4 Major Benefits of Supplier Consolidation
When it comes to the number of suppliers you do business with, the formula is considered to be “20 percent of your suppliers account for 80 percent of your spend” for direct costs. However, when it comes to indirect spend, the opposite is often true; 80 percent of your suppliers account for only 20 percent of your spend. While you may agree that this statement is generally true, the infrequency of supplier reviews and fluid economic conditions often escape managers until obvious performance issues surface. Figuring out how to identify suppliers that best fit your evolving business and consolidate suppliers is an extremely important task. I’d like to share this blog that first appeared on the Source One Management website. Source One is a Corcentric company.
Organizations with facilities spread out across the country often struggle with the concept and/or execution of supplier consolidation. In many instances, facilities are utilizing identical items at multiple locations while purchasing them from different sources. Left unaddressed, this lack of cohesion and standardization often creates a negative impact on the bottom line. The four points below will help highlight the benefits of supplier consolidation from both a monetary and operational standpoint:
1. Savings Opportunity
The value of savings found within supplier consolidation cannot be stressed enough, especially for companies with a large footprint across the USA. Let your data do the negotiating for you here – presenting a potential sole supplier with information highlighting your overall company-wide usage from both a quantity and spend standpoint will pave the way for deep category discounts and rebates. Use this information to your advantage to help secure the best deal possible!
2. Ad-Hoc Spend Control
In today’s world of Amazon Prime and “same-day delivery,” many employees at the plant level tend to search Google for their needs and make purchases with their corporate card. Once again, this can prove costly if left unaddressed. Consider on-boarding a supplier capable of implementing a punch-out system. This will restrict facility purchasing to pre-approved sources and help control rogue spend. In addition, each time an order is placed with your pre-approved supplier, that additional spend contributes to the rebate savings referenced earlier.
3. Consistent Pricing
Many variables influence how items are priced by suppliers. Consolidating spend to one supplier within a set category helps limit these through leverage gained via negotiations. Most importantly, the utilization of one supplier will now eliminate pricing inconsistencies within your organization when the same items are purchased from different suppliers. Additionally, this price will be competitive in terms of savings due to the additional category discounts built within the supplier contract.
4. Centralized Account Management
Supplier consolidation creates a positive ripple effect with benefits well beyond cost savings. Other departments within your organization – from Accounting to safety officers and plant managers – will benefit greatly from this decision. Accounting will now work with one central group for invoice reconciliation between all locations, as opposed to numerous, disparate suppliers. At the local level, safety officers and plant managers can work together with a sole supplier to create company-wide safety and fulfillment initiatives for all facilities to follow. What’s more, the high spend being funneled to the supplier will create greater visibility which will lead to dedicated account managers assigned to your organization to assist with tracking and reporting.
Change from incumbent local suppliers to new sources can be intimidating. But if executed properly, implementation and compliance across all facilities can be quite manageable. Properly vetting a supplier with an account management team capable of properly servicing each facility is vital for the success of this initiative. Secondly, buy-in at each local facility is important for overall long-term sustainability. This will mean maintaining consistent, clear communication. With the right amount of effort, you’ll succeed in building a strong relationship with a capable supplier. Ultimately, the benefits produced through this initiative will be far greater than improvements to your organization’s bottom line.
See how Corcentric can help you optimize your indirect spend.