I cut my reporting teeth writing for a trade publication that covered home improvement retailing. One of the major things I learned about on the beat was vendor consolidation and the advantages the big-box chains got from concentrating their business with fewer, larger vendors.
I’d always wondered: Could small business owners benefit from doing vendor consolidation in their own businesses? Or are they too small-fry to be able to gain any efficiency or price breaks from the process?
To find out, I asked someone who teaches companies how to do vendor consolidation — John Peterson. He’s the executive director of contracting programs for top business-training firm ESI International. Many of ESI’s courses teach best practices for managing contracts and vendors.
Peterson says whether vendor consolidation will pay off depends on how small of a small business you are, how many vendors you use now, and whether you’re using multiple vendors to deliver similar types of products.
“If you’re a big enough organization to where you’ve got 8 or 10 copiers or printers from seven different vendors with six different maintenance agreements on them,” he says, “then you ought to look at consolidating.”
To find out if you could see benefits, Peterson recommends starting with a “spend analysis.” Look at what you spend now for each item your company purchases, from office supplies to merchandise for sale, and how many places you buy it from. Is there similar merchandise being purchased from different vendors? If you’re going to multiple vendors for the same item, compare pricing. Does it vary widely? If so, there’s probably room for improvement through consolidation, especially if you think some vendors might provide additional items in their category.
If you decide to try consolidation, Peterson says, begin by letting all the vendors know you’re reviewing your supplier agreements with an eye to possible consolidation. You want to hear about their ability to deliver a bigger volume of their products when you need it. Then you want their best pricing for your overall order volume, not by individual order — and let them know service levels will factor into your decision.
“There’s nothing like competition to get the pricing into good shape,” Peterson says.
Remember, though, that vendor-consolidation deals need to be a win for the vendor as well as your company. If the vendor resents the price level they had to give, service levels may decline.