To consolidate or not consolidate suppliers: That is the question

trucks - interstate distributionConventional wisdom says to consolidate your supplier base.  Not so fast! Supplier base consolidation might not be the most value-added strategy, after all.  Consideration must be made for

  • Ease of user ordering,
  • Ease of user/customer receipt of product, and
  • TCO (total cost of ownership)

Another consideration is eProcurement: electronic procurement systems.  Can you effectively carve out a niche supplier from your existing supply base?  Absolutely.  If you have the right procurement technology, you can effectively manage two suppliers instead of one and increase total value to your company.   

You might be concerned that such a carve-out of spend from a large consolidated supplier will raise your prices on the other items kept with your supplier; however, this is simply not true.  While the incumbent supplier could raise prices on the remaining products that you buy from them, that pricing strategy is flawed and headed for disaster. 

Case in point: If the supplier — losing a small portion of business — decides to raise prices on remaining items to “make up the difference,” then it will give you more reasons to question the supplier partnership with them and more reasons to bid out the remaining items. As a buying company, there are trade-offs that must be discussed and thought through before carving out part of your business. 

To achieve the desired win/win business arrangement, collaboration with your key suppliers before you make your decision can help you understand their point of view.  Failure to utilize available technology (e.g., eProcurement systems) to gain more value for your buying company means your supply chain is not fully optimized. Eprocurement systems can also allow for better sourcing data, and therefore, better savings in the long term.

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