Working with one vendor allows for a closer relationship and better communication.
By Martha Spizziri
Conventional wisdom says to avoid purchasing from a single source, but there are times when doing so can work to your advantage.
There are benefits to buying from a single vendor—or single sourcing, as it’s often called. The most obvious: quantity discounts. And when you’re buying from one source, you can expect consistent product quality.
The benefits of buying from a single source can reach even farther. Single sourcing can actually help improve your business. For instance, it can save a significant amount of time and even cut labor costs, since the entire process, from procurement to invoice reconciliation, is consolidated with one vendor. Administrative burdens are reduced. And, often, the vendor will provide an automated ordering system. A single, computerized system that’s user friendly can make it much easier for employees to learn purchasing systems.
One company that has benefited from single sourcing is Ionia, Mich.-based Independent Bank. In October 2007, the bank began sourcing printed materials and office supplies for its more than 100 branches, including letterhead and marketing materials as well as teller receipts and other banking forms, with The F.P. Horak Company.
A big reason for the change was that F.P. Horak offered streamlined online ordering technology that allowed the bank to keep tabs on what it was purchasing. “Our old vendor did not offer that,” says Cathy Parks, the bank’s operations administrative assistant and supply manager. “We ordered online before, but it was very manual.” Employees who wanted to purchase items couldn’t look up orders online. “We used to print an Independent Bank forms book, so they had to use their books in order to find item numbers” for online ordering. “It’s way more user friendly than it was before,” Parks says. People can save frequently ordered items to a favorites list to reorder more easily.
One important key to saving money with single sourcing is finding a vendor that will provide little extras and value-added services that help your company purchase more efficiently. Online ordering can not only save labor, for instance, but automatically track purchase history and produce reports that help monitor expenses. When you’re purchasing from a single source for a specific category of products, such as printing or office supplies, it’s easier to analyze spending on that category. This can help to change ordering habits, closing the gap between what’s purchased and what’s actually used.
According to Parks, that’s what has happened at Independent Bank. The vendor provides monthly reports on total expenses, and Parks posts these on the bank’s intranet. “It’s set up in PDF, and it’s bookmarked by cost center, so managers can click on their cost center. They can review the items they ordered for the month, their cost, and everything,” she says. “[The reports] have been very helpful and useful.” If managers see that they are ordering too much, or it’s too expensive, they’ll work with Parks or one of two other members of the bank’s supplies department to look at ways to cut costs.
Finding places to cut costs
In fact, often a vendor will even go a step further and act almost as a consultant, actively looking at a company’s purchasing habits to find changes the company can make to save money. Parks says that much of the time it’s The F.P. Horak Company that takes the initiative in offering cost-cutting suggestions. “One of the things about our relationship with F.P. Horak that has been absolutely wonderful is that they look at ways to save us money,” she says. For instance, one branch was ordering a lot of copy paper. “Horak came back to me and said, ‘You know, it would actually be a lot cheaper if they just did it by the pallet.’ They notice that stuff,” Parks says.
A supplier may go beyond just looking at simple cost-control measures and examine the supply chain and operations. For example, another thing that F.P. Horak did for Independent Bank was to look at the bank’s usage of printed items throughout all the branches. One area where savings were realized was through distribution logistics. Independent Bank was warehousing stocks of printed items so they’d be available when needed—and that made sense for heavily used pieces. But the vendor determined that there was no need to store quantities of documents that weren’t used frequently. Many forms that weren’t used often could simply be stored in electronic form on the company’s intranet and printed out as needed. Now, Independent Bank doesn’t have to pay to print, ship, or warehouse large quantities of those documents. “That’s been a big savings,” says Parks.
The intranet approach couldn’t be taken with all low-usage items, though. For instance, marketing materials that needed to be printed on special paper stock had to be printed professionally. In those cases, F.P. Horak recommended what’s called “print on demand,” where materials are printed only when someone actually places an order for them. Again, this saves on warehousing costs. The way print on demand works at Independent Bank, employees can place an order at noon on a Tuesday and have their materials by Wednesday of the following week, although Parks notes that most of the time the materials will arrive a day or two earlier. And there’s flexibility in the system to accommodate even tighter turnaround. To save on shipping costs, the bank combines orders from the different locations and ships them to one place. But if someone needs a shipment very quickly, it can be shipped separately. Parks adds, though, that the bank’s employees have done “a really, really good job” of ordering ahead of time. She says that’s partly because each branch is set up as a cost center, which means that managers have an incentive to keep their branches’ costs in check.
There are also less tangible benefits to single sourcing: Working with one vendor allows for a closer relationship and better communication. Every year, Parks meets with her rep at F.P. Horak to compare their costs versus other vendors. They also do an annual review with Independent Bank’s president and executive teams. At January’s meeting, the bank took advantage of an upgrade to F.P. Horak’s ordering system that would allow it to order both printed materials and office supplies through a single website. The new site rolled out in March, and by all accounts it’s a success. “Everybody really, really likes it,” Parks says.
Of course, being able to order both types of items through one site will by itself save employees time. But Parks expects the real savings to come from the fact that, with the new system, Independent Bank now has the ability to build an online catalog specific to its business. “We created [with the vendor] our own Independent Bank office-supply catalog. We took the supply catalog, which is a huge book—we’re talking over 2,000 items—and condensed that down to management-approved items,” she says. Those approved items are the only ones employees can order through the new system. “We’re looking at saving even more with this new rollout,” says Parks. “I think it’s going to be great.”