The Ugly of Supplier Consolidation

I am admittedly way behind on my industry reading, so I just finished going through December's Units magazine. Near the end of the magazine, I found an article that discussed finding "savings in supply chain management." One of the big suggestions was to use one vendor across multiple needs, which could potentially lead to higher order volumes and bulk discounts as well as reductions in expense due to fewer cut checks. Wilmar Industries' David Record noted that the cost to cut a maintenance-related check totaled $35 to $90 in staff and admin expenses! That number shocked me, as it should you, too. Admittedly, there might be some sort of controls involved with inventory management that take time, but there's no way it should take that much expense to cut a check. That's especially true as more payments move online in a more streamlined manner.

In the end, that cost better reduce because the article does not discuss the negative of supplier consolidation. Let's take a supplier that is great with product/service A but does a marginal, although not horrible job at product/service B. I've seen companies go ahead and combine the two functions for some sort of supply chain management benefits, even if they ended up getting a substandard product. As the costs with dealing with a separate supplier decline, hopefully this type of supplier selection will disappear, as well.