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How can you use vendor contract benchmarking to consolidate vendors?

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Vendor contract benchmarking is a process of comparing your current vendor contracts with the best practices and market standards in your industry. It can help you identify opportunities to improve your vendor performance, reduce costs, and optimize your vendor portfolio. In this article, we will explain how you can use vendor contract benchmarking to consolidate vendors and achieve your business goals.

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Danish Butt

The General Counsel's Transformation Partner | Transforming Legal Teams from Cost Centers to Strategic Partners |…

1 What is vendor consolidation?

Vendor consolidation is a strategy of reducing the number of vendors you work with and focusing on the ones that offer the most value, quality, and efficiency. Vendor consolidation can help you simplify your vendor management, lower your administrative and operational costs, increase your bargaining power, and enhance your vendor relationships. Vendor consolidation can also reduce your risks of vendor dependency, non-compliance, and poor service delivery.

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Danish Butt

The General Counsel's Transformation Partner | Transforming Legal Teams from Cost Centers to Strategic Partners | Global Legal Operations Expert | Managing Director at Swiftwater
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It also helps create transparency and clarity for internal resources to understand how they can engage external resources, fulfill their procurement needs and receive a certain level of service.

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2 Why use vendor contract benchmarking for vendor consolidation?

Vendor contract benchmarking can help you evaluate your current vendor contracts and compare them with the best practices and market standards in your industry. By doing so, you can identify the gaps and areas of improvement in your vendor contracts, such as pricing, service levels, terms and conditions, and performance metrics. You can also assess the value and performance of each vendor and rank them according to your business needs and priorities. This can help you decide which vendors to keep, renegotiate, or terminate.

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Danish Butt

The General Counsel's Transformation Partner | Transforming Legal Teams from Cost Centers to Strategic Partners | Global Legal Operations Expert | Managing Director at Swiftwater
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This approach takes into account that a vendor’s performance and relationship is governed by more factors than price and service levels. COVID reminded us that we need to look at our contracts carefully. Benchmarking internally will help you understand your company’s risk and business profile. It will also highlight how various parts of the business may be contracting with vendors. What terms are standard and which ones are not. Benchmarking externally will help you align with the industry or set the tone to address challenges. Certain industries like oil and gas and maritime have associations that provide best of breed base contracts to speed up business across entities.

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3 How to conduct vendor contract benchmarking?

Vendor contract benchmarking is a process of collecting and analyzing data from various sources, such as internal records, industry reports, peer reviews, and vendor surveys. You can use various tools and methods to conduct vendor contract benchmarking, such as vendor scorecards to measure and track performance, vendor audits to verify and validate compliance, and vendor surveys to gather feedback. Vendor scorecards can be used to monitor and evaluate your vendor contracts on a regular basis. Vendor audits can check if the vendor is meeting contractual obligations and delivering expected results. Vendor surveys can help you understand the perspective and needs of your vendors. All of these methods can help you identify the strengths and weaknesses of each vendor, as well as the opportunities and challenges for improvement.

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Danish Butt

The General Counsel's Transformation Partner | Transforming Legal Teams from Cost Centers to Strategic Partners | Global Legal Operations Expert | Managing Director at Swiftwater
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Internal benchmarking can be sped up using machine learning and AI solutions that focus on contracts. There are various solutions in the market with various capabilities and levels of effectiveness. One thing is for sure it doesn’t need to be a manual effort. The tools can help read (digitize) the contracts, break it down into its components, understand what each clause says, extract the business terms (dates, obligations), and output in a standard format. Some tools can go beyond and compare and contrast the risk profile of contracts and its clauses. It can be paired with additional obligation performance information from sales, ERP, etc. to create a complete scorecard. This info can be used at a transaction or global level.

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4 How to use vendor contract benchmarking results for vendor consolidation?

Once you have conducted vendor contract benchmarking, you can use the results to make informed decisions about your vendor consolidation. Start by analyzing the data to identify patterns, trends, and anomalies in your vendor contracts and performance. Then prioritize your vendors based on their value and performance, categorizing them into strategic, preferred, standard, or non-essential. Afterwards, develop a vendor consolidation plan to decide which vendors to retain, renegotiate, or eliminate. Finally, implement and monitor your vendor consolidation to measure and track the benefits and challenges of your vendor consolidation. Adjust and optimize your vendor consolidation as needed to ensure success.

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5 What are the best practices for vendor contract benchmarking and consolidation?

Vendor contract benchmarking and consolidation are complex and dynamic processes that require careful planning and execution. To ensure success, you should define your goals and expectations, involve your stakeholders and vendors, use reliable and relevant data sources, and benchmark and consolidate regularly. Before beginning, make sure you have a clear vision of your vendor management goals and align them with your business strategy. Involve stakeholders and vendors in the process by communicating your expectations to them. Use accurate, timely data sources such as industry reports or vendor surveys to support decisions and actions. Finally, remember that benchmarking and consolidating are ongoing activities; review vendor contracts periodically to ensure their relevance.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you use vendor contract benchmarking to consolidate vendors?

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1 What is vendor consolidation?

2 Why use vendor contract benchmarking for vendor consolidation?

3 How to conduct vendor contract benchmarking?

4 How to use vendor contract benchmarking results for vendor consolidation?

5 What are the best practices for vendor contract benchmarking and consolidation?

6 Here’s what else to consider

Vendor Management

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How can you use vendor contract benchmarking to consolidate vendors?

1

2

3

4

5

6

1 What is vendor consolidation?

2 Why use vendor contract benchmarking for vendor consolidation?

3 How to conduct vendor contract benchmarking?

4 How to use vendor contract benchmarking results for vendor consolidation?

5 What are the best practices for vendor contract benchmarking and consolidation?

6 Here’s what else to consider

Vendor Management

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