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Supplier consolidation: definition & important aspects for buyers
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Supplier consolidation in a nutshell:
Supplier consolidation describes the strategic reduction of the active supplier base to an optimal number of core suppliers. For purchasing, this enables an improvement in the negotiating position, process efficiency and quality standards while simultaneously reducing administrative costs.
Example: A medium-sized company reduced its supplier base for electronic components from 45 to 12 strategic suppliers within 18 months, resulting in cost savings of 23% and a 35% reduction in order processing time.
Contents
What is supplier consolidation?
Supplier consolidation refers to the strategic process of reducing the number of suppliers with which a company works. By bundling the purchasing volume with fewer but more efficient suppliers, companies can negotiate better conditions, improve the quality of the goods or services supplied and increase the efficiency of their procurement processes. The aim is to build long-term partnerships while reducing administrative costs and complexity in supplier management.
Core elements of supplier consolidation
Significance for purchasing
Supplier consolidation offers considerable advantages in procurement practice. It enables cost savings through better prices and reduces the administrative effort involved in supplier management. It also strengthens relationships with key suppliers, which can lead to greater reliability and innovation. By focusing on selected partners, risks can be better controlled and the overall quality of the supply chain can be improved.
Supplier consolidation: from fragmented procurement to strategic sourcing
Supplier consolidation is based on the concept of specifically reducing the number of suppliers in order to increase efficiency and competitiveness. In practice, this enables companies to reduce costs and increase the quality of products and services by working more closely with selected partners. In view of global market dynamics and increasing customer requirements, there is a need to rethink traditional procurement approaches and strategically optimize supply chains.
Old: Fragmented supplier structure
Traditional approach: In traditional procurement, companies work with a large number of suppliers to cover their needs. This fragmented supplier structure means that procurement volumes are spread across many small orders. Tools and systems are often isolated and there is a lack of standardized processes. The consequences are high administrative costs, difficult communication and low negotiating power. Risks also arise due to a lack of transparency and difficulties in quality management.
New: Strategic Sourcing
Strategic sourcing: Modern companies rely on strategic sourcing as an approach to supplier consolidation. Strategic partners are identified by analyzing the procurement volume and supplier performance. Digital platforms and e-procurement systems facilitate the integration of suppliers and automate processes. Collaborations that promote innovation are established in order to jointly achieve competitive advantages. Practical benefits include reduced costs through bundling, improved quality through closer coordination and increased agility in the supply chain.
Practical example: Mechanical engineering company
A medium-sized mechanical engineering company reduced its number of suppliers from 250 to 80 strategic partners. As a result of the supplier consolidation, procurement costs fell by 12%, and the on-time delivery improved by 25%. The introduction of a digital supplier relationship management system enabled automated ordering processes and real-time tracking. Innovation projects were also implemented more quickly, which led to an 8% increase in sales.
Conclusion on supplier consolidation
Supplier consolidation is a strategically important process for optimizing procurement. By specifically reducing the number of suppliers and establishing long-term partnerships, companies can not only reduce costs, but also increase quality and efficiency. Despite possible dependency risks, the benefits such as improved negotiating positions, leaner processes and more intensive collaboration on innovations outweigh the risks. Success depends largely on careful supplier selection and active risk management.
