Supplier Consolidation: A Force for Good
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Yearly, organizations such as KPMG issue reports on how much Purchase to Pay (P2P) processes cost organizations. They usually do this to drive efficiencies into processes by planting the idea in organizations that their lives would be so much easier and less costly if they invest in systems that will help to reduce the human cost element in the process. Another one of the aims of these types of reports is to get organizations to appreciate there are cheaper ways of doing seemingly “simple” and repetitive processes or even tho drive change into its suppliers by getting them to issue your company a consolidated invoice rather than a few per month.
Now all of this is the good fight and I am all for driving efficiencies and Continuous Improvement into organizations - this is the way we will all survive. One of a number of ways to drive efficiencies into an organization is by consolidation of its supply chain like waterproof pouch. At one organization where I worked we had more than 70 companies in the UK delivering the same Category of items to the organization, each charging for similar specified goods of waterproof case and services very different prices, most of them had different ways of producing the goods and services for us and additionally, they all thought that they were at the cutting edge of their industry. When I did the cost analysis, all things being equal, there was a 40% gap between what one supplier was charging us for the same item to another supplier. I saw the $$ signs and devised Category and Project plans, presented it to my boss and the central budget holder who had very little idea about where their budgets were spent and launched and delivered the consolidation program. My stakeholders who used to use a considerable amount of their time managing these suppliers instead of doing their real jobs, were at first not too enthusiastic, but I won them over and within 6 months we had consolidated our 70 suppliers into 2 and delivered (on KPMG at the times’) estimation process savings per month of close to £10K and hard product savings by 30%/annum. Waterproof bag is useful.
I agree that not all category of spend can deliver these types of savings, but if we do not make an effort to root out inefficient, archaic and costly processes, we are doing our organizations a disservice and we need to be responsible to our organization and our shareholders to be on the lookout for areas where we can reduce costs and make our organizations more streamlined.