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How to Consolidate Your Vendor List to Maximize Profitability

A long vendor list is like too many cooks in the kitchen.

September 15, 2020

Organizations naturally accumulate third-party vendors over time. You may start by working with a reseller to purchase hardware, then receive maintenance on your equipment from a mom & pop business, and then begin using outsourced labor for your help desk. Pretty soon, your vendor list becomes so long that it puts a strain on the organization.

Consolidate Your Vendor List

Vendor consolidation allows your business to limit its third-party vendors, narrowing down the list to a couple of business-critical partners. Of course, this is easier in some industries than in others, but any business can consolidate its vendor list with the proper considerations. Let's walk through how to consolidate your vendor list.

Audit Your Vendor List

Start by taking an audit of your current vendors. We recommend using an Excel spreadsheet to record the data. In Column A, vertically list all the vendors with which you partner. In Row 1, horizontally list all of their competencies and any desired third-party offerings. In other words, include both what you currently need or use and what you may use in the future. 

Want to follow along? Download this vendor consolidation spreadsheet. 

Next, consider your relationship and overall experience with each vendor. Have they been easy to work with? Prompt in communications? Is their pricing reasonable for the product or service that they offer? You can include the answers to these questions in additional columns in your spreadsheet. 

Lastly, reach out to your vendors to learn what else they might offer. You could ask about the items in your spreadsheet that this vendor doesn't yet cover, or ask for a full list of products and services. Your goal here is to receive a snapshot of how a larger relationship with this vendor might look. 

Find Redundancies 

Now, look at your entire spreadsheet and identify third-party competencies that overlap. While the most straightforward approach would be to use vendors with the most skills that fit your needs, you should weight the customer experience columns heavily. Just because the vendor can do X, Y, and Z services doesn't mean they're the best partner for you.

Identify Bald Spots

In reviewing your spreadsheet, did you notice any competencies that weren't adequately fulfilled? Or perhaps your vendor relationships are fine, but not ideal? In this case, you may need to shop for new vendors that can help you consolidate your old list. 

Shop for New Vendors 

Identifying new vendors with which to work is no easy task. These partners will have considerable access to your company and add a certain level of risk. In other words, it's essential to vet the contenders thoroughly. One way to identify credible vendors is to ask your network for recommendations, particularly those in your vertical. 

Depending on your industry, you may need to consider specific requirements when vetting vendors. If you're in the healthcare industry or work alongside it, you must find partners who can meet HIPAA regulations. And financial institutions must follow legal guidelines when deciding what and to whom they can outsource. 

Your selected vendor must demonstrate their ability to be an extension of your security practices. Ask what their experience has been with similar organizations and what processes they put in place. For example, ask if the organization is open to a regular review of database processes, back-up procedures, and security.

Conversely consider internal processes. What security and transparency do you need to share with your vendors? What might you be able to sidestep with a few process changes? 

Put Your Plan in Action 

Depending on your organization's size, it's now time to make decisions or bring your findings to your executive team or committee. Describe why you should consolidate your vendor list, your process in reduction, and your shortlist recommendations. 

If applicable, present your findings for new vendors and assign action items for meeting them. The ultimate aim of this approach is to maximize profitability while reducing time spent on managing vendor relationships. There's no need to drag out this process longer than necessary, but make sure you thoughtfully consider your options before moving forward. 

Need help with any part of this process? Reach out to our vendor consolidation specialist

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