Is your procurement organization more in the complexity of having to manage too many suppliers? If so, don’t feel like you are alone in this quagmire, it’s a very common problem. We here at CSI GROUP have a base in excess of 120 customers located throughout North America.
In discussing this issue with many of our customers, we have heard of a vendor base as high as three thousand vendors [mostly gained through acquiring companies] and we routinely hear of the supplier base consisting of between 200 and 500 suppliers. In a lot of cases, it appears that many of these suppliers only provide one or two components. Does this sound familiar to you? Let’s take a look at the benefits you can achieve if you develop a strategy to work with a limited number of “key” suppliers.
There are multiple benefits of consolidating the vendor base.
1. Reduced Purchased Costs
Historically, this is the area where you will experience the greatest financial reward. As the vendor base decreases, the purchasing power is increased. Strategic sourcing programs can be implemented to introduce competition and lower purchase prices. Included in these costs are shipping and handling, duties and taxes.
If customer “A” buys $1 million of products from a supplier and customer “B” buys $25,000, the benefits of the leverage gained through volume will all go to customer “A”.
2. Reduced Procurement Costs
With the number of suppliers reduced, the costs of managing the remaining transactions are also reduced. The time it took to manage the transactions with the departed supplier is eliminated.
3. Lower Freight Cost
Your reduced key suppliers can consolidate the freight costs by shipping multiple components at one time, or negotiating “bulk rates” with various logistics companies.
4. Vendor Relationship Management Cost Is Lower and Relationships Are Strengthened
Managing s lot of suppliers is time-consuming and costly. By consolidating, you can eliminate the non-productive time your team spends with non-strategic suppliers and increase the time spent with key suppliers. This increases efficiency and productivity within your procurement team.
In addition to the benefits listed above, one of the premier benefits of developing stronger ties with fewer suppliers is that you gain a degree of leverage you may not have had in the past. As you become the “big fish” in the pond, you can explore other cost reduction programs such as, long term agreements spanning over multiple years, volume rebate plans, year over year cost reduction programs and favorable freight terms. With many of the CSI GROUP strategic customers, we have a strategic supplier management meeting on a quarterly basis to review the previous quarter’s performance and to analyze the next quarter’s activity.
At the CSI GROUP, we have designed our corporate model to help our customers with the supplier reduction process. We have twelve companies under the CSI GROUP umbrella. These companies are located in the USA and Europe. This insures we can support our customers within their global footprint.
Through our “one-sourced model”, we provide multiple technologies, turning, milling, plastic injection molding, metal injection molding, stamped and sheet metal components. In addition to providing these technologies, we also provide numerous value-added programs to enable our customers to reduce their overall cost of acquisition.
Let me reference several examples of our capabilities to help our customers reduce their cost structure.
EXAMPLE #1 : Bill of Material Buying
We have a large aerospace customer who provided us with a complete BOM for a device they are anticipating releasing within the year. They asked us to fulfill as much of the BOM as possible and to provide a “kit” containing all of the parts [all custom] our group could manufacture. Of the 90+ parts on the BOM, we were able to manufacture 40 of the parts. We could have also provided many of the additional parts which were “standard fasteners”, but our customer chose to procure them. We have the capability to package the components however our customer wants them. We will also inventory the “kits” here in our facility and deliver anywhere in the World our customer indicates.
By supplying the BOM, our customer is enjoying cost reduction through only dealing with one POC, less purchase orders produced, less expediting, one invoice to pay and increased leverage.
EXAMPLE #2 : Kitting & Sub-Assembly
One of our key customers provides pumps into various different market segments. We are building a sub-assembly for them that consists of eight different components that are assembled by our assembly team here in Westborough, MA. Of the eight components, we manufacture five of them within our group.We procure the remaining components from our customers “approved vendor list”. We keep a quantity of these assemblies in our inventory and we ship the completed assemblies in bulk via truck to their main assembly location .
The cost reduction benefit for this customer is they can reduce their manpower and utilize the floor space which was previously used for this function for other things. It also eliminates stock-outs.
One of our customers was experiencing over 100 kits a month they could not fulfill due to component shortages. That has been eliminated due to our inventorying of complete kits and shipping upon request.
If you would like to discuss our capabilities to help with your vendor consolidation program, please contact us at:
(Ed D’Entrement – Sales & Marketing Director)
(508) 986-2300 x202
Topics: Vendor Reduction