Optimizing Tail Spend through Vendor Consolidation
In recent times, there has been an increase in pressure on cost reduction and sustained savings through purchasing, which is making organisations take stock of their tail-spend proactively. With the advent of globalisation, tail-spend has grown significantly for most manufacturers, as new and specialised material suppliers are brought on board by them, in order to satisfy the ever varied and increasing demands of their consumer base.
Customers today, demand fast turnarounds, operational visibility, more product choices, order customisation, along with omni-channel flexibility etc. This, in turn, requires bringing in more vendors to procure a wider variety of materials, which means procurement professionals, need to manage many more individual transactions, at the same time quality controlling the supplied materials and making sure that stock is delivered at the right time, to the right destination.
These tasks, needless to say, have brought forth many problems like, an increase in purchase cost, depletion of working capital, non-compliance, increase in supplier interaction costs etc. which are difficult to overcome and add to an organization’s tail spend
Managing tail spend, in an effective and efficient manner can be a challenging prospect for any organisation, Moglix therefore, is here to talk about how consolidating your business’s supplier base is one of the best ways to generate cost and efficiency improvements.
Through Vendor consolidation, an organization, instead of spreading out and spending across a considerably large group of suppliers, will focus on a limited number of vendors. This, thus becomes the first step in optimising tail spend and can bring about the following key benefits:
- Reduction in Complexity: Having a limited number of suppliers means that there are lesser vendor relationships to manage. This, in turn, makes it easier for the supply-chain managers to create an automated interaction channel between the suppliers, thus freeing up their time and being able to focus on other value-added activities as well as strategic vendor management.
- Effective Cost-Management: With a consolidated vendor base, less money will be spent on supplier freight charges individually. Apart from this, the internal process costs that are a part of managing large volume transactions with suppliers, can be essentially curbed.
- Supply Continuity: A reduction in the number of suppliers, particularly those concerned with the supply of low-value materials or the ones they are dealt with less frequently, reduces the chances of delay or non-delivery of orders. Maintaining a close-knit trusted supplier base has the benefit of suppliers understanding your business requirements and its specificities. This means that there will be a significant reduction in quality and lead time issues, leading to a streamlined process with supply certainty.
It’s a well-known fact that your tail spend is one of the biggest available sources of incremental savings, in, fact, if you were to stack up the individual, spends on each supplier that you’ve made in that tail, you will in all probability find that put together, the tail is actually your biggest supplier. Hence, in today’s economic milieu where no stone is being left unturned, when it comes to the quest for cost-reduction, your tail-spend can really help you in making your numbers. Vendor consolidation hence, becomes a fundamental step to that end, helping you curb all the unnecessary tail-spend, giving you a better bottom line and a competitive edge.
What do you think about the topic at hand? We’d love to hear your views on ways to curb an organization’s tail spend through vendor consolidation, so write to us in the comments section below!