Potential growth is only limited by how quickly and efficiently an enterprise can respond to customer needs. In our rapidly-changing digital world, vendors have become just as important to an organization’s success as internal company resources. These third parties offer everything from simple commodity goods to unique services tailored to your nuanced processes. When implemented correctly, they improve profitability, make companies more efficient, create competitive advantages, decrease costs, and more. But while beneficial, they can also add risk, liability, complexities, work delays, and cost.
As we depend on them more to meet today’s global demand, a small mistake can have rippling effects. How you structure, leverage, and manage vendors to provide the right goods and services is key to creating value-based partnerships that yield competitive advantages and optimized costs—as opposed to third party relationships that disrupt your company and business flow and add risk, cost to serve, and growth hindrance.
Vendor Rationalization Process
Vendor rationalization is the first step to evaluating your suppliers and ensuring your operations are cost-effective and drive real business value. It is cadenced-based to assess every supplier and understand the goods and services they provide (now and in the future), evaluate the cost/value of these goods and services, organize them, and cull the total resource pool to create efficiencies and optimize value across your entire organization.
While supplier rationalization is often viewed as a cost savings exercise, it actually offers many benefits to the organization—including cost optimization, stronger economies of scale, value-based partnerships, a lower cost to serve, an ability to react more nimbly, reduced internal costs, enhanced technology architecture and infrastructure, and mitigated inherent risks. Third parties also reap benefits, gaining the added ability to grow revenue and get more access to strategic projects. By focusing on one singular benefit, vendor rationalization exacerbates the problems the organization intended to resolve. The goal of vendor rationalization is simply to assess, segment, and cull down the current third-party master list and provide a process for sustained growth and improvement.
We start by segmenting suppliers into five categories and deploying the services below:
Third Party Identification
Review your general ledger to determine your full supplier list and identify which fall in and out of the IT category.
Assess the category of each evaluated third party, utilizing our fast-paced segmentation tool.
Determine what services third parties currently perform, and whether or not additional services can be provided. Further identify their current spend and associated risk area(s) and compile that information into a rationalization value chart, showing what third parties can be eliminated and the estimated savings opportunity.
Review contracts for audit concerns, licensing, exit clauses, and other applicable terms and conditions.
Savings Realization Playbook
Assess contracts against contemporary market tenets to create a detailed opportunity and strategic negotiation roadmap for actionable outcomes.
Create a negotiation plan for all third parties in scope and act as your fiduciary to decouple from the third parties.
Instead of basing evaluations solely on company spend, our Wavestone experts use the vendor rationalization process to look at the big picture and help clients answer the following questions:
/ What third parties do you work with today?
/ What goods/services do they provide?
/ What other services can they offer?
/ Do they create a competitive advantage?
/ How critical are they to the business?
/ What is their level of risk?
/ Are there any dependencies?
/ Where do they provide their goods/services?
When it comes down to it, our experts consider your business needs from a holistic approach, understanding that not every organization is the same and—as with anything—tailored strategies are the only path to success in supplier rationalization projects.