When you are looking at your supply chain, there are often ways to streamline, and one of those is vendor consolidation or vendor reduction.
At Delta Impact, we offer vendor tail management in order to help OEMs and CEMs run their businesses to their full potential. Therefore, we wanted to share with you some of the key benefits of vendor consolidation.
Reduced material costs
The first and possibly most significant thing to mention is that well-executed vendor consolidation can reduce the material costs of your business. We find that many OEMs and CEMs focus on managing the highest proportion of their spend, whereas in fact it can be worth looking at ‘vendor tail management’ when it comes to consolidation.
This is where you can make significant savings, by cutting the smaller costs from the large number of suppliers you currently engage. Most companies find that reducing your supplier base will increase your purchasing power with the suppliers you maintain and therefore you can receive better costs.
Reduce administration and associated costs
Administration takes up both time and money, but vendor consolidation can significantly reduce internal administration processes. Typically, the more suppliers or vendors you have, the more administrative work will be involved for each, whether that’s related to inputting information on internal systems, making transactions or other communications involved in maintaining the relationship.
Improve risk management
Another thing to keep in mind when it comes to the benefits of vendor consolidation is risk management. You won’t be surprised to hear that risk can significantly increase when you have a large number of suppliers. Not only is it hard to keep track of each individual supplier, there are also more places in the supply chain where you are vulnerable to things going wrong. While it’s important to be flexible, having fewer suppliers means that you can build a stronger relationship with each one, working together on strategy and forecasting as well as just supply.
Increased supply chain visibility
On a related note, another important benefit of vendor consolidation is that you can improve your supply chain visibility, and this is very important when it comes to risk management. When you come to map out your supply chain, it is much harder to understand when it is overly complicated due to a large number of suppliers, as you may not always know who their suppliers are and so on.
With fewer suppliers, you can clearly track every stage of the supply chain, as well as having protocols in place for if anything goes wrong.
Related article: The Importance of Supply Chain Risk Management
Improve supplier relationships
That brings us to our final point – another major benefit of vendor tail management is the improvement in supplier relationships. Cutting down on your suppliers will inevitably lead you to create stronger, strategic partnerships with those you keep.
You’ll have a better understanding of how they do business, their quality control, where they get materials from and so on, so that everything is clear and trackable. Plus, you are far more likely to get a better level of service when you invest more time into just a handful of suppliers, rather than using a great many.
We hope you have found this article on the benefits of vendor consolidation and tail reduction useful. For more information, you can view our supply chain solutions or get in touch if you have any further details.