Vulcan Industries’ consolidation program reduces seven suppliers to one for successful cost reduction.
Because of the fragmented and unwieldy nature of its suppliers, this drug store had little opportunity to leverage volume for procurement cost reductions. Prior to consolidation, the business volume was too small for any supplier to offer incentives. The drug store wanted to decrease acquisition costs and reduce the supply base.
Vulcan Industries presented a program that would handle the drug store’s inventory management and logistics, providing more savings than its previous third-party logistics provider. By shipping direct from Vulcan instead of the third party, a consolidator of products from various suppliers, the drug store limited freight costs and warehouse costs.
Once the 100-plus SKUs were consolidated into one supplier (down from seven), procurement offshore became an option. Frequent orders from China of varying items reduced total overseas freight costs.
Vulcan developed a weekly usage report that triggered reorder requirements based on product lead-times. Based on overall annual volume, Vulcan was able to offer a rebate percentage program triggered at higher selling volume ($1M, $2M, 3$M, etc.).
With a reduction of suppliers from seven to one, the drug store was able to better manage its inventory. The elimination of incurred third-party shipping and logistics costs resulted in a 24% reduction in inventory dollars, and a procurement cost savings of 4%.