4 Ways Businesses Benefit from Vendor Consolidation

Posted By: Allison Bell Articles , Industry Trends ,

As businesses continue to look for ways to save time, maximize efficiency, reduce overall costs, and strengthen vendor relationships; vendor consolidation has risen to the forefront as the leading strategy for achieving all of that and more!

The concept of vendor consolidation is simple – It involves the reduction of the number of vendors a business partners with to streamline processes and maximize profits while achieving greater efficiencies.

Nearly all businesses have vendors for their product and supply needs. However, businesses may also outsource to vendors for services to be completed by experts rather than in house. Often times, this is the area where business owners and managers find they have an overflow of vendor partners who each handle only one or two areas of the business’s operations.

This approach negates the original purpose of outsourcing services, which is to improve efficiency and reduce costs. By consolidating, resources can be focused on a smaller group of vendors, or even a single vendor, that are trusted to handle all of a business’s operational needs.

Vendor consolidation comes with an array of benefits for businesses with several outsourced services. These four are the main reasons business owners are adopting this forward-thinking strategy:

Saving Time

Time is one of the most valuable resources out there, and businesses are constantly seeking to reduce time spent on smaller tasks to focus on big-picture goals.

Having a huge roster of vendors results in more time being spent on managing those vendors, which distracts from higher level operations businesses need to attend to. By scaling down the list of vendors a business works with, the time savings achieved can be strategically applied to other areas of the business that are a higher priority or more lucrative.

Reducing Cost

The smaller a business’s vendor pool is, the more purchasing power that business has with each of their vendors. This allows businesses to place higher volume orders, resulting in better pricing and an overall reduction in freight and handling costs.

Vendor consolidation also leads to a reduction in process and transaction costs. With a smaller group of vendors to manage, the costs of setting up a vendor in a business’s operating systems and completing transactions with vendors reduces significantly.

Maximizing Efficiency

By partnering with a single vendor, or a small group of vendors, businesses can more efficiently manage those partnerships.

Having several vendor partners requires multiple employees within a business to be familiar with the processes of each of those vendors. This is not an efficient approach, and it significantly impacts time spent on vendor management.

There is also a benefit of risk reduction involved with vendor consolidation. It can be risky to rely on too many vendors, which can create too many redundancies and result in a business facing multiple inefficiencies. By working with a shorter list of well-trusted and strategically picked vendors, businesses can have a more hands-off approach when it comes to vendor management.

Strengthening Vendor Relationships

Building relationships with a small circle of skilled and trusted vendor partners is one of the most significant benefits of vendor consolidation. When consolidation occurs, it allows both the client and vendor partner to benefit from those economies of scale so they’re more valuable to one another in a more meaningful relationship.

This strategy allows businesses to focus on cultivating long-lasting, impactful partnerships with vendors that can be confidently relied on. The more vendors a business employs, the more difficult it becomes to foster those relationships.

Focusing on a business’s vendor relationships allows the other benefits of vendor consolidation to be taken to a higher level. Working with vendors a business knows is trustworthy and capable of handling their needs results in less time spent managing those partnerships and significant cost reductions over time due to the larger market share of your business that a vendor has.

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