Steven M. Bragg

“Supplier Consolidation Once the purchasing process has been streamlined, as was described in the preceding sections, the next step is to pursue cost reduction activities. A significant cost reduction technique is to reduce the number of suppliers with which a company does business. By concentrating its orders with a smaller number of suppliers, it can use higher purchasing volume to negotiate price reductions, rebates, and discounts. This concept is addressed in more detail in Chapters 8 and 9. The following subtopics address various supplier consolidation issues at a general level. Bottom 10 Percent Besides concentrating order volume, another reason to consolidate suppliers is to eliminate the worst-performing ones. These are the suppliers that deliver the wrong items late and with low quality. Even if these suppliers offer what appear to be rock-bottom prices, the total cost of doing business with them is much higher, because the company is endlessly dealing with receiving inspections, product returns, and the processing of credits. Consequently, having a separate program to identify and eliminate a company’s lowest-rated suppliers can also reduce costs.”
― Steven M. Bragg, Cost Reduction Analysis: Tools and Strategies