Vendor consolidation can improve your manufacturing business, but it also takes some effort and serious decisions. If you want to reduce the number of vendors you use, you'll have to decide which you want to let go. Over time, it's very easy to add on more vendors than necessary. This makes it hard to keep up with those businesses. Vendor consolidation can greatly benefit your manufacturing business in several unexpected ways — and it might be the right time to adapt it for the way your facility handles ordering.
What Is Vendor Consolidation?
Vendor consolidation occurs whenever a company reduces the number of vendors it uses. Sometimes, a single vendor can serve all the business's needs. Other times, the number of vendors decreases but remains greater than one. Companies reap several benefits from consolidating vendors. In the manufacturing industry, you will be more likely to see certain benefits while other fields may not.
How to Consolidate Your Vendors
You'll need to look at your current vendor contracts. The vendors you decide to keep should offer a balance of high-quality products, fast responses, open communication and reasonable costs.
While you can make the decision yourself, you also have another option. Busy managers often turn to managed service providers. These companies can make the decisions for you and assist in the process of vendor consolidation. Outsourcing the chore can also save you time. However, be careful you’re not sacrificing your relationship with the vendors you keep by communicating with them through a third party.
Consider the following ways in which vendor consolidation can help your business:
1. Cost Reduction
By reducing the number of vendors you work with, you can negotiate a better contract to reduce the amount you pay. Shipping fees decrease when you consolidate your vendors. The vendor can send materials in bulk, and fewer shipments equal paying less in total for shipping.
Time is money in any business, and of course this is also true in manufacturing. You don't want to waste your facility's time by trying to keep up with multiple vendors and shipping dates. A single vendor cuts down on time, making your facility much more efficient and profitable. Vendor consolidation saved Guild Mortgage’s operations management staff 40 hours a month during a case study. If the bottom line is important to you, vendor consolidation could be a solution.
2. Better Relationships
The more business you do with a company, the better your relationship will be. This happens when manufacturers work with one or two vendors. Contact people from both parties become better acquainted with the manufacturer's needs and work to achieve those. A better relationship can also result in a lower price paid per-unit, which saves costs over time.
3. Improved Shipping
Besides the cost benefits of shipping less, the process also becomes streamlined and faster with consolidated vendors. The fewer vendors you order from, the fewer orders you have to track. Planning for a single shipment from a vendor is much easier for you and your workers since it’s easier to unload a single shipment rather than multiple shipments at various times of the week.
4. Improved Quality
The quality of your products improves by reducing the number of vendors you use because ordering from multiple vendors puts you at risk of parts not fitting together satisfactorily. A single vendor can produce numerous parts that are all compatible with each other. Through better parts, you'll increase the quality of your facility and its products.
5. Save Time and Money
Consolidating your vendors can save you money and time while improving your vendor relationships and product quality. Why wouldn't you consider this tactic for your facility?