If you haven’t heard about vendor consolidation, sometimes called supplier consolidation, picture this: A company decides to outsource some of its business operations to a vendor. Most likely, they outsource the services that they’re less familiar or comfortable with so they can keep their focus on their core competencies. It’s a time-tested strategy designed to save money and improve efficiency.
But, as the business grows and new services and capabilities are needed, they bring in another vendor, then another. Before the business owner knows it, they’re surrounded by a sea of vendors who each tackle one aspect of the business’s operations. And, as it turns out, they’re spending nearly as much time, money, and manpower on vendor management as they would on simply building those business capabilities in house — and that’s exactly what they were trying to avoid.
This scenario is where the idea of vendor consolidation was born.
With vendor consolidation, businesses seek to reduce the number of vendors they partner with to maximize profitability and mitigate unnecessary time spent managing partnerships.
With this strategy, instead of choosing to spread their resources across a wide array of vendors, they focus their resources on a small group of well-trusted vendors, or in a perfect world, a single trusted partner that can help tackle all their business needs.
Vendor consolidation offers a wide range of benefits to businesses that have a large collection of outsourced services, but these four top that list every time:
1. Cost Savings
The big idea behind vendor consolidation is pretty simple: use less resources to achieve the same or greater results. The primary key to making this strategy work is finding one or a few trusted partners that can handle the many pieces of your business that need to be outsourced.
By consolidating, you’ll have more purchasing power to place higher volume orders. This can lead to better pricing, lower freight expenses, fewer transactional costs, and an overall increase in your business’s purchasing power.
2. Time Savings
Fewer vendors means far less vendor management, which can be a huge strain on your staff’s time. And, with less time spent on managing a whole fleet of vendors, your employees can turn their focus towards more lucrative business functions.
Fewer vendors also leads to reduced training times for new employees, fewer meetings and paperwork, and less time spent ensuring that all of the many puzzle pieces are working together properly.
3. Simpler Processes
Partnering with just one business, or even a small group of vendors, also means fewer processes and interfaces that each employee will have to be trained on and familiar with. For instance, if your business has ten vendors, multiple employees will need to be familiar with each partner’s processes and programs in case that vendor’s usual manager is sick, on vacation, or out of the office.
Relying on too many vendors can be risky, since there may only be a few people within the company capable of managing each partnership. By consolidating, you can rest easy knowing that each employee is comfortable with managing your vendor relationships.
4. Stronger Partnerships
One of the greatest benefits of consolidating your vendors is the ability to build longer-lasting, more robust partnerships with businesses that you truly trust. After all, as your business utilizes more and more vendors, your ability to nurture each relationship diminishes in equal measure. By relying on a select few vendors for your entire operational needs, you’ll be able to build reciprocal trust with each partner in an entirely new way. These are the types of connections that help drive both businesses into the future without the fear of either partner suddenly changing direction or seeking new opportunities. In essence, it mitigates risk and promotes longevity for both businesses.
The list of vendor consolidation benefits is expansive, but the overall message is clear — fewer vendors can lead to greater purchasing power, more control, and less risk.
If your business currently employs a sizeable collection of vendors, consider seeking a single trusted partner who can take on all those responsibilities. You might be surprised by how efficient and effective a single vendor partnership can be.