business supply cost

How can vendor consolidation reduce your costs?

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Vendor consolidation is a supply chain management strategy where you reduce the number of vendors you source supplies from.  By focusing on working with only one or a few vendors, organizations can achieve bottom line results.

 

What are the benefits of vendor consolidation?

Organizations that source from a list of suppliers dedicate significant time to vendor management ultimately driving up your costs.  Vendor consolidation is the first step to save costs and time, and improve your ordering process.  Below are the top reasons for your organization to consider vendor consolidation.

 

Better Buying Power

Instead of splitting your purchases amongst various suppliers you use your entire volume to drive better economies of scale.  While we do not charge shipping fees for in stock supplies, it is still a factor that has an effect on your pricing.  If you average $250 orders to 5 vendors a month, each vendor is having to raise your pricing to cover the fuel, wages, and time to deliver those orders.  If you were to eliminate 80% of the vendors, you would now have 2 orders, one at $1,000 a month and a second at $250.  The vendor who is now getting the $1,000 order has much better economies of scale and did not incur additional fuel, wages, or time to deliver more product and can pass those savings on to you.

 

Better for the Environment

With less delivery trucks stopping at your office, less emissions are emitted into the atmosphere.

 

Time Savings

There are two components that make up the price of supplies:

  • Hard costs: the price you actually pay for the item
  • Soft costs: the internal cost to procure the item

Total Cost of Supplies Pie Chart

 

As much as 60% of the cost of supplies is in the time it takes to search for the correct vendor, identify the right product, generate a purchase order, place the order, receive the order, distribute the order, pay for the order, and deal with issues such as returns or warranties.  The largest opportunity to reduce your overall cost of supplies is with soft costs.  The majority of the supply items we distribute are not high priced items but collectively can add up to a significant number.  Minimizing the time you spend procuring the items by shopping fewer websites and streaming your ordering process to supplies is where significant cost savings can be achieved.

 

Improved Accounting Function

Processing accounts payable is often a cost overlooked.  Companies with simple AP processing are incurring a cost of $12-$30 per invoice while complex AP processing costs can be between $40-$100 per invoice.  The is the time it takes to receive the invoice, allocate the invoice, get internal approval, and generate the payment.  If you use 10 vendors a month, conservatively estimating at $20 per invoice, you could see 25 invoices for that month or a cost of $500 a month to just process the invoices.  If you have 10 locations all using a different 10 vendors (yes this happens), that is $60,000 a year in AP processing costs by not consolidating vendors. 

 

Improved Reporting

Many organizations have a hard time understanding where their money is going because they are utilizing 10+ vendors for sourcing and piecing together different usage reports is time-consuming and challenging which slows down your ability to quickly adjust your purchasing strategies.

 

Improved Vendor Partnerships

Building a strong relationship with your vendors is the key to vendor consolidation.  Vendors who take the time to get to know your business where you have a dedicated person to speak up on your behalf to get issues addressed are critical.  Since more volume flows through a smaller set of vendors, they are more invested in your business and will get the extra effort to maintain that relationship.

 

The Power of One

One single point of contact, one order, one delivery, one invoice.  Even if you can't make it one, if you significantly reduce the number of vendors you source from, there are big savings to be had.

 

Why now?

The lines between supply chain channels have been fading for over 15 years.  There used to be a different supplier for each set of supplies: office, toner, janitorial, technology, furniture.  Customers see great value in our value proposition of next day delivery and easy online ordering paired with great customer service.  It does not matter to us what is inside the box we are delivering but just that we are doing it quickly and to your delivery expectations. 


Free Download

A Complete Procurement Strategy Guide

Everything you need to know to simplify your purchasing.

Download Now