Procurement professionals continue to stare down a litany of challenges. They are expected to deliver more value with fewer resources at their disposal. In the intricate dynamics of supply chain management, every cent counts. The traditional cost-cutting blueprint for supply chain success is no longer sufficient.
The old playbook must be rewritten for supply chain professionals to build an ecosystem where high performance becomes the default setting, steering supply chains toward unprecedented efficiencies. This will ensure that supply chains are not only truly future-ready but purpose-ready.
Mature procurement leadership excel at getting fundamentals right. Supplier consolidation is one of those fundamentals. Supplier consolidation as a strategy is slowly gaining popularity among supply chain professionals across the industry divide, and for good reason.
It creates a positive ripple effect with benefits well beyond cost savings. As the organisation’s vendor lists shrinks, supply chains will begin to experience lower costs, stronger negotiating power and improved efficiency across the supply chain network.
For most supply chain professionals, the greatest challenge has always been managing the “invisible cost” of too many suppliers. Drawing from both research and lived experience, vendor consolidation strategies focus on building stronger business relationships with a core group of reliable, high performing and cost-effective supply chain partners.
Supplier consolidation is about strengthening the purchasing power of the business. It is about getting rid of unnecessary complexity and building the foundation for responsible and efficient growth. Elite performance is built on a bedrock of a robust supplier consolidation framework. It is the foundation that holds everything else together.
Vendor consolidation is therefore one of the most powerful performance multipliers any organisation can harness. For procurement professionals, extreme responsiveness has become a proxy for competence, becoming a strategic anchor for the business.
A carefully selected few suppliers will provide supply chain efficiencies even when the business environment is in flux. Fewer and laser focussed suppliers work best in an operating environment defined by perpetual flux.
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The reliance on too many suppliers can result in duplicated spending and significantly high growing tail spend management. The processing of a single purchase order for the purchase of ten items is significantly cheaper than processing ten separate orders that are placed with ten separate suppliers.
With supplier consolidation, fewer suppliers will mean that there will be fewer shipments to receive, fewer fees to settle, less paperwork to process, and less manpower will be required to manage supply chain processes.
The reduction of the number of suppliers will also mean that there will be fewer potential points of failure in the supply chain, decreasing the likelihood of supply chain disruptions.
Supply chain professionals will be in a better position to eliminate the administrative burden associated with managing multiple supplier relationships, such as order processing, and invoice reconciliation.
The more suppliers an organisation work with, the more moving parts they will require to track, and the risks thereof are likely to multiply.
The management of vendor relationships can be a serious challenge when there are too many suppliers to count. It will drown supply chain professionals in paperwork and administrative tasks.
The use of many suppliers can quickly result in a tangled mess of too many purchase orders and too many contracts exchanging hands. The automation of the procurement processes becomes more feasible with a limited number of manageable vendors which can result in improved operational efficiency.
The supplier consolidation process has the potential of reducing the number of contact points in the supply chain ecosystem. With a fewer number of suppliers to manage, there is a reduction in supplier interactions, providing administrative relief in the process.
Vendor consolidation processes will also assist supply chain professionals to understand in greater detail their spending patterns while at the same time assisting in the identification of cost saving opportunities.
This will certainly reduce the number of human touchpoints required to manage the supply chain.
The additional point of contact comes with added responsibility for oversight, which may in turn create room for vulnerability and inefficiencies in the supply chain network.
Dealing with a consolidated supplier base will improve data quality and transparency in procurement. This allows supply chain professionals to conduct more accurate spend analysis.
With fewer data points to analyse, procurement professionals will be able to make faster and more informed decisions. Procurement leaders can use this improved visibility to come up with informed data driven decisions.
Where there is centralisation of procurement reports, one universal dashboard with full visibility will become a common feature. As business relationships develop, vendors will gain clearer visibility of the organisation’s priority needs.
If any procurement issue arises, supply chain professionals are bound to hear about it right away rather than having to dig through a pile of supplier communications.
Whenever preferred suppliers’ lists expand without structure, visibility will become a challenge while supplier relationship management becomes even harder to sustain over time. Managing too many suppliers often leads to hidden costs, missed contract renewals and many hours lost in manual follow ups.
