Supplier Consolidation
A paradox frequently observed is that companies often depend on a monopolistic supplier for items crucial for success, while they maintain relations with a large number of suppliers for standard items. Here, action needs to be taken to reverse the situation. Too many suppliers for uncritical items tie up resources, distract from issues of real importance, and are ultimately not even able to produce good prices. Thus, supplier consolidation means, above all, eliminating smaller suppliers by shifting to bigger or strategically important ones, creating savings through economies of scale . But maintaining less supplier data and fewer contacts in the system also results in savings. The procedure for supplier consolidation is found in the basic procurement toolbox and consists of the following activities:
Collecting data (who buys what from which supplier) for at least 80 percent of spend
Leveraging competition from existing and new suppliers
Negotiating with interested, qualified, and competitive suppliers
Choosing the preferred future suppliers on the basis of cogent criteria
Changing over to these preferred suppliers in a consistent manner
The success of this measure depends first and foremost on being open toward new suppliers and willing to give up cherished habits (such as favoring suppliers who maintain a high profile and take care of the little things, but charge a high price for it).