As we all begin to rebuild from the coronavirus pandemic, many OEMs and CEMs are looking at their supply chains and how they can be streamlined or optimised to better protect themselves against disruption in the future, and to drive their businesses forward in a more efficient way.
One method many may (and perhaps should) turn to in order to achieve this is vendor reduction. Vendor reduction comes with a range of benefits that can increase efficiency and visibility, reduce risk and potentially lower material costs.
Here are the actionable steps you can take to implement a vendor reduction strategy:
The first step in implementing a vendor reduction strategy is to compile a full list of every vendor you do business with, no matter how infrequently, and assess how much they are bringing to the business. This obviously will include the products you buy, but also the products you may need that you currently buy from other vendors as well as costs, lead times, delivery slots, and minimum order costs.
You can’t begin to reduce your vendors until you have the full picture of your supply chain, and this data should be updated regularly so that it always reflects the current market.
Once you have the data on all your vendors, you need to identify what is most important to your business by consulting with stakeholders, as this will be your criteria when deciding which vendors to keep and which to cut. For example, if rapid turnaround of products is essential for your business, then choosing vendors with the shortest lead times and most delivery flexibility may be favourable over ones who simply offer a lower price.
Reduce vendor list
Now that you have all the information you need, you can begin to trim down your vendor list to a predetermined number by eliminating those that don’t meet the needs and goals of your business. You should consider how each vendor aligns with your long-term strategic values, and whether they can be strategic partners rather than just suppliers.
Assess vendor performance
You will probably find that you still have too many names on your list, so the next step is to review the past performance of your remaining vendors – have you had previous bad performance issues such as missed or late deliveries, wrong parts delivered or items missing from the order?
Single instances of such issues are to be expected, but if there has been a pattern, that vendor might not be reliable enough for your final list.
Put in an RFI from the remaining vendors
Once you have a final list of vendors, you should put in a request for information to determine how they will continue to meet the needs of your business and how they can work with you to achieve any goals you have set, as well as how they intend to address any concerns that were flagged in the performance assessment. Your chosen vendors may even be able to tell you whether they can negotiate new product prices if you are buying in bulk.
Implementing a vendor reduction strategy can mean significant savings in terms of fewer shipping costs, time savings, avoiding minimum order costs from vendors you don’t use as often, and giving you greater purchasing weight to negotiate better deals on bulk orders.
In addition to this, by having an open dialogue with your vendors about your business’s needs and goals, you are more likely to build stronger relationships and more loyalty with them and can work together on other efficiency techniques, such as sales forecasting.
About the Author
Jeff Brind is the Chief Information Officer at Delta Impact, who offer flexible and proactive supply chain solutions, including advising on vendor reduction.