complexity of allowing your supply chain to grow without a disciplined approach to vendor management greatly outweighs the time it takes to consolidate a group of suppliers.
Supply chain expansion leads to losses, higher costs, wasted time, and mismanagement. For many businesses, it makes more sense to consolidate their vendors and suppliers. Many organizations struggle taking the first steps to reduce their suppliers. Now, more than ever, is the time to thin out your supply chain. An ineffective supplier consolidation strategy can limit the benefits and cause potential unseen risks. Vendor consolidation is an influential and strategic step for your organization if it’s done the right way.
Supplier consolidation benefits
1. Increase purchasing power
The term “more for less” comes into play. When you deal with a single strategic vendor, you’re able to stretch your dollar further. Consolidation leads to fewer suppliers, who each get a larger piece of your market share, which results in lower prices for your business and increases your purchasing power. Also, there are lower transactional costs when you are dealing with fewer suppliers.
2. Minimize risk
Rather than spending time dealing with various suppliers, supplier consolidation benefits include reducing risk to your company by reducing the number of contact points, as well as improving your supply chain visibility. Visibility is a key factor to reduce risk in your supply chain. Rather than mapping out an overly complicated supply chain with multiple suppliers, fewer suppliers can create a clear track throughout each stage of the process, making it much simpler to manage. When you have fewer players, it’s easier to control and manage your supply chain, which reduces risk.
3. Streamline processes
A streamlined process for your supply chain includes fewer errors and delays. The processes used within your business should cut out inefficient tasks, save time, and increase productivity. A single-source supplier will assist you to monitor product usage and suggest ways to reduce costs across your business. Overall, supplier consolidation leads to higher procurement process efficiency. Streamlining also plays into reducing risk across the entire span of the supply network.
4. Reduce costs
Complexity can cost you money. When you spend less of your day with vendor meetings, phone calls, paperwork, and legal contracts, you save time and money. Handling and transportation fees can also go down when you are working with fewer suppliers.
With supplier consolidation, you can reduce the number of middlemen needed throughout the process. Cost savings also come from internal employees who can shift their focus to more important tasks within the business, rather than dealing a vast network of suppliers.
5. Improve supplier relationships
Relationships are key to business, and maintaining good relationships should be high on your priority list—particularly with your suppliers. When you are working with multiple suppliers, you lose the personal aspect that comes with partnering with a few valued suppliers. You can develop closer, stronger relationships that you don’t have the time for when juggling numerous suppliers.
The key to consolidation is guaranteeing the service you receive is second-to-none. It doesn’t matter how varied a product choice is if the product is out of stock or the supplier doesn’t deliver within your time constraints. Look for a supplier with logistics and warehousing capabilities that meet or exceed the needs of your business.
Superior supply chains aren’t just rapid and cost-effective; they're agile and adapt with the times. If you need a trusted partner to help your business trim down its number of suppliers, you can turn to Nelson Miller Group. NMG provides comprehensive end-to-end supply chain services, helping manufacturers reduce risk, lower costs, and improve customer relationships.
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NMG has more than 85 years of experience partnering with organizations to bring their industrial, IoT, lighting, medical, telecommunications, consumer, and aerospace products to life. We solve your most complex challenges in engineering design, manufacturing, and supply chain management.
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