Start Benefits of consolidating suppliers

Benefits of consolidating suppliers

Supplier consolidation, on the other hand, focuses more on building the right long-term supplier relationships where target margins are achievable while also balancing quality, risk, access to innovation, and more.

When done well, a supplier consolidation program will provide significant benefits and improve shareholder value.

Michael Cross is the senior manager of solutions marketing at Directworks, a leading provider of cloud-based sourcing and supplier management software for manufacturers.

First, look for the low-hanging fruit -- situations where Part A can be eliminated in favor of Part B.

Next, challenge the engineers to consider how products can be redesigned to use a more common set of parts and components. Centralize Purchasing Power With higher volume needs in hand, it is time to centralize your purchasing power.

These factors have a direct impact on the true total cost of a selected supplier. Identify Critical Non-Cost Factors An effective supplier consolidation program doesn't focus on finding the lowest cost but rather on creating the right fact base to make the best trade-off decisions. What types of certifications has the supplier achieved?

Thus, it is imperative that your sourcing templates also capture critical non-cost information about each supplier's offering. What is the risk level associated with each supplier (see step 6)?

As you peel back the layers on this approach, you will discover that this type of sourcing strategy is far different from a typical supplier rationalization program.

The latter tends to focus on quickly driving down the cost of high-volume, non-critical parts and components.

For many manufacturers, that means funneling all purchasing for one group. Sourcing technology that enables decentralized groups to work together off the same fact base is available.

Working collaboratively, even decentralized groups can leverage greater purchasing power and drive out costs. Build a Total Cost Template Understanding the true total cost associated with a particular supplier is critical to any supplier consolidation program.

For example: The office services team is leasing copiers from a copier manufacturer, and is working with a “copier rep” who is constantly selling the latest and greatest equipment and services that have all the bells and whistles that will of course save them money!