What is Vendor Consolidation?
Let us try to understand Vendor consolidation in simple terms apart from jargon of technical terms. In simple common terms Vendor Consolidation means reducing the size of your business Vendor’s groups. For now, let’s assume you are supplying 10 different products from 20 different locations, there would be multiple orders for similar products from multiple suppliers. Vendor consolidation aims to reduce these group of 20 suppliers minimizing to practical possible size for business.
The immediate next question that often crosses our mind is, would that be a good choice? Will my firm benefit from it? Keeping things simple the answer to both of those questions is “YES”. Vendor consolidation is a scientific “Supply chain management strategy”, it aims to make positive impact on supply chain management. There are studies and reports confirming to the fact that vendor consolidation works wonders for business. Thought there are many benefits of the concept, the key area it receives major benefits is inbound freight management. Shipping large volumes of freight from fewer suppliers is more cost effective than receiving multiple shipments from multiple suppliers.
Benefits of Vendor Consolidation
- Positive impact on company’s Bottom Line
The bottom line of a company includes back-office management costs, operational costs and freight management. As the group of vendors decrease these costs also steep down. The business operations get smoother and usual hassles to manage a large vendor group also goes down. It can help reduce the Human resource requirements to an extent.
- Cost Effective
As the size of vendors decrease through vendor consolidation, there are larger shipments moving from one location to other. This helps in saving on the costs of shipment as bulk discounts can be availed and the costs of multiple shipments for small sizes from multiple locations gets reduced. Processing bulks has always been a key strategy for good freight management and Supplier Consolidation performs exactly to the same.
- Improved Company-Vendor Relationships
Managing multiple vendors cannot be an easy task for the company. Let’s admit it the sales staff at the bottom line is not equipped with efficient client dealing skills. Additionally, if this client base is large, it may create even ugly scenario. If business somehow manages to shorten this group, there would be recurring transactions in bulk from fewer client base. This would strengthen relationship with clients. The simple rule of dealing with same person multiple times develops a repo applies here.
- Less Cluttered Business Operations
Once the bottom-line operations works smoother, there is lesser requirement to manage the issues of the bottom line. On average, the number of issues faced by bottom line with large vendor group are significantly reduced through vendor consolidation. This is a boon in itself, with such positive change on bottom line the head comprising of management and productions can now focus on important business activity. Their focus can shift to key productivity areas helping business perform better.
Thus, Vendor Consolidation has gained momentum these days and businesses are now able to recognize its benefits. This supply chain management strategy would lead to multiple benefits for your business. The key challenging factor though at times can be how to proceed with it? It can be overwhelming for businesses to start the process in itself. We would like to add something here, Vendor Consolidation is not something business should fear about. Instead, as per studies and practical reports companies have benefitted immensely with it.
Vendor Consolidation Process
Vendor consolidation is one thing that is easier said than done. In spite of knowing the benefits of it companies refrain to implement it for multiple reasons.
The idea is simple: reduce the number of providers you work with to those that are most effective, and create a smaller, more efficient supply chain.
But what is the right way to implement it? Here we have briefly discussed the process to understand Vendor consolidation in a better way.
- Determine Present Scenario
The present scenario of bottom line must be first reviewed before proceeding with any changes to it. What is the current vendor situation? Are there too many vendors for similar products? Is there scope for vendor reduction? Will the business functions be as efficient after consolidation? Would the business operations work better or not geographically on orders after consolidation? These and other similar questions must be thought about. It is important to understand the current scenario prior to proceeding with anything else.
- Availing Stakeholders Opinions
Stakeholders group opinions are the key to these decisions. Multiple stakeholders like IT, Human resource department, legal departments, bottom line executives can share most critical details that might get missed at times. Opinions of these groups can be vital towards the further steps. If these groups are interpreted lightly, then it might create implementing issues. Justified weightage to their opinions should be given.
- Set Target and Goals as per Situation
Once the above two steps are completed the main aspect of vendor consolidation process is to determine the goals. Once the present situation is understood it becomes easy to proceed further. It is important to set the goals at this stage. This step includes determining delivery based on geographical locations of vendors. The business operations must be as effective with consolidation or there should be minimum effect to product delivery. Setting the metrics multiple times and analyzing multiple aspects of each can help determine goals. Goals should not be set enthusiastically, there are scopes of errors if done so. Whatever is practically right choice for business must be sticked through.
- Categorize current Vendor list
Categorizing present vendor list in multiple categories such as Underperforming, High Performing, and Low performing can be a better approach. This can help one understand statistics of the business. Vendor list categorization can become a key aspect to consolidation.
- Select Vendors for Supply Chain
Business supply chain is a critical choice for any business. Once all the above steps are successfully accomplished, it can be now easy to make choices between different vendors. Based on their performances and the present goals of business this decision can be made. It is also possible to compare between different vendor options at this stage. The best vendors based on multiple aspects should be opted for.
Thus, these were the major aspects of vendor consolidation process. Opinions from experts can be taken at multiple steps. Additionally, there are experts to deal with the task for your company. If somehow vendor consolidation can become overwhelming for business, experts help would work wonders. Experts like Induskart can help with Vendor consolidation process. To know more about services, you can contact us. Our team of experts would get in touch and help you with this enormous and crucial task.