Benefits of Vendor Consolidation

by Robert Allen; Updated September 26, 2017
Business people speaking together in conference room

Vendor consolidation is one of the methods companies use to improve their business operations. Rather than having a wide-open field of vendors for products and services, companies elect to choose from a limited pool of known-quantity vendors. Done correctly, vendor consolidation provides specific and often immediate benefits to the organization.

Cost

One reason companies choose to consolidate vendors is to control costs. By limiting purchases to a specific vendor pool, companies can contain costs within certain limits. This doesn't mean companies will always have access to the lowest available costs, but rather that costs become a known quantity by dealing with the same pool of vendors on a repeat basis. Over the long haul, this saves the organization both time and money by limiting its expenditures on vendor location activities.

Quality and Performance

A successful business needs reliable vendors. New and unproven vendors are an unknown quantity. This creates liability for the business. By limiting the pool of vendors through vendor consolidation, a company can make certain that the products and services it purchases meet certain quality and performance standards. Vendors who can't meet and guarantee those standards are removed from the vendor pool.

Agility

Companies need to be able to respond quickly to business needs. When a critical piece of equipment fails or a specialized task must be completed, every minute counts. By consolidating vendors, companies identify qualified vendors before an emergency occurs. When a business need arises, the company goes immediately to the vendor or vendor pool that can directly meet that business need. There's no searching for a new vendor, hoping to find one with the product or service the business needs.

Relationship Management

Vendor consolidation reduces a company's points of contact. Rather than managing dozens or even hundreds of vendor relationships, a company can narrow the field to just a few. Those vendors become more than simple suppliers or service providers; they become partners. The vendors have a vested interest in making sure the company succeeds, and the company doesn't have to work with a massive number of contracts and purchase agreements.

About the Author

Robert Allen has been a full-time writer for more than a decade. He previously worked in information technology as a network engineer. Allen earned a bachelor's degree in history and religion/philosophy from Indiana Wesleyan University, a master's degree in humanities from Central Michigan University and completed his graduate studies at Christian Theological Seminary.

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