Lowering Costs on Consumables Using Outsourced Vendors or Vendor Consolidation

Step 1: Analyze Current Consumables Spend

• Create an inventory of all consumables your business regularly purchases.
• Gather data on how much you spend with each vendor. Track:
  • Product categories (e.g., packaging materials, raw materials, office supplies).
  • Unit prices for each item.
  • Order frequency and shipping costs.
  • Vendor performance (e.g., delivery times, service quality, return policy).

Step 2: Identify Overlap and Redundancies

• Look for overlap between vendors that offer similar products. Identify where consolidation opportunities exist.
• For example, if you’re using three suppliers for packaging, determine if one can fulfill all packaging needs at a lower overall cost.

Step 3: Prioritize Key Vendors for Consolidation

• Identify the vendors that can supply a broader range of consumables, reducing the need to maintain relationships with multiple suppliers.
• Look for vendors with good track records in terms of reliability, product quality, and customer service.
• Use data from past purchases to determine where consolidating could yield better bulk pricing and delivery discounts.

Step 4: Negotiate Pricing and Terms with Preferred Vendors

• Once you’ve selected your preferred vendors, enter negotiations. Focus on:
  • Volume discounts: Ask for better rates for committing to higher volumes.
  • Consolidated shipping: Reduce shipping costs by bundling orders.
  • Long-term contracts: Consider negotiating fixed-term contracts (1-3 years) to lock in lower rates and avoid price increases.
  • Payment terms: Improve cash flow by negotiating extended payment terms (e.g., Net 60 or 90).

Step 5: Outsource Procurement if Necessary

• For businesses that lack procurement expertise or time, consider outsourcing to a procurement firm or vendor management service. These firms handle vendor negotiation, purchasing, and delivery, often at reduced costs due to their purchasing power.
• Select an outsourcing firm that specializes in your industry or has established relationships with relevant vendors.
• Ensure the firm is transparent about fees and pricing structures.

Step 6: Monitor Performance and Ensure Continuous Improvement

• Track cost savings from vendor consolidation or outsourcing over time. Use procurement software to analyze:
  • Whether savings from bulk discounts materialize.
  • Vendor performance in terms of delivery, quality, and responsiveness.
  • Any impact on inventory levels (e.g., fewer stockouts, more predictable deliveries).
• Regularly review contracts with vendors to ensure rates remain competitive, especially as your business grows or your consumable needs change.

‍