Is your procurement organization becoming overwhelmed by the amount of vendors it deals with? Is it becoming harder to manage your vendor relationships? Does your Procurement Department fail to understand the benefits of vendor consolidation?
It’s a common problem.
It’s something many companies deal with, and it can be quite frustrating. Having to juggle so many different vendors can be a time-consuming challenge for any procurement organization.
Because of this, it becomes harder for the procurement organization to be as effective as it could be. On top of that, they aren’t confident that they are getting the best rates for their company.
Then, they discover the benefits of vendor consolidation.
They learn how limiting the number of vendors their company works with can make procurement much easier for them. They put it into action and begin to see great results. It becomes easier to manage their vendor relationships. They start saving more money.
This post will discuss what vendor consolidation is and why your Procurement Organization should consider implementing it.
What Is Vendor Consolidation?
Vendor consolidation is a procurement practice that involves lowering the number of vendors your company buys from. Instead of spreading out your spend across a large amount of vendors, you focus your spend on a limited number of select vendors.
Part of the process is identifying which supplier relationships are the most profitable for your company. The other part is eliminating the supplier relationships your company no longer needs. This isn’t an easy process, but the benefits it can provide for your organization are well worth it.
The Benefits Of Vendor Consolidation
When your Procurement Department figures out how to consolidate its vendors, you will discover how much more effective your team can be. Not only that, you will be able to see how much money your organization can save.
Read on to find out how vendor consolidation can help your company.
Increased Purchasing Power
One of the main benefits of vendor consolidation s is increased buying power. When you cut down the number of vendors your company deals with, it frees up more dollars to use with the remaining vendors.
This means you’re able to place order with a higher volume, which means your vendor will be more willing to lower your pricing. This is something that can save your organization a lot of money in the long run.
Easier Vendor Management
Less vendors means less relationships to manage. Captain Obvious couldn’t have said it better himself. When you manage less relationships, you can use the extra time to make your team more effective.
Managing tons of vendor relationships is one of the things that can make procurement difficult. By consolidating vendors, you dramatically reduce the impact this problem can have. What’s great about this is the fact that your team will have more time to spend on other important tasks and projects. Vendor management can help you create a more productive team.
Lower Freight Costs
Vendor consolidation will also lower your freight costs. As you probably know, each supplier you work with has their own freight costs. They charge a certain amount to transport the product to your offices.
This is another area where your company can save a lot of money. Less vendors means less money paid for freight costs. Sometimes, this fact alone can make vendor consolidation worth it.
Better Relationships With Vendors
One of the drawbacks to having a large number of vendors is that it makes it more difficult to nurture profitable vendor relationships. Managing that many relationships means that your organization isn’t able to invest as much in each relationship.
Most procurement managers would agree that having better relationships with vendors is beneficial to the larger organization. However, the more vendors you have, the harder it is to nurture these relationships.
When you lessen the amount of vendors that your company works with, it becomes easier to cultivate better vendor relationships. Since your team won’t be occupied with juggling a lot of vendor relationships, they will have more time to deepen the connection your company has with its suppliers.
Not only that, less vendors means more spending power. Since you’re now spending more money with your chosen vendors, they will value your relationship even more.
Consolidating your vendors isn’t an easy task. It requires much time and effort. However, the benefits your company will be able to take advantage of are well worth the work involved.
Start identifying the vendor relationships you can afford to let go. Also, figure out which vendors provide the most value. Doing this will help you ensure that your procurement organization is making the most of its vendor relationships.