Large organisations are often unsure of which sourcing avenue to take or how to structure their commercial functions. This blog talks about the differences between the scope of work of Procurement and Vendor Management teams and argues the pros and cons of Supplier Consolidation.
The Difference Between Procurement And Vendor Management
The concept of Vendor Management is often misunderstood or forgotten about all together. I have seen large organisations that were under the impression that Procurement has the capacity and skills to manage and build strong strategic relationships with its suppliers.
Procurement’s role in any organisation, however, is to procure services and products - a transactional relationship.
Vendor Management, on the other hand, is the building block to developing and maintaining long term strategic relationships with current and potential suppliers. Vendor management enables organisations to drive service excellence, control costs and mitigate risks and issues, to successfully delivery services and value for money to the business, throughout the life of any deal.
How Does Vendor Management Deliver Value?
Vendor management offers a variety of services in managing an organisation’s suppliers, however there is one particular service that offers fantastic benefits across the supplier estate: Supplier Consolidation.
This is a key activity within Vendor Management and offers many benefits, including:
• Optimised performance – greater leverage on suppliers if there are service issues that need resolving
• One stop shop – one supplier that has the ability to deliver a wide range of services and products, enabling the organisation to focus on other activities
• Reviewed application and service offerings – application landscape and services to be reviewed with similar or the same services from suppliers to be consolidated
• Increased administrative efficiencies – smaller supplier base, enables organisations to allocate appropriate levels of internal resources to manage day to day, such as invoicing or billing
• Mitigated risks – fewer suppliers significantly reduces risk to an organisation in managing them and allows for focus on acceptable risks, compliance and other legal policies, such as GDPR
• Greater control – an organisation that understands its supplier base can better prepare for renewals, resolving issues, changing and challenging suppliers and consolidating services
• Negotiation power – greater ability to leverage on its suppliers and services to create value for money opportunities, and
• Improved supplier relations – managing fewer suppliers enables organisations to focus on building strong relationships with its core strategic suppliers.
Potential Drawbacks Of Supplier Consolidation
When deciding whether to consolidate the supplier estate, there are however several drawbacks that should be taken into consideration:
• Freedom of choice – greater agility to move suppliers or bring more suppliers on board to provide services and products
• Market pricing / competition – an organisation that understands its suppliers can negotiate against suppliers for the same or similar service or product to drive lower costs, reduced time to deliver to the end customer and competition between suppliers
• Security of supply – depending on one supplier could leave you short in delivering a service or product to the end customer. Using multiple suppliers increases the availability and reduces risk
• Supplier overhead – large supplier base will naturally create increased overhead in managing all suppliers however, there are ways to focus on your core suppliers or Tier 1 and 2 suppliers to reduce overhead to govern and ensuring obligations are being met
There are several benefits and drawbacks to various services within Vendor Management, including supplier consolidation. This will depend on the maturity of the business, long and short-term plans and strategic direction. If you would like advice and assessment of what the best avenue is for your business, feel free to get in touch with the Coeus Sourcing Practice.
Blog by Peter Cartwright of Coeus Consulting