Vendor consolidation affects the bottom line
The idea of vendor or supplier consolidation is not new, although it tends to be a fad every few years. It’s as if every time a new type of product or service is created, or variation thereof, businesses onboard a new vendor partner. Eventually, someone in the business (usually in accounting) realizes that they’re paying a lot of different bills for similar products and service, and sends the business down a path of consolidation. While the benefits of consolidation seem obvious, drawbacks do exist, especially with software partners.
Let’s start with the benefits.
Less partners to pay. Unless you’re in accounting or operations, it’s easy to overlook the costs of cutting checks or sending payments via e-invoicing. It takes time, and reducing five vendors in a category to one, drastically reduces the workload.
One throat to choke. Figuring out who to contact for assistance becomes easier (even though it really isn’t hard to figure out, unless we’re talking about physical products.)
Stronger relationship. Of course business partners show more love when they get more business. You might even receive some “discounts.”
Risk a reduction quality when partners don’t specialize. It’s a fact: software companies that specialize are better at what they do. For example, Slack became a formidable competitor to any email communication platform because they focused on team communication. Competitors, like Microsoft Teams, don’t stand a chance when compared in quality.
You’ll never achieve a “one-stop-shop” scenario. Not matter how hard you try. Every company that has several products in their portfolio attempt to cross-sell using this term, making the definition itself unambiguous.
You’re locked-in. Find something better? Nope, can’t buy it, use the software you have. There’s a contract in place, which was negotiated during consolidation and pricing discussions.
When is there a good scenario to consolidate, you ask?
Only when consolidation means the reduction of business processes in what the software is intended to do, creating business value, or the partner has an advantage in economies of scale. This typically occurs when the partner has expertise in a specific vertical or industry, but provides more reach, whether geographical or virtual audiences. Taking Slack into example, the business process is internal communication. Prior to the use of Slack, teams would use several communication tools. In the fog of email, instant message apps, and message boards, internal communication slows and delays projects. Slack solves that, creating an opportunity to consolidate software tools.
In Messente’s case, the operations team partners with over 700 mobile network operators, in nearly 200 countries, to deliver messages, time-critical notifications, and verification PINs. It’s a huge reduction in business processes for IT, development, and accounting, as the business no longer has to figure out how to send these messages to customers across several network operators, in different geographical regions. Not to mention economies of scale, since Messente sends quite a few messages a day, allowing us to negotiate costs. Lastly, we’re really good at what we do (the perfect storm!)
Simply put, when considering a reduction in software partners, solely making the decision for the sake of vendor consolidation may not be the best idea. Consolidate based on expertise, reach, and creating overall business value.