NEED HELP! Vendor Management Program

It's hard to know where to start without knowing your business. I have worked in Purchasing and Supply Chain in a few different industries and have been involved in Supplier Rationalisation processes before, but the approach may need to be different for your business. Here are some ideas to start with ...
1)      Analyse your current supplier set in terms of some or all of the below:
a.       Spend on purchases
b.      Margin on sales
c.       Volume of parts
d.      Volume of stocked vs non-stocked parts
e.       Number of purchase orders raised over a time period (weekly, monthly etc)
f.       Complexity (some suppliers are very straightforward to deal with, others aren’t), this could be measured by the amount of time spent by the business dealing with the supplier (warehouse, accounts and purchasing etc.)
g.      Payment terms
h.      Contract terms
i.        Rebate potential
j.        Number of complaints
k.      Anything else that you already measure your suppliers on and/or anything else that is relevant to your business

2)      Match your Suppliers to your Customers. Are there any that you can’t get rid of because customer xyz insists that you purchase from them (important in a business to business or distribution environment)? Or do you have to buy widget X from this supplier as it is essential to make machine Y from another supplier work? These will be the suppliers that are left as they are.

3)      Identify product cross-over or overlap. I worked for a company who realised they had 8 laptop carry-case suppliers and they realised that 3 was plenty! There could be some easy options where you can cut some suppliers due to product overlap and who you make the best margin on when looking at the results from the first analysis.

4)      Ask the yourself and the business if you can now set criteria that says if a supplier does not give us X margin or Y purchases in a year, then we will not deal with them. Or if they do not meet a certain set of purchasing standards (delivering on time, giving order confirmations, simplified electronic ordering etc.) you will not deal with them.

5)      When you have come up with your suggestions for termination,
a.       Estimate what savings will be had by reducing all or some of the suppliers, have two or three scenarios and proposals (perhaps a reduction in headcount is possible).
b.      Discuss with the business your different scenarios and stick to your guns when you implement the policy.
c.       Have firm criteria in place based on this rationalisation process, so that when the business wants you to bring on new suppliers you can vet them according to the new rules you have put in place (for example they need to do x amount of revenue over the first year or they will be terminated too and you will only take them on if they have the facility to do EDI ordering).

I hope this is of some help, let me know if I can clarify anything further.
Solitaire

 HI,
I agree with Solitaire's suggestions and made the follow additional points.
In relation to Solitaire's suggestion #5 an alternative to just termination, may I suggest that you add a process of going to the market to tender the goods and services where possible.  This can be done a number of ways - generally open tenders to identify new players for the goods and services - or you could have a limited tender to some of the incumbents and one or two new players.  This will create a price and service tension which may lead to a better value proposition for your organisation.  Key to this approach is to ensure you have a well created tender and evaluation process - to determine a balance between price and non price criteria.
Further to point 5(c) you might need to consider processes to improve internal compliance with the new contracts through eProcurement etc.  Suppliers will be happy with lower prices if they received the volumes proposed by your organisation.  You need to ensure you have the internal processes and disciplines to ensure that there is no leakage to other suppliers.
As part of the process you may need to disable old suppliers to make it difficult for them to be used.
As you are undertaking your research as outlined in Solitaire's #1 may I suggest that you undertake a survey of the performance of the suppliers within your organisation (and use this as a basis for commencing ongoing formal supplier performance monitoring) and also survey your suppliers on the performance of your organisation.  You may discover some interesting behaviours within your company that could be adding unnecessary costs to your suppliers which they pass on in their price.  By restructuring the processes within your organisation, not only can you gain benefits through supplier consolidation, but also additional cost or performance benefits by improving internal processes (which could be from payment processes, ordering processes, delivery processes etc).
Finally, you need to have a change management plan - your internal customers will be use to dealing with their "favourite" suppliers and in the hospital system there is alway the pressure to use my special supplier for this unique patient need which may or may not be real.  Do not underestimate this angle and have it in mind as you start this process - i.e. engage the business from the very beginning and may be create commodity teams with line business involved as part of the vendor review and reduction process.
Hope that helps - please feel free to clarify any of these points.
 
Kind regards
 
 
IN additi