The Six Major Risks and Benefits of Supplier Consolidation

The Six Major Risks and Benefits of Supplier Consolidation

The challenges and issues businesses face today managing their supplier base can amount to an increase in time, effort and workload to ensure these relationships are maintained and built upon in order to get the best possible value and service.

We all know companies have limited resources and must set their priorities, however we can forget how costly and distracting it is to develop new supplier partnerships – taking time away from focusing on the core requirements of your business.

Consolidate or not to consolidate? That is the question…

Consolidating your supplier base can be a very worthwhile objective and could provide your business with increased service & quality levels, while reducing procurement and operating expenses as well as soft costs.

As with many things in business, there are risks as well as benefits to supplier consolidation:

Risks of Supplier Consolidation

  • Supplier Inflexibility – when working with large suppliers you risk losing the personal touch that comes from partnering with a smaller business. Ensure you get commitment from your suppliers that they will be responsive, flexible, and go the extra mile to deliver on your business requirements.
  • No such thing as a ‘One-Stop-Shop’ – in some cases, it is very difficult to find a single supplier who can meet all of your requirements. Often, suppliers will outsource to third-parties.  Be sure to ask if all jobs will be done in-house, to minimise incurring any third-party costs.
  • Vendor Lock-in – be aware of the pitfalls of vendor lock-in. Typically this occurs with technology suppliers where organisations are unable to use another supplier without substantial switching costs.

Benefits of Supplier Consolidation

  • Reduced Costs – By dealing with fewer suppliers, the billing process will be clearer, the control and visibility over your company’s purchasing will be increased and orders will be easier to manage and track;  resulting in less time and administration dealing with multiple orders, deliveries and invoices – leaving your team to focus on your business.
  • Increased Service & Support – Consolidating your products and services with a single source supplier will result in better relationships and improved service levels, as the supplier will deem your account to be more strategic to them.
  • Improved Quality – once you have streamlined your supplier base and sent your business to a single supplier, they will likely improve quality to minimise the risk of losing your business.

The main challenge when consolidating suppliers is to find one that will offer all the solutions your business requires. This can be difficult, as many suppliers specialise in only a narrow group of solutions. It can be challenging to find a supplier with a strong depth and breadth of products and services.

Another challenge is ensuring the supplier is both reliable and respected. If the supplier is not able to commit to and deliver on its promises, your business won’t have another set of products or services to fall back on. For this reason it is crucial that research is undertaken before selecting a supplier with which to consolidate.

Still considering a consolidation of your supplier base?

Here are five key things to think about before you make your decision:

  1. Soft Costs – hard costs are easier to measure as they are direct costs we can put a price tag on. Soft costs are always intangible, making it more difficult to predict and measure the impact these have on your business. Do consider the cost efficiency associated with paying fewer bills through accounting, managing fewer vendors for inventory and purchasing, and amalgamating purchase history information through a select number of suppliers.
  2. Product Capability – be sure to research your suppliers thoroughly and obtain the widest possible product and service offering from a single source. Ensure the supplier you choose has expertise and knowledge in each area of supply.
  3. Proven Ability – Look for suppliers who service customers in similar industry sectors to your business. A reliable and respected supplier will make all the difference. Don’t be afraid to ask for references and case studies to help make your decision.
  4. Control & Visibility – Does your business struggle to maintain visibility over expenditure due to multiple suppliers? A single-source supplier will be able to help you monitor product usage and suggest ways to reduce costs across your business.
  5. Service & Delivery – The key to consolidation is ensuring the service levels you receive are second to none. It doesn’t matter how wide a product range is if the product is out of stock or the supplier fails to deliver on time.  Look for a supplier with logistics and warehousing capabilities that reflect the needs of your business.

Contact us today if you would like to know more about how we can help with consolidating your supplier base.