Why companies consolidate vendors

When vendor consolidation becomes a topic of discussion, one of the common misconceptions is that the strategy only stems from the need to cut costs. The truth is, vendor consolidation has emerged as a powerful tool, unlocking a variety of benefits beyond mere cost reduction. 

Streamlining expenses remains a compelling motivator, companies across diverse industries are embracing vendor consolidation for many reasons. At FPT Software, we are focused on the long-term impact of improved organizational alignment and efficiency. Here’s a look at some of the most critical factors that we have seen encourage companies to seek integrated vendor solutions. 

1. Eliminating silos and fragmented development efforts

By aligning vendors strategically, companies can break down silos and promote a unified approach to development. Utilizing fewer vendors across multiple BU’s and technology specialties (e.g. data, application development) causes a natural sharing of ideas, tools, measures, and best practices. Leading to improved performance measurement, tool usage, cost, and quality. This fosters collaboration and innovation as vendors become true partners immersed in the company's objectives.

2. Ensuring products/applications are worked on by those who are highly invested

Vendor consolidation ensures that projects are handled by teams deeply invested in the success of the company's products and technology. This effect occurs naturally when a handful of vendors are treated like trusted partners and have an increased share of the client’s budget. This leads to improved access to vendor leadership, talent from the workforce, and shared innovation. Going beyond contractual relationships, creating a strategic alignment where vendors become an extension of internal teams.

3. Driving efficiency across the supply chain

Consolidating vendors can streamline operations from procurement to maintenance, providing greater control over the entire supply chain. Dealing with fewer constituents leads to simpler and more efficient operations, including engagement models, contracting, and pricing. This improves efficiency and negotiation power, allowing for better allocation of resources.

4. Improving governance and reducing security risks

By reducing the number of vendors and aligning them with strategic goals, companies can simplify governance and enhance security. The management of governance and the adherence to security policies are simplified by dealing with a select handful of partners versus a wide array of vendors. As a vendor has an increased share of the budget, they are significantly more focused on compliance, and this naturally leads to very high compliance and self-regulation. This reduces potential vulnerabilities and aligns with broader risk management strategies.

5. Increasing economic value from vendors

It goes without saying that one driver of vendor consolidation is to reduce spending. This is achieved through several techniques, like rate negotiation and volume rebates. It is important to look beyond finances and consider non-direct cost reduction, including added business value through knowledge of the client’s business, being more self-driven and predictable, and enabling joint innovation. 

6. Promoting greater accountability

Vendor consolidation emphasizes accountability, holding all parties involved to elevated standards. Focusing on a handful of vendors improves the level of partnership. This drives a higher level of commitment and access to senior leadership. Which creates a culture of co-responsibility and transparency, ensuring vendors meet commitments and share ownership of project outcomes.

7. Standardizing processes and tools

Standardization is a key element of vendor consolidation, creating a cohesive and efficient operational environment. This enhances efficiency and facilitates seamless collaboration, reducing errors and misalignments. Security and governance are positively impacted by a standardized process as well.

8. Delivering more strategic value through a partnership model

The partnership model is the essence of vendor consolidation. When vendors become strategic partners aligned with the organization's objectives, the relationship becomes transformative. This drives innovation and initiatives that transcend traditional vendor-client engagements.

Ultimately, vendor consolidation helps companies get the most out of their vendor relationships, delivering more strategic value and driving the company's success.  

As you embark on your vendor consolidation journey, do not underestimate the significant impact it can have on your bottom line and operational efficiency. Studies show that companies adopting this strategy can achieve up to a 20% reduction in operational costs, freeing up valuable resources for other initiatives [1].

However, the benefits go beyond saving money. Vendor consolidation simplifies processes too, leading to less time spent managing vendors and more time nurturing other partnerships [2]. Imagine the possibilities! Your team can focus on high-value activities like innovation and collaboration, while we take care of the vendor management burden, ensuring successful project outcomes and keeping your business operating seamlessly.

Contact FPT Software today to learn more about how we’ve become a champion vendor to several leading organizations by integrating with our client’s businesses, sharing priorities, and innovating together.

Author FPT Software