Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How One Buyer Cut Costs with Supplier Consolidation
Transcript
- Lucas: So earlier this year, I was digging into a mid-sized manufacturer's spend data, and one number jumped out: they had forty-seven suppliers in a single category, but the top five accounted for eighty percent of the spend. That's a classic long-tail problem. And when I asked the procurement director why, he said, 'we just kept adding vendors over the years, and nobody ever took any away.' Luna: That's a story I hear a lot. But what did they do about it? Lucas: They decided to consolidate. I'm talking about cutting that supplier base from forty-seven down to twelve within eighteen months. And the headline result was a twenty-two percent reduction in total cost of ownership for that category. That's not just unit price — it includes logistics, admin, quality issues, the whole picture. Luna: Twenty-two percent is significant. But cutting suppliers that aggressively sounds risky. How did they avoid putting all their eggs in one basket? Lucas: That's exactly the balance. They didn't go to a single source. They kept twelve — so still some competition, but enough volume to make each relationship meaningful. And they paired that with a supplier scorecard system that rated performance monthly on delivery, quality, and responsiveness. If a supplier slipped, they had a structured conversation, not a panic. Luna: So the consolidation wasn't just about cutting — it was about deepening the relationships with the ones that stayed. Lucas: Exactly. And that's where the real savings came from. Once they gave a handful of suppliers a bigger share of the pie, those suppliers were willing to offer volume discounts that they'd never offered before. In one sub-category, the unit price dropped by eleven percent just from the renegotiation. That's the kind of number that gets CFOs to sit up. Luna: And beyond the unit price, what about the softer costs? The time your team spends managing vendors, for instance. Lucas: That was actually one of the biggest wins. They estimated that each active supplier required about ten hours of internal admin per month — onboarding, audits, invoice matching. With thirty-five fewer suppliers, that's roughly three hundred and fifty hours a month. They didn't lay anyone off, but they redirected that time to strategic sourcing and supplier development. Luna: So the efficiency gain was almost as valuable as the price cuts. Lucas: Exactly. And that's something I think procurement teams often underestimate. It's not just about the invoice price. It's about the total cost of managing the relationship. Luna: Right. And I imagine logistics got cleaner too. Fewer suppliers often means fewer deliveries, fewer invoices, fewer potential points of failure. Lucas: Yes. They consolidated their freight as well. Instead of twenty different carriers, they ended up with three primary ones. That gave them leverage to negotiate better rates — they saved about fifteen percent on inbound freight. And because they were shipping larger, more predictable volumes, they could also plan production more efficiently. Luna: That's a nice ripple effect. But I have to ask — did they face any pushback from internal stakeholders? Sales or engineering often have their own favourite suppliers. Lucas: Oh, absolutely. The resistance was real. One engineer insisted that a particular specialty component could only come from one specific niche vendor. So they didn't force it. They kept that supplier as an exception, but they scrutinised it. And after a year, they found that the niche vendor's quality was actually no better than the main supplier's, so they made the switch. Luna: So they used data to overcome the 'we've always done it this way' mentality. Lucas: That's the key. They didn't just announce a mandate. They built a business case with numbers — total cost, risk, quality metrics. And they brought the stakeholders into the process, so it wasn't a procurement power play. Luna: That makes sense. Now, let's be honest — consolidation isn't for everyone. When does it make sense to actually keep a broader supplier base? Lucas: Good question. The obvious case is when you have volatile demand or you're in a market with supply disruptions. If a single supplier has a fire or a strike, you want alternatives. But there's a middle ground. You can have a core group of strategic suppliers and a secondary group of approved alternates, even if you don't use them regularly. That way you get the benefits of consolidation without putting all your eggs in one basket. Luna: So it's not about cutting for the sake of cutting. It's about being intentional. Lucas: Right. And that brings me to something I've seen in other industries. The best procurement teams treat their supplier list like a portfolio. They regularly review it — what's the spend, what's the risk, what's the performance. And they make deliberate decisions about where to consolidate and where to diversify. Luna: I love that framing. It's almost like managing a stock portfolio, where you don't just chase the lowest price — you think about volatility and correlation. Lucas: Exactly. And in this case, the company also made sure to maintain a strong backup for their top three suppliers. They didn't want to be caught flat-footed if something went wrong. So they identified one alternative for each critical component, even if they didn't give them any volume initially. Luna: That's smart. Now, I know we talked about the twenty-two percent savings, but what was the actual dollar figure? That's what really matters to a CFO. Lucas: The total annual savings came to about one point two million dollars on a category spend of roughly five and a half million. That's a pretty solid return on a six-month project. And the best part? Those savings were recurring. It wasn't a one-time windfall. Luna: That's the kind of number that gets noticed. And it's not just the direct savings — it's the freed-up time and the improved relationships. Lucas: Absolutely. And honestly, that's the thing I love about procurement. When you do it well, it's not just about cutting costs. It's about building a more resilient, more efficient supply chain. And that's something every business can benefit from. Luna: Yeah, and you know, before we keep going with this, I was thinking — if these kinds of conversations have helped you make smarter buying decisions, even in a small way, the team at Fexingo would appreciate a coffee. Just a thought. Lucas: Yeah, it's a small gesture that keeps the podcast ad-free and independent. If it's worth a coffee to you, the link is buy me a coffee dot com slash fexingo. No pressure. Luna: Right. So back to the consolidation story — I want to dig into the timeline. How long did it actually take to see the savings? Lucas: They started in Q1 and by Q3 they had already renegotiated the major contracts. The full benefit really showed up in the second year, because the first year had some transition costs — legal fees, qualification of new suppliers, some dual-running inventory. But once that was done, the savings were steady. Luna: So there's a payback period. That's important for anyone expecting instant results. Lucas: Definitely. And I think that's a common pitfall. Teams expect immediate savings and get discouraged when the first quarter doesn't show a huge drop. But the math works out if you're patient. Luna: What about the suppliers that got cut? Did they react badly? Lucas: A few did, but most understood. The company was upfront about the criteria — they wanted partners who could meet their cost, quality, and delivery targets. And they gave the suppliers a chance to improve before the final decision. Some did improve, but not enough to make the cut. Luna: That's a fair process. I think that's key to maintaining a good reputation in the market. Lucas: Exactly. You never know when you might need one of those suppliers again. The company actually kept a list of all the suppliers they let go, with notes on why. So if the market changes, they can revisit. Luna: So it's not a one-way door. That's good to know. Lucas: Right. And that's the kind of forward-thinking approach that separates the best procurement teams from the rest. They think in scenarios, not just in the current quarter. Luna: Well, Lucas, this has been a really practical look at supplier consolidation. I think our listeners will walk away with a clear framework. Lucas: I hope so. The bottom line is: consolidation can be a powerful tool, but it's not a silver bullet. You have to do the analysis, bring stakeholders along, and keep an eye on risk. Done right, it can deliver real, lasting savings.