Supply Chain Consolidation Delivers Strategic Benefits to Organisations
As our operating environment becomes more volatile and uncertain, businesses are looking to strip complexity out of their supply chains. Supply chain consolidation has become increasingly popular over the past decade or so as clients look to leverage their supplier relationships to unlock value.
By refocusing on their most responsive and dynamic suppliers within the supply pool, organisations are discovering they can not only slim down supply chain costs but also improve the system’s overall efficiency.
5 Key Benefits of Supply Chain Consolidation
In an era when information and time are money and resource-intensive, the enhanced information accuracy, cost-effectiveness, shared risk and improved profitability offered by a strategic approach to supply chain consolidation flows directly to the bottom line.
Here are five benefits of adopting supply chain consolidation for your business:
1. Reduced Risk & Volatility
Streamlining your supply chain to focus on fewer suppliers is significantly reducing risk across the entire span of the supply network. Managing fewer suppliers enables client companies to focus on aggressive risk reduction strategies throughout the supply chain. Improved predictability and greater transparency are resulting in better compliance and lower volatility for the value network.
2. Accelerated Transaction Times
Business today operates in a 24/7 supply chain environment. Contemporary supply chains never sleep. Stripping time out of the supply chain delivers superior customer service performance, improved speed to market, faster turn-around times for order completion and reduced out of stocks thanks to continual replenishment.
3. Lower Purchasing Costs
As a company slims down its base of suppliers, its administrative costs decline, and its purchasing power grows. By focusing more purchasing and negotiating resources on a tighter cluster of suppliers, companies are enjoying sharper pricing from their suppliers. This flow on effect is also showing up in related supply chain areas such as freight, warehousing and storage, shipping and handling fees.
4. Lower Transaction Costs
Companies that rationalise their suppliers are seeing their overall transaction costs decline. With a reduced number of suppliers to manage in the system, the administrative costs involved in loading a supplier into in-house systems such as ERP and accounting, completing transactions, purchasing oversight and managing supplier relationships decrease significantly. Similarly, labour and inventory management control costs also decline. This productivity boost represents a tighter focus on an organisation’s efforts to deliver high-value goals and more compelling priority across the enterprise.
5. Improved Supplier Relationships
With fewer suppliers to coordinate and manage, organisation’s are finding it easier to focus on building robust relationships with their key suppliers. Through selectively consolidating their supplier structure, the business-critical suppliers will enjoy a larger share of your business. This increased business volume throughput for your critical suppliers often translates into lower prices for your business. A reduced number of suppliers also allows for more time for a business to focus on nurturing the efficiency, responsiveness and performance of their key suppliers.
Conclusion
When it comes to supply chain management, less is proving to be more. The cost and complexity of allowing a supply chain to grow unconstrained by an undisciplined approach to vendor management are far outweighing the time it takes to consolidate a pool of qualified suppliers. When companies fragment their business volumes across too many suppliers, it can often result in a logistical, pricing and handling and freight cost nightmare.
