Relying on a one-stop shop

How supplier consolidation streamlines administration and reduces costs.

Supply chain management can be tricky. Finding suppliers that understand your business and will deliver the products you need on time and at the right price can be a challenge. That’s why many organisations stick with the same vendor once they’ve found them, seeing no real reason to change.

But business is rarely static. As your organisation grows and requirements shift over time, supplier numbers often increase, which complicates the purchasing process, adds layers of unnecessary administrative burden and can easily escalate costs. This is especially true of companies with more than one location.

For businesses looking to improve efficiency and save money, it makes sense to periodically take stock of your current procurement methods, including analysis of existing suppliers and the products they offer. Consolidating the number of suppliers your organisation buys from is a simple and effective way to streamline internal processes and realise immediate savings.

Understand your current situation

You can’t make improvements if you don’t have a benchmark. The first objective is to understand the status quo — the companies you are buying from, the products you are purchasing and the average spend across a given time period. The longer that period, the more accurate the picture, though you can probably make certain assumptions based on an annual timeframe.

Take into account key factors like minimum order quantities, order lead times and creditor payment terms so you can easily compare alternatives when it comes to making a decision. Don’t forget to assess performance — this means everything from firm KPIs (like on time delivery) through to softer considerations, such as the ease of your relationship with the supplier sales team and the level of reliable and responsive service.

The idea is to consider all aspects of the arrangement to better understand the true overall value. Paying a dollar less per widget may seem like a bargain compared with other alternatives, but not if the supplier you’ve opted to use regularly misses delivery times, gets your order wrong or wastes hours of your procurement team’s time with unreasonably long sales visits.

Identify potential consolidation opportunities

Food processing is an intricate business, requiring inputs and products from a broad range of categories to keep the wheels turning. In the face of that complexity, many companies stick with what they know — ordering consumables from one vendor, chemicals from another, coloured brushware from a third and metal detectable items from a dedicated food contact specialist supplier.

Just because ‘it’s always been that way’, doesn’t mean it has to stay that way. Double check that the full breadth of each of your supplier’s product portfolios is clear to you. Some vendors add product extensions or entire new product lines without any fanfare, meaning the opportunity to consolidate suppliers and save could go unnoticed.

Analyse the impact

Once you’ve got a clear snapshot of what you are buying, from where, how often and for how much, you can start to assess the likely outcomes of supplier consolidation or rationalisation.

Think about all the internal activities that surround a single purchase:

• Procurement team: sourcing activities including product research and assessment; contract negotiation; taking site visits, phone calls and emails from supplier sales reps; monitoring supplier performance and conducting regular reviews; and ensuring adherence to business requirements, like quality systems and any other industry regulations and certifications or standards requirements.
• Accounts team: supplier invoice coding, verification, reconciliation and approval; maintaining supplier records; payment processing and remittance notification; liaising with supplier accounts departments.
• Logistics and warehousing: receiving and unloading stock; counting and confirming inventory; storing and filing stock items.

Consolidating suppliers and purchasing multiple products from a single vendor will have a measurable impact on those internal activities — particularly in the case of procurement and accounting tasks.

Again, using the food processing example, moving to a single supplier solution for four disparate products could effectively reduce the procurement and account administration burden in this scenario to one quarter of the time — when compared with the previous multi-vendor purchasing approach.

The cost of being uncompetitive

Inefficiency in business costs everyone — your suppliers, your customers and your own people. Developing more cost-effective purchasing processes is often the first step in helping identify larger problem areas. Reducing administrative burden opens the door to reskilling and redeploying your team into other areas where they can be better utilised and find further efficiencies.

Having a reliable supply chain also helps you meet the demands of your own customers, knowing you can meet promised delivery times and supply the quality products they need.

With less complexity, you also gain greater visibility — giving you confidence in projections, forecasts and other KPIs used to drive the business — and ensuring that required policies, procedures and processes are being followed across the entire supply chain.

Not a one-off activity

In any industry sector, finding a supplier that works hard to be ‘easy to deal with’ is the first step. Look for partners that can offer responsive and reliable supply of the goods and services that are essential to your business.

Supplier review and assessment should be an ongoing activity for any organisation, as the needs of your business will change over time. In industries such as food processing, where easy ordering, coupled with fast, reliable and accurate delivery is essential to timely production, supplier consolidation just makes good business sense.

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