December 2018

A Simple Way to Save Money and Time: Consolidate Vendors (Here's How!)

3 minute read

Is your business constantly seeking opportunities to conserve resources—both money and staff time? For almost any business, the answer is yes, and yet one place you might not have thought to look is your vendor roster.

The Hackett Group estimates it can cost anywhere from $918 to $1,835 CAD 1 in internal costs to manage each individual supplier. If executed smartly, consolidating vendors can save time and money, two resources no business ever has enough of. Bulk pricing and other economies of scale, such as consolidated shipping charges, can help decrease your costs; and fewer vendors means fewer systems to learn and less bookkeeping, invoice tracking, troubleshooting and relationship building.

Convinced that fewer, deeper supplier relationships will increase your efficiency? Here are three steps to start the process.

1. Identify your needs and the resulting overlap.

Make a list of all your current suppliers and see which categories are most conducive for consolidation. For example, can the company that supplies your office products also provide printing or IT services? If you're a retail store, could you focus on fewer brands and still maintain sufficient quality and selection? Would one telecom vendor eliminate overspending on duplicate services?

2. Rate existing suppliers on vital qualities.

Typically, you will end up offering additional business to a supplier with whom you already have a relationship—rather than seeking a new partner—which means you can readily rate them on important criteria. According to the Canada Business Network2, some of the qualities you should consider when evaluating vendors are reliability, quality, value for price, their ability to offer strong service, clear communication, financial security, and finally, dedication to a partnership approach.

If you have several vendors in mind that could vie for similar services, create a chart to rate them against one another. Be sure to seek input from others in the company, as they might know a facet of the particular vendor that you don't.

3. Request a proposal for additional services.

Ideally, your vendors will be delighted at the invitation to pitch as part of a more select group of suppliers, thus earning the right to increase their sales—and scale—with your company. Explain what you're looking for and seek a proposal, then review it to find where you can find additional efficiencies or improve terms like shipping or rush fees. And make sure to negotiate favorable payment terms—whether it's a discount for early payment or the ability to leverage a corporate credit card so you can earn rewards and increase your Days Payable Outstanding (DPO).

Once you've considered all the facets of the agreement—from hard costs to the potential for improved service and efficiency—you can make your decision, knowing you have a new partner who is going to be all in with you.

That's the real payoff to undergoing this process: You're likely to find that consolidating vendors will enhance your partnerships and bring new, streamlined synergies. As suppliers become more immersed in different aspects of your business, they will become more entwined with your initiatives and your process, which means they can become more adept at anticipating your product needs, ensuring there are no gaps in delivery and helping you avoid rush fees, for example. The more empowered they feel, the more synergies your two companies will enjoy.

1https://www.mypurchasingcenter.com/files/6213/8929/0096/Hackett_Group_Supplier_Consolidation_Research_Article_1.pdf

2 https://www.infoentrepreneurs.org/en/guides/supplier-selection-process/