The establishment of supplier partnerships will promote better communication, faster problem solving opportunities and joint cost reduction initiatives for the benefit of the supply chain ecosystem.
Supplier consolidation initiatives will concentrate on building stronger business relationships with a select few suppliers.
Collaboration initiatives will result in fewer misunderstandings between supply chain partners. Suppliers are more willing to work with customers who represent a large portion of their market share.
These kinds of business relationships will often result in highly-improved service levels and the high possibility of joint problem solving platforms. Suppliers are always willing and able to offer lower unit costs in exchange for a larger share of business, creating a win win situation for all supply chain partners.
It is common practice that suppliers and contractors will become more engaged and more responsive when they are treated as long term valued partners rather than being treated as one off transactional partners.
Supplier consolidation will also simplify operations and create a more cohesive workflow that enhances collaboration across teams. Such collaborative initiatives will assist in the reduction of product variability and the improvement of quality control for the benefit of customers. It will allow the opening of doors for co-innovation opportunities.
Partner collaboration will result in the development of faster innovation cycles and improved product quality. Supplier consolidation strategies will also enable the organisation to be more flexible and respond quickly to changes in the business environment. It will enable organisations to scale their operations up or down, depending on demand.
Whenever supply chain professionals consolidate suppliers, they will be ordering more items — and ordering them more often from a select few suppliers. The select few suppliers will essentially become like an extension of your organisation with the added advantage of getting to know their people almost as well as you do your own.
Working closely with fewer suppliers fosters deeper business relationships built on trust, collaboration and innovation, creating the potential for joint cost reduction initiatives.
Suppliers are more likely to offer better service and customised business solutions coupled with preferential pricing to those organisations that have demonstrated loyalty over a protracted period.
There is need to work in lockstep with other supply chain partners promoting close knit relationships. It will create a moment of genuine collaboration in a world that feels increasingly fractured.
Collaboration has become a form of capital. It will allow procurement professionals to overly focus on high-value partnerships with key vendors.
The heavy reliance on too many suppliers will result in the variation of material finishes and or dimensional tolerances.
Supplier consolidation processes can be relied upon to reduce variability in the supply chain while ensuring there is consistent quality of materials and timeous production timelines. It helps to standardise quality expectations. It will stabilise quality control across the assembly line.
Working with a select group of trusted suppliers will therefore enable supply chain professionals to implement stricter quality control measures. It will give organisations the opportunity to establish standardised production requirements, leading to the enforcement of regulatory quality requirements.
This will result in product consistency and reliability improvement while reducing the risk of defects, returns and costs associated with rework.
This will also enable supply chain professionals to identify and to possibly address quality related challenges quickly before they develop into bottlenecks.
It is common knowledge that every vendor introduces potential risks in the supply chain — it could be financial risks, or operational risks and or cyber-security related risks.
The establishment of a consolidated supply base allows for deeper visibility into the supply chain, enabling proactive risk identification and management.
Supplier consolidation initiatives will assist procurement professionals to mitigate supply chain risks by carefully selecting to work with financially stable and high performing supply chain partners.
It will make it easier for procurement professionals to establish a robust business continuity system and risk mitigation framework, bringing business solutions that are more tailored to the specific needs of the business community. It is much simpler to identify potential pain points.
Supplier consolidation will also make it easier for organisations to comply with rules, regulations and industry standards. The use of fewer vendors will also mean fewer audits, easier tracking of industry certifications as well as more effective implementation of sustainability and ethical sourcing initiatives.
With fewer vendors to manage, organisations will find it easier to stay audit-ready, ensuring that contract compliance is observed at all material times. Suppliers will know that they are being watched closely.
Whenever supplier bloat grows in an organisation, the efficiency levels will go down, the regulatory compliance framework will face significant challenges.
Visibility in operational activities will slip through the cracks and supplier management becomes more complex than is necessary. But with supplier consolidation, it is possible to build the foundation for tomorrow’s opportunities before the market tells you it’s time.
Nyika is a Supply Chain practitioner based in Harare, Zimbabwe. — [email protected]
