Why You Need to Consolidate Your Vendors and How To Start
It’s normal for procurement processes to become more complex as businesses grow. However, without strategic oversight and careful management, this can spiral into the development of a long list of vendors, duplicated spending, growing tail spend, and high operational costs.
Before long, rectifying problems that cropped up during expansion becomes necessary. The result is a significant investment of time, money, and operational resources that could have been avoided with a simple strategy: coupling vendor consolidation benefits with intelligent MRO solutions.
Here’s what you need to know about vendor consolidation strategy and how to pair it with the only MRO solution that adapts as your business grows.
The advantages of using fewer suppliers
Make procurement processes more efficient
When an organization has too many suppliers, it can add unnecessary complexity to straightforward operational processes, like inventory management, shipment tracking, receiving and putaway. With each additional point of contact comes responsibility for oversight, which potentially leaves room for vulnerabilities and inefficiency.
Fewer suppliers often translate to more direct lines of communication and reduced spending redundancies. With a more streamlined approach to procurement, it is that much simpler to identify potential pain points.
Reducing the number of vendors involved in procurement processes significantly reduces the administrative burden procurement teams may face. This can free up valuable time and resources for other operational opportunities.
Reduce lead times with strategic sourcing
Managing vendor relationships can be a challenge when there are too many to count. While it may seem insignificant, developing these relationships can help procurement teams keep vendors accountable and take advantage of cost-saving opportunities.
These opportunities can manifest themselves in many ways, including discounted costs and more reliable shipping.
With fewer vendor contracts to manage and few suppliers to maintain contact with, procurement teams can develop more specific contracts with measurable KPIs and performance benchmarks. These contracts can be coupled with MRO tools that are equipped with natural language processing technology to help identify, manage and take advantage of negotiated terms.
Make inventory management simple
One of the biggest benefits of consolidating vendors is improved operational visibility. With fewer invoices, purchase orders, and tracking to manage, maintenance managers can focus their attention on what matters most, making processes more efficient.
It can be hard to trace an order issue back to its origin when multiple suppliers are involved. This can stem from rogue spending and MRO inventory redundancies that are likely to happen in the clutter of varied procurement. This not only saves operational teams time and money, but it can make it easier to identify problems before they grow out of control.
Improved visibility means managers can track their products from start to finish and uncover opportunities for improvement that otherwise remained hidden. For instance, with fewer suppliers, it can be easy to assess whether parts arrive on time, check whether there are any duplicate purchases, and evaluate whether all inventory is accounted for.
How to start consolidating your vendors
Start with where you are
An excellent vendor consolidation strategy is to use existing MRO data as a starting point to identify any weak links in an existing supplier network. Existing data about past orders, order quantity, product quality, lead times, price per unit, and discount rates can create a unique profile for each supplier that managers can use to develop procurement SOPs.
However, doing this manually is not only time-consuming but is also prone to human error. Advanced MRO software can help teams manage these processes with natural language processing and smart recommendations that are generated with the power and accuracy of artificial intelligence.
For instance, these intelligent solutions can identify which vendors provide the best value for money and which ones have a high rate of defects or delays. The software can scan through its database of vendors to provide supplier insights that allow companies to replace poor suppliers with more reliable ones.
Not only this, but new solutions can also help teams centralize their procurement processes, reducing data redundancies and eliminating data silos.
Determine where you want to be
Building success starts with developing clear, actionable goals. This is why it’s really important to set goals in the form of clearly defined Key Performance Indicators (KPIs).
Establishing measures of quantitative assessment from the get-go can help businesses focus on desired outcomes and compare current results with previous strategies to determine the efficacy of optimization strategies. Harnessing the power of an intelligent materials management platform can provide real-time data and dashboards that enable companies to monitor their progress toward KPIs, make data-driven decisions, and take corrective action when necessary.
These purpose-built software solutions provide a roadmap for vendor consolidation that is based on unique needs and performance goals, rather than a one-size fits all strategy. This makes it possible to build new success on top of what exists, rather than implementing optimization approaches piecemeal.
Back up your procurement strategy with the right MRO software
Supplier consolidation is an excellent way for companies to optimize their supply chain, reduce costs, and improve operational efficiency. However, these processes can be challenging to implement without the help of new technology.
Investing in the right materials management software can help businesses simplify the vendor consolidation process and reach their goals faster. Learn how organizations can improve their vendor consolidation strategies through intelligent materials management here.