As per a Gartner review, nearly 65% of the organizations use vendor consolidation to improve risk posture, while 29% to reduce spending on licensing. Vendor consolidation is important to streamline procurement operations and maximize efficiency for sustainable growth. When you reduce the number of vendors, you unlock many benefits, including cost reduction, streamlined procurement, improved visibility, and more. Let’s understand these benefits and learn some of the best vendor consolidation tactics to easily overcome process challenges .
Four Significant Benefits of Vendor Consolidation
Let’s take a look at some of the key benefits of vendor consolidation.
Cost reduction
Where 60% of procurement costs result from logistical delays, vendor consolidation is the best way to optimize your cash flow. For instance, you can place a higher volume of orders at better prices and reduced shipping costs. In a study by CIO Tech Talk Community, 95% of respondents confirmed that they are seriously considering vendor consolidation in the next 12 months, with 69% citing finance-driven cost-cutting as one of the major driving forces.
Streamlined Processes
What if you can save your valuable time and minimize errors through an effective vendor consolidation? Nowadays, well-maintained vendor management systems are also helping CPOs automate routine tasks related to vendor interactions from a centralized platform. For instance, you can provide vendors with secure access to important documents so that you can get relief from administrative burdens.
Improved Visibility and Control
In a recent study, only 6% of the participant companies admitted to having full visibility into their supply chain. When you manage multiple vendors, keeping a tap on the overall spending and performance becomes a challenge. Through consolidation, you can track expenditures and performance KPIs more effectively. For more clarity, you can go through this case study to understand how Moglix helped a leading adhesive manufacturer attain supply chain visibility across 70 plants through vendor consolidation.
Strengthened Supplier Relationship
Several reasons, such as the conflict in Ukraine, the rising cost of oil, and the global economic downturn, have significantly contributed to supplier chain disruptions worldwide. It’s costing companies an average of $184 million per year. Consolidating vendors can help companies foster a stronger collaboration with suppliers to get priority during supply chain disruptions.
Evaluating and selecting vendors for consolidation: a strategic approach
Here are some key steps to perform a thorough evaluation for vendor consolidation.
Vendor assessment
You should use several key factors to do vendor assessment; only pricing structure does not suffice. Look for strengths, weaknesses, and overall performances. For instance, for assessing vendors for office supplies, consider their pros, such as product selection, eco-friendly product line, and reliable delivery, as well as their weak spots, such as customer service and pricing structures. Those who stand tall on all your diverse requirements should be considered for consolidation.
Financial Health
As per the Corporate Finance Institute, four major aspects are highly useful for financial health analysis: income statement, balance sheet, cash flow statement, and rates of return.
You can use various techniques, such as horizontal, vertical, or ratio analysis, to get information about your vendors’ financial performance and position.
Negotiation contracts
Imagine having access to the spending patterns of your vendors to leverage better deals during negotiation. This is one of the best ways to consolidate vendors. Unfortunately, only 5% of organizations use expense data for negotiations with vendors. They feel it’s a tiresome process. However, this is very much possible by using technologies to gather accurate data through an ideal vendor management system.
Are you looking forward to consolidating vendors to reduce costs and achieve great visibility?
Partner with Moglix Solutions! Visit our website to learn more.
References
- https://www.gartner.com/en/newsroom/press-releases/2022-09-12-gartner-survey-shows-seventy-five-percent-of-organizations-are-pursuing-security-vendor-consolidation-in-2022
- https://www.karboncard.com/blog/5-ways-payout-vendor-consolidation
- https://www.cio.com/article/657327/what-it-executives-are-saying-about-vendor-consolidation.html
- https://cashflowinventory.com/blog/supply-chain-statistics/
- https://business.moglix.com/case-studies/moglix-consolidates-the-vendor-base-across-70-plants-for-leading-adhesive-manufacturer?utm_source=website&utm_medium=blog&utm_campaign=How+Businesses+Can+Drive+Efficiency+Through+Vendor+Consolidation
- https://www.statista.com/statistics/1259125/cost-supply-chain-disruption-country/
- https://corporatefinanceinstitute.com/resources/accounting/analysis-of-financial-statements/
- https://www.emburse.com/assets/pdfs/using-your-data-for-negotiations-with-vendors-infographic.pdf
