Benefits of supplier consolidation in supply chain management

benefits of supplier consolidation

Supplier consolidation is a supply chain management strategy that has risen in popularity over the last decade. In simple, it’s the process of reducing the number of suppliers you order from to just a small group of reliable suppliers or even a single partner.

The ultimate aim of this approach is to reduce supply chain costs and improve efficiency, consolidating suppliers is a strategy that can be implemented by any industry. Consolidation of suppliers can also be done at the production and indirect levels. Manufacturing organizations trying to cut production costs, on the other hand, may find the most cost-cutting opportunities.

For example, instead of sourcing thousand units of a particular product from 10 to 15 suppliers, after consolidation, the purchasing company may choose to source the same products from two or three suppliers.

Benefits of Supplier Consolidation?

  • Cost Saving
    • Reduced purchasing cost – As a company when it reduces its supplier and consolidation allows companies to buy in high volume to a smaller number of suppliers. This helps to reduce unit costs due to bulk discounts.
    • Reduced shipping cost – Fewer supplier means savings in shipment cost, dealing large volume of product from fewer suppliers help in saving shipment cost. Overall freight, handling, and other related shipping charges will reduce in cost as well, this helps in reducing the cost of goods sold which results in increased sales profit.
  • Time Saving

    Time savings is one of the important benefits will get from supplier consolidation. less time is spent on managing suppliers, companies can direct their resources toward more profitable business functions. Multiple suppliers for everything is a major waste of time and money for a business.

    Employees can spend less time obtaining supplies, traveling between several websites, and making mid-day journeys to local wholesale clubs thanks to supplier consolidation.

    When you work with a single partner, all of your employees order from the same website, which saves them time and allows you to streamline your ordering process.

  • Improved Supplier Relationship

    It’s easier to focus on creating connections with essential providers when we have fewer suppliers. The main suppliers will gain a higher share of your market share if you consolidate your supplier base. Lower prices for your organization will result from your primary suppliers having a higher market share. With fewer suppliers, you can devote more time to enhancing your key suppliers’ quality, efficiency, and overall performance.

  • Improved Accounting and Reporting Function

    Some businesses struggle to grasp where their money is going, particularly if they use more than ten vendors for all of their goods or if they neglect expenses like accounts payable processing. The time it takes to receive an invoice, allocate it, obtain internal approval, and generate the payment is referred to as accounts payable processing. You’ll also have to gather and piece together usage reports from a variety of providers, which can take a long time and slow down your reporting efforts. Working with a single vendor partner, on the other hand, means you’ll only have one monthly invoice to hunt down, pay, and process, as well as fewer usage data, to go through and manage.

  • Why is supplier Consolidation important?

    It is very important because when the business grows or expands. As a result, the organization starts to look for more suppliers to satisfy the demand. More supplier acquisition leads to an excessive amount of suppliers.

    supplier consolidation helps to overcome this issue by reducing the number of suppliers to fewer trusted partners.

    Supplier consolidation minimizes supply chain management requirements in the long run. To get the most out of this method, organizations should limit down their suppliers based on more than simply pricing, such as freight costs and service quality.

    Talk to a Supply Chain Optimization specialist today!
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