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Supplier Consolidation Strategy
4 min read

How to Incorporate a Supplier Consolidation Strategy For Lower Pricing

As inflation increases, purchasing professionals are feeling a strain when it comes to finding cost-saving initiatives. After all, negotiating a lower price is difficult when both the cost of materials and labour are rising across the economic landscape. For this reason, leading organizations continue to rely on a supplier consolidation strategy. Consolidation as a cost-saving initiative that relies on a more concentrated supplier base, identifying it as an opportunity for businesses to achieve higher purchasing power and, therefore, a better position for negotiation.   

Consider that with a higher volume of purchased products from a single supplier, teams can receive a better price per product, with additional discounts on handling, shipping and other related processing fees. The caveat is that although procurement leaders may make the decision to consolidate, the rest of their team may be purchasing off-contract, eliminating any prenegotiated discounts from the company’s balance sheet.   

Therefore, the question for many businesses has been not, “should I consolidate my supplier base?” But instead, “how do I ensure my vendor master and associated purchasing processes guarantee my team is taking full advantage of a supplier consolidation strategy?” 

Why Your Business Should Maintain a Cleaner Vendor Master 

After making the decision to consolidate suppliers and negotiate volume discounts, teams must take the next step and ensure their vendor master is cleaned up and organized. At present, payment errors such as duplicate payments or missing discounts often occur since the same vendor exists in the master data more than once or they don’t exist at all. Therefore, by reviewing the vendor master, organizations can guarantee the records of their few consolidated suppliers are up-to-date and their volume discounts from purchasing from the same company are all being accounted for.   

Duplicate entries often occur as a result of an Accounts Payable (AP) clerk who is rushing to catch up on vendor payments, creating a “duplicate” vendor so they can get an invoice out the door. Unfortunately, this workaround has also led to fraudulent vendors sneaking their way into a vendor file and adding to costly errors. Moreover, different subsidiaries of the same business may be listed as separate entities adding to payment complexity. With this risk of error in mind, a vendor master cleanse becomes crucial to ensure teams can trust their business systems to guarantee no costs are being lost to faulty payments.   

In addition to reducing purchasing errors, a cleaner vendor master and a more concentrated supply base can ensure that your business is building stronger vendor relationships that secure lower pricing in the long term. Consider that efforts to maintain an accurate vendor master file ensure that all contract terms and communications are kept in one place and fewer (if any) disagreements will arrive. As speed in correspondence and easier transactions ensue, vendors will be more inclined to work with your business in the future, even offering you a discount to secure your business.  

Putting Everything in One Place  

With the benefits of cleaning your supplier master file in mind, teams will also need to ensure all their data is being stored in one place. With one up-to-date master file, organizations can benefit from having a centralized view of the companies they work with and ensure maximum visibility into payment terms and other relevant factors. Although this may currently be siloed into one holy grail for each department, further savings can be made when negotiations are done on a per company basis.  

Naturally, implementing a company-wide solution raises the question of adoption. Therefore, it becomes the onus of the purchasing organization to ensure that procurement team members are using the master file to guide each of their consequent purchases. Unfortunately, referencing the document as a step in the purchasing process doesn’t guarantee teams are using their vendor master or inputting the information correctly.   

Leading organizations often use a vendor portal as a user-friendly interface to help guide their employees to purchase using data from the vendor master. Although a vendor portal may take on different forms, they typically include a tile or other button to initiate the purchasing transaction from the purchase requisition or purchase order step, like how a user may open an app from their iPhone home screen. Once launched, the specific application may guide users through a form-style of the purchasing process that allows procurement teams to make a choice between already vetted suppliers who exist in the master vendor. Then, since a business can ensure purchasing is done on contract, teams are in a better place to guarantee that better-negotiated pricing is followed. These techniques have helped with the change management, transitioning hundreds of employees in a matter of weeks with little to no training.  

To guarantee adoption, the second obstacles teams must recognize is the efficiency piece. Today, one of the reasons people don't use procurement is because it is faster to run over to a local store and purchase the item, only to expense it later. Therefore, if businesses are able to simplify the process to replicate the efficiency of online shopping, people will be more likely to use it.

Taking the Next Step in Optimization   

Although the steps toward optimization are clear, many teams struggle to figure out where to begin. For this reason, an out-of-the-box solution like the ConvergentIS Vendor Management portal has been crucial to many team’s strategies. With it, teams have been able to take full advantage of guided processes at a fraction of the prices of an enterprise deployment.  

Interested in learning how this model would look in your business? We encourage you to fill out the contact form below for more information.