Supplier consolidation

The term “supplier consolidation” describes the process of reducing the number of suppliers of a company. The aim of such a process is primarily to save costs, which can be caused of a variety of reasons.

On the one hand, supplier consolidation strengthens the negotiation position of the client, as the order volumes increase. As a result, lower prices can be asserted. In this context, one also refers to the use of the scaling effects. At the same time, there is a reduction in transport costs, because existing transport capacities can be used more efficiently. Another welcome side effect is the more efficient use of resources and consequently the support of environmental protection.

Most significant for the client is the increased transparency due to the consolidation of the suppliers, accompanied by reduced administrative expenses and improved cost control. Finally, friction effects can also be reduced, by exchanging two different products from two different suppliers with coordinated products from one supplier. The improved compatibility of the components obtained this way ensures higher reliability and as a result an increase in productivity. An enhanced service by the supplier can also be expected.

The intensified relationship between the supplier and the client after consolidation can also be used for innovations. The relationship thus can be extended to develop a close cooperation within a partnership. This enables the client to benefit enormously from the specialist knowledge of the supplier in his area of expertise, while the supplier has an improved information basis for the further development of his products.

As a result, both sides, client and supplier, benefit from supplier consolidation. It is particularly important in highly competitive business sectors because it avoids becoming overly dependent on suppliers, while the benefits can be fully utilised.