In the course of our work in helping SMEs to become more efficient and targeted, we often come across businesses that have a large number of suppliers.
Keeping track of ordering, invoicing and payment across many suppliers can be a needless burden on the administrative system. Especially when reconciling your statements with theirs.
It also makes it more difficult for the business to understand and manage the risks that may be hidden in its supply chain.
A typical example of a business with too many suppliers is the building company that goes to a number of different builders’ merchants for the same materials. It may be that at some point they have either found a supplier that was cheaper or that they had used another supplier to source materials not available with their usual one.
Over time, the list of suppliers grows and grows while the original reason for using them no longer applies.
While it is important for all businesses to keep their costs down and therefore to shop around for the best deal, the time spent ‘shopping round’ is a hidden cost that contributes to inefficiency by adding to the administrative burden.
If on the other hand a periodic review of prices is carried out and an approved supplier list is used, then the hidden cost of ‘shopping round’ and the administrative burden of managing lots of purchase ledger accounts can be significantly reduced.
It may of course be that there is an advantage to having back up suppliers but great deals can be achieved with a discount on price and high levels of service where the supplier has the “loyalty value” of your regular, longer term custom.
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