Consolidating suppliers for wholesalers and distributors

by | Mar 8, 2018

To help streamline their operations and refine their focus, many organizations in the retail and supply chain industry are reducing the number of partners they have in order to successfully operate. Wholesalers and distributors are not immune to this trend, as it’s reported many are consolidating suppliers in their network.

The case for consolidating suppliers

This is like an extreme version of the ABC analysis some companies use to maintain efficiency. Dropping the lowest performing 10 percent of products, partners and even staff — the C performers — is a way to reduce drag, improve efficiency and profitability. This cuts costs and keeps them from spending energy, money, and even catalog space on items they may only sell one or two of in an entire year.

This trimming down to fewer suppliers may be in response to more than just a quest for efficiency. A 2017 survey by Industrial Distribution found that supplier relationships has deteriorated over the last year.

Alongside quality, the element of supplier relationships is crucial. ID’s survey showed that while 56.4 percent of respondents said their supplier relationships stayed the same over the past year, more than 14 percent said their relationships had gotten worse. Beyond that, 22.5 percent said the level of support from suppliers had gotten worse in the past year, and 84 percent said suppliers had increased their prices in the past year. — Q&A: How Distributors Are Consolidating Suppliers, Oct. 2017

So cutting suppliers whose support has gotten worse is another example of cutting those partners who are a drag on a distributor’s efficiency and it ensures that their profit margins remain at an acceptable level.

Working with a small group of more powerful trading partners also makes a lot of sense for larger brands that don’t exactly get excited about a single mom-and-pop store that wants to buy 1,000 or even 100 units per year. Consolidating to larger suppliers means you don’t have to keep records, deal with shipping, or handle special requests with these smaller organizations.

And when a wholesaler or distributor has fewer, but bigger, partners to keep track of, it’s easier to nurture the relationships, collaborate on special promotions and sales, and work together to find new ways to grow sales. Look at Nike and it’s hyperfocus on 40 retailers – the brand can concentrate it’s relationship management on a small number of it’s highest quality channels, which now also have extra incentive to make sure they’re not the worst performer in the pack.

Consolidating suppliers also makes for easier communication. With a manageable number of trading partners, you can more easily communicate changes to your practices, make changes to your process that your partners will easily keep track of, and this can lead to smoother sailing overall.

Consolidating not always best

However, cutting problem relationships is not always the best solution – we’re not all Nike, sometimes wholesalers or distributors need to nurture those lower-performing trading partners, even if they aren’t as consistently reliable as is preferred. Electronic data interchange (EDI) and EDI automation can help distributors and wholesalers manage supplier relationships differently.

Requiring and achieving 100 percent EDI compliance from trading partners may mean consolidating suppliers isn’t necessary. With EDI, a lot of the work that often bog down processes and interferes with fulfilling transaction can be accomplished automatically. Let’s look at a few of the problems and other issues EDI solutions can help wholesalers and distributors solve.

Without EDI

With EDI

Manual entry of purchase orders, advanced shipping notifications (ASN) and invoices takes staff many hours. Delays and human errors proliferate. Automatic ordering and electronic generation of POs, ASNs and invoices can be handled by one or two people. Human errors are reduced or eliminated.
Failing to receive a purchase order acknowledgement (POA) and/or advanced shipping notification, only to discover the delivered product is less than the quantity originally ordered. POAs, ASNs and invoices automatically generated and delivered after a certain milestone triggers during the transaction. Buyers are notified of all changes and stay updated on delivery status.
Manual three-way matching of POs, invoices and receiving documents requires a lot of time, effort and staff resources. Automatic three-way matching that only flags inconsistencies, thus reducing the need for human intervention.
Constant monitoring of inventory levels to reorder more product before a stockout. Set up alerts to notify buyers of low inventory levels or trigger automatic reorders.
Only having bandwidth to monitor top performing suppliers and products. Other sales trends and opportunities are very likely being missed. Analytics lets you monitor more suppliers and SKUs. Ask all suppliers to help monitor and notify you with inventory updates and other data.
Discovering too late that sales of a certain product, or sales in a particular region, lagged or failed due to a solvable problem. Receive immediate notifications if sales of a product are too low or weirdly high at a location or region. Redirect inventory or fix the problem.
Finding new suppliers or products, especially if a supplier runs out of inventory or simply fails to consistently deliver the goods. Find and screen new suppliers who are already plugged into an EDI system with specific capabilities or in specific regions.

 

With EDI, you can automate so much of what used to be done by hand, you can run your back office with a fraction of the time, energy, resources and staff needed five or ten years ago. With an EDI system like SPS Commerce’s, working with dozens, hundreds or even thousands of trading partners can be even more manageable and profitable, and you won’t necessarily need to reduce the number of trading partners. This can increase profitability of all of your partners, and improve overall sales and profit margins by reducing time and effort to maintain all these relationships.

Consolidating suppliers might not be the only answer. With EDI, you can improve supplier relations, achieve 100 percent compliance from your suppliers and get a better handle on your overall supply chain. To learn more, please visit the SPS Commerce website, or ask to speak to one of our EDI specialists to answer your questions or demonstrate the product.

Get products in the hands of more consumers.

Get products in the hands of more consumers.

Automate processes, integrate systems, manage item info, gain data insights and more with SPS solutions.

Scott Bolduc

Scott Bolduc

Director of Supply Chain Strategy at SPS Commerce
Scott Bolduc is a multi-time winner of the Supply & Demand Chain Executive Pros to Know. He has worked with e-commerce retailers on their growth strategies and helped retailers transform their freight spending strategies to maximize efficiencies.
Scott Bolduc

1 Comment

  1. alessandramenzani

    Thank you for reading, Dex.

    Reply

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