Learn about Supplier Consolidation, a technique to reduce costs. From Ahead Consulting - http://www.aheadconsulting.com/supplier_consolidation.htm

1. Supplier Consolidation Ahead Consulting – www.aheadconsulting.com – (562) 277 5608

2. Why consolidate suppliers? Supplier consolidation consists of assigning the total spend to fewer suppliers. This will provide greater leverage for supplier negotiations and lower costs.

3. The analysis Many companies purchase from too many suppliers. Visualizing the purchasing map can help identify opportunities for supplier consolidation for cost reduction. A good rule to evaluate the current situation is the 80% - 20% rule.

5. In most cases, 20% of the suppliers represent 80% of the total annual spend. If the top 20% of the suppliers represent less than 80% of the spend, supplier consolidation should bring cost reduction. If 20% of the suppliers represent more than 80% of the total annual spend, this could also show that there are many low volume suppliers that should be consolidated as they increase the purchasing costs.

7. A category groups parts of the same type that theoretically can be purchased from one supplier only.

8. However, it is often necessary to purchase from more than one supplier due to possible quality or delivery issues from a supplier.

9. Nevertheless, any category where the spend from the top three suppliers represent under 50% of the spend highlights a lack of consolidation